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May 31, 2012 at 5:57 PM #744678
an
Participant

Can you explain why we need to take NPV into consideration?

My calculation is just the total amount of money someone with $100k pension would get over 30 years assuming 2.5% anual raises.

If there’s no raise, $100k/year for 30 years = $3M. But because of the 2.5%, it comes out to be about $4.39M.

Everyone invest, spend, save differently in retirement. Which is why I’m trying to make it simple and not count in the appreciation during retirement and I assume total depletion at 30 years.

So, if I count in NPV, which if I assume 4% discount rate like you suggested, then you’re right, it’ll be more like $2.4M. But if you take inflation into consideration for this calculation, then you’d have to take inflation into consideration for the 401k case as well. Assuming you have no growth in your 401k over 30 years.