Asked by Cortland  |  Submitted September 18, 2014

# How do you convert a military pension to arrive at a lump sum amount saved for reference/comparison purposes?

People claim you need X amount (for example \$1,000,000) to live a comfortable retirement, but I have a pension. How do I determine what portion of that amount (or any other) I've already met with my pension?

September 18, 2014

It may be more helpful for you to think of it as cash flow: "Every month Uncle Sam makes a pension deposit and a Social Security deposit in my bank account of \$XX and my monthly living expenses are \$YY." How do the deposits compare to the expenses? Simple to calculate and compare. Good luck!

\$commenter.renderDisplayableName() | 11.26.20 @ 17:42

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September 18, 2014

Great question!

I always like to work that question backward: "How much do I need to live?" is where I start. That means that I pull out a budget sheet and work through my expenses. If retirement's a long way down the road,don't worry about finding exact numbers....you'll keep honing your retirement budget along the way.

Once you have a number that's in the ballpark, THEN see how much of that your pension covers. I like that approach better because it addresses YOU and not an arbitrary rule of thumb. When I was an advisor my client was ALWAYS different than the rule of thumb.

\$commenter.renderDisplayableName() | 11.26.20 @ 17:42

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October 30, 2015

Here is the best way that I have found. All financial experts will tell you that to preserve capital and generate sustained cash flow, you should aim for withdrawing 4% in your first year of retirement and adjusting thereafter.

So, say you are going to need \$75K in annual income to maintain your household, medical costs, travel and hobby costs, etc. That means you would need \$75,000/0.04 = \$1,875,000 - \$1.9 mil sounds like a lot, but this is equivalent money, not cash in the bank.

Assume you are a couple, with combined Social Security of \$3,000 a month. That becomes 3,000 x 12 / .04 = \$900,000 (equivalent)

Assume your military pension will be \$2,500 a month.
That becomes 2,500 x 12 / .04 = \$750,000 (equivalent)

Say you've been putting money into the Thrift Savings Plan or IRA's or whatnot and have accumulated \$200,000
That's simple -- it's \$200K

So, you have \$900K (equiv) from Social Security, \$750K (equiv) from DOD, and \$200K in retirement accounts -- total to date is \$1,850,000 in cash and equivalents,
or 1,850,000 * .04 = \$74,000 in expected income per year.

\$commenter.renderDisplayableName() | 11.26.20 @ 17:42

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