Sorry to bump this, but I'm in a similar pension buy and I thought I would consult the collective CP for some ideas.
Questions: For FV calculations, what is a reasonable APR to use. I've been using 4% in my calculation, does that seem reasonable?
2) (Sorry - this wordy - unhide for detail)
Spoiler!
When I'm calculating the PV of my future deferred pension, I am assuming my pension is making a negative return. The company will index the inflation once annually after retirement following this formula: 75% of CPI - 1%. Example: If the CPI was 5% for a year, my pension would be indexed by (0.75*5) - 1 = 2.75%. The indexing has some floors and ceilings - it will always increase by at least 25% of CPI (so in low years, the -1 would not result in a negative index), and the most it can increase is 5%, even if the calculation returns a higher percentage (living with 30% inflation? Sorry, pension is up only 5%).
So given that calculation and looking at the annual CIP for the last 20 years, my pension would be indexed 0.67%. However, looking at the annual CIP for the last 20 years suggest inflation has averaged 2%. So if my average index is +0.67 but inflation is -2%, the rate I'm using in my pension to determine how cash it pays out in the future, I'm using -1.33% as my APR.
tl;dr version = I am using a -1.33% APR for the FV calc of my pension in 2033 dollars, since my pension's annual index increase has been 0.67% but Inflation has averaged 2% over the last 20 years.
3) From there, I'm made a table assuming how long I will live after I start receiving the pension. This is so I can determine the FV in 2033 dollars that I would have to invest to receive the same payment as if I have no pension. Because the 2033 dollars can then be used to back track to the PV of dollars I have to invest in 2011 if I had no pension. I am using an APR of 2% (4% APR - 2% inflation)
Whew
This is all to see when it makes more sense for me to look at taking the lump sum they are offering to move into a LIRA, or if it makes more sense to accept the deferred pension.
Of course, the biggest driver of all of this is the morbid question of how long I plan to live after I turn 60. Based on my current calculations, the pension seems to be the better choice if I live 12 or more years after my pension starts. I live 10 or fewer years after my pension starts, the LIRA lump sum seems better because it is more money than it cost me myself to save money until 2033 to buy the annuity. Living 11 years essentially means one has no advantage over the other.
So my head is spinning, but the basic question I'm asking is whether my investment rates and inflation rates seem reasonable.