Ford Pension Calculator: How to Use It

What this calculator does

The Ford Pension Calculator takes your monthly benefit and the current IRS segment rates and computes the present value of your pension stream, which is the fair value of your annuity in lump sum terms. It then compares that present value to your actual lump sum offer to show whether the offer is above or below actuarial value. It also displays the break-even age, segment rate sensitivity at plus and minus 1%, a monthly income comparison using the 4% withdrawal rule, survivor benefit reduction modeling, and a warning about the no-COLA inflation erosion over a 20-year retirement.

The 2023 pension risk transfer section identifies whether your pension obligation likely transferred to an insurer. If it did, the calculator flags the change in coverage from PBGC to state insurance guaranty associations and explains what that means for your risk profile.

What each input means

Monthly pension benefit

Enter your gross monthly benefit before any survivor election reduction. This is the single-life figure shown on your Ford pension statement or retirement paperwork. If you plan to elect a survivor option, the calculator has a separate field for that. Using the single-life figure as the starting point keeps the comparison clean before applying survivor reductions.

Lump sum offer amount

The dollar figure Ford offered you in your buyout or retirement option paperwork. This is the amount Ford will pay if you elect the lump sum instead of the monthly annuity. Enter the exact figure from the offer letter. The calculator compares this against the calculated present value of your pension stream at your assumed investment return to tell you whether the offer is generous, fair, or below actuarial value.

IRS segment rates

The three IRS segment rates Ford used to calculate your lump sum. Ford typically uses the November rates from the prior calendar year. The IRS publishes these monthly at irs.gov. For the year you're retiring, check the November rates from the prior year. If you don't know which rates Ford used, your offer letter or the Ford benefits service center can provide them. The segment rates are labeled first, second, and third; they correspond to months 1-60, 61-240, and beyond 240 respectively.

Current age and life expectancy

Current age establishes where the payment stream starts. Life expectancy determines how long the stream runs, which directly affects the present value calculation. The calculator uses your entered life expectancy for the base case and also runs actuarial mortality tables for the break-even analysis. If you have a family history of longevity or significant health concerns, adjust the life expectancy field accordingly.

Assumed investment return

The annual return you expect to earn if you take the lump sum and invest it. This is the discount rate used for your side of the comparison. Enter a realistic figure: a diversified 60/40 portfolio has historically returned 6 to 7 percent annually over 20-year periods, but actual results vary. A higher return assumption makes the lump sum look better. A lower assumption makes the annuity look better. Running the calculator at multiple return assumptions shows you how sensitive the conclusion is to this input.

Survivor benefit election

Select 50% or 100% joint-and-survivor if you plan to elect that option. Ford's 50% survivor option reduces the monthly benefit by approximately 10%. The 100% option reduces it by approximately 20%. If you intend to elect survivor coverage, use the post-election monthly benefit in the comparison, not the single-life figure. The calculator applies the reduction automatically when you select a survivor option.

Understanding the outputs

The present value of your pension is the lump sum equivalent of your monthly annuity at your assumed investment return. If this number is higher than Ford's offer, the pension is worth more than what Ford is paying for it. If it's lower, Ford's offer is above actuarial value at that return assumption.

The break-even age is the age at which total cumulative annuity payments equal the future value of the lump sum invested at your assumed return. Past that age, the pension has paid out more in total. Before it, the lump sum holder has more dollars. The break-even age for a typical Ford retiree in their late 50s falls somewhere between 79 and 86 depending on the benefit size and return assumption.

The segment rate sensitivity table shows your lump sum present value at current rates, at rates 1% higher, and at rates 1% lower. This tells you the dollar cost or benefit of the rate environment changing before your retirement date.

The inflation erosion warning quantifies the real purchasing power loss from the no-COLA pension. At 3% inflation, the warning shows the monthly equivalent purchasing power of your fixed benefit at years 10, 15, and 20. This figure can be striking for retirees planning a 25-year or longer retirement.