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Frequently Asked Questions: DB

The Present Value of Your Pension Benefits

What is the value of your projected monthly pension benefits of $2,000, payable when you retire at age 65? Is this benefit better than your projected 401(k) account balance of $175,000 at age 65? How do we compare apples to oranges?

For a quick comparison, you can multiply a monthly pension benefit at age 65 by 100, to obtain a rough present value at age 65. That means, for a $2,000 monthly benefit, it has a value of $200,000. And yes, in this case, the $2,000 monthly benefit has a greater value than the $175,000 in the 401(k) plan.

For the above comparison, I have simplified the process. The actual present value factor depends on 4 items: the determination date, the benefits payment date, the mortality table and the interest rate. The above factor was based on the determination date of age 65, benefit payment begins at age 65, the 1984 Unisex Pension mortality rates and 8.0% interest rate. For the picky person, the exact value is $98.3508 ($8.1959 x 12).