Actuarial Dopers: IRR of Pension Calculation Help

Factual Questions
1

I feel like a complete ditz.

Here’s the situation.

I know the payout of my pension now and when I turn 65.

I don’t know what DOD/final payment date they are using.

How do I calculate the interest being earned if I leave it in until I turn 65?

A excel SS formula gets bonus points.

My HP 12C calculator is long since dead.

Thanks!

2

Bump to top because no actuaries showed up.

3

Rather than using a formula, it seems a lot simpler to just enter the payments and amounts into an Excel spreadsheet using a dummy interest rate, and then use Excel’s “Goalseek” function on the interest rate cell to make the payout match.

4

Each payment, however, is contingent on the OP surviving to the payment date and thus requires use of a mortality table. I’m a P&C actuary, but you need a life actuary for this question and unfortunately I don’t know if there are any posting on this board.

5

I have FSA credentials, so I would technically qualify. But you know how it is. You get this type of stuff pounded into your head for exams and then the years go by and you never actually need to solve these types of formulas - especially as in my case I’ve focused more on health than life.

Re mortality, you can probably grab one of the standard annuitant mortality tables and they should be far off for this type of answer.

6

I went to the SSA’s mortality table and they tell me I am going to live to the ripe old age of 79.47 years. Is that what I plug into the “term”? Or is there some scaling factor [my words] that I would apply to that life expectancy.

In other words…the average life expectancy is 79.47, but there is a 39.37% chance that you will not make it to that age.

Thanks, guys.

7

For a crude estimate you could do that, yes. Assume you live to that age, and then see what interest rate equalizes the two payment streams. The proper way to do it, though, would be to apply a probability of survival to each year.

8

Thank you, Freddy.