# Just How Valuable is Your FERS Pension?

How valuable is your pension? The author provides a simple calculation to help illustrate.

One of the great perks of working for the government is the retirement benefits. One of these retirement benefits that is often under-appreciated (in my opinion) is your pension.

In today’s world, a pension is becoming more rare every day. Big companies have realized how expensive it is to provide a pension for their retiring employees and most companies have opted to not offer one at all.

Federal employees still enjoy this benefit but I would say that most FERS employees I talk to don’t truly understand what they have. Most know that they have a pension, but most don’t realize how valuable it truly is.

Let’s run through an example to show how powerful a pension can be.

## Example

Let’s say John, my example FERS employee, has a high-3 of \$120,000 and has just wrapped up a 30 year career as a federal employee. He retired at 62.

His gross annual pension would be calculated like this:

\$120,000  x  30  x 1.1%

= \$39,600

This means that John will be eligible for a gross pension of about 40k for the rest of his life.

## So What?

If I gave you the option of \$500,000 cash or a pension of 40k/per year, which one would you take? Many people would take the cash, but the true power of a pension becomes a lot more obvious when we look at what it would take to replicate a guaranteed income of 40k for the rest of your life.

A simple way to estimate the value of your pension is by applying the 4% rule. The 4% rule says that if you withdraw 4% of a portfolio every year, the odds of you running out of money in retirement are very low.

To calculate what size of a portfolio you’d need to create \$40,000/year with the 4% rule, you simply divide your annual pension by 4%.

For example:

\$40,000 / 4%

= \$1,000,000

This means that if you are a believer in the 4% rule, you’d need \$1,000,000 to create a stream of income that is unlikely to run out, and another huge perk is that your FERS pension is guaranteed to last as long as you do.

## Conclusion

Federal employees enjoy many benefits that are becoming more rare every day. One of the best financial decisions that a FERS federal employee can make is to take the time to understand their benefits well enough to get the most out of them during their career and throughout retirement.