How to Calculate the Present Day Value of a Pension Plan

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There are certain times, such as the case of divorce, when you need to know the value of any assets you may have in your possession. This can include pension plans that have yet to begin paying out an annuity, but that still have a calculable value. Calculating the present day value of a pension plan requires that you have three important values at hand --- the annual pension benefit payable through your plan, the number of years the plan pays out annuities and the annual interest rate applied to your plan. With just these three variables and a financial calculator, you can quickly determine the present day value of your plan.

Things You'll Need

  • Pension plan information
  • Financial Calculator
  • Speak to your employer and ask for your plan information. Find out how much the plan would pay annually if you retired as soon as it could go into effect, what the interest rate applied to the plan is and how many years the plan pays the annuity once it begins. The annuity is the amount the plan pays annually when it goes into effect. Most plans have a definite ceiling on the number of total payments, even if they convert to a spouse upon the death of the pension recipient. You should also be able to locate this information in any of the reports given to you by the plan's provider.

  • Turn on the financial calculator and hit the button marked "PMT." Type in the annual payment amount. Press the button marked "N" and input the number of years the annuity pays. Press the "I" button and then type in the interest rate to complete the variable inputs.

  • Press the "FV" button to calculate the future value of the pension. This is what the pension will be worth when it is available at your normal retirement. Take note of the value as you will need it to use it to compute the present value.

  • Press the "Clr" button on the calculator to begin a new calculation. Press the "FV" button and input the future value hat you calculated. Press "O" and type in the interest rate, then press "N" followed by the number of years remaining before your pension begins to be paid.

  • Press the button marked "PV" to calculate the present value of your pension plan. The total displayed is the value of the plan as a whole with all payments considered.

  • Use an online financial calculator to perform the calculations if you do not have a financial calculator.

References

  • Photo Credit Goodshoot/Goodshoot/Getty Images
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