How to calculate your pension's worth

Published February 27, 2007

Q: I'd like to know what my pension is worth. I will receive $2,300 a month, fixed. What would it cost in the marketplace today to buy a pension at that level?

A: You can learn what it is worth to you by getting an estimate of what it would cost to buy a life annuity that provides the income you have, under the terms that you have. That phrase "under the terms that you have" is important.

When you take a corporate pension, you are given a number of choices. Typically, you can take it for your life only, or for your life with 10 years certain. This means the payment will continue for your life or 10 years, whichever is longer.

If you are married, you will also have the choice of a "joint and survivor" pension. This will provide a lifetime income for you or your spouse, for life. It is also possible to choose 100 percent, 75 percent or 50 percent survivor's benefits.

When you take a joint and survivor option, your monthly income is lower than for your life alone to start, and your survivor will get the chosen percentage of that amount.

The Web site www.immediate annuities.com provides representative online quotes for different life annuity terms. Your annuity, assuming you are 65, would cost about $333,000 if it was life-only. It would cost as much as $387,000 if it was for life or 20 years certain. Add a 62-year-old spouse with 100 percent survivor benefits and it would cost about $415,000.

Where to locate fee-only financial advice

Q: I am 66, have made some money and am a saver/investor. When I have used big brokerages and even a discount broker, I have experienced all kinds of things contrary to my future.

I have learned to buy mutual funds from Vanguard or Fidelity, Treasury bills and notes from Treasury Direct.gov, bonds from a discount broker, and CDs from credit unions.

I feel that guiding a younger person to these sources would be a good thing, but I am not a financial adviser. So where does one find a financial adviser who charges by the hour? How do you find an adviser who is motivated entirely by an hourly charge, not commissions?

A: When the major brokerage houses look for new talent, their first priority is not to find people with experience in accounting, engineering or some field that might give them a knowledge base for financial advice. They look for people with prior sales experience because that's what the conventional brokerage business is all about.

Worse, the only way that salesperson can make a living is by moving your money from one product to another, generating commissions.

A typical wirehouse broker generates about $500,000 in revenue each year and takes home a bit under $200,000. Needless to say, generating that amount of revenue requires moving a lot of money.

The alternative you seek is an organization called the National Association of Personal Financial Advisors. They work on a fee-only basis, charging by the hour to give advice. They may also charge as a percentage of assets managed for portfolio management services.

Go to its Web site, www.napfa.org, click on "Find a Planner" toward the bottom of the home page, and you can fill out a form that will generate a list of NAPFA members in your area.

I've gone to a few of this group's conferences and know some members. They're serious students of personal finance who take the word "fiduciary" seriously.

Brokers and other sales representatives, by definition, aren't fiduciaries because they work for their firm. They don't work for you.

Scott Burns has been a financial writer and editor for more than a quarter of a century. Questions about personal finance and investments may be sent to scott@scottburns.com those of general interest will be answered in future columns. His Web site is www.scottburns.com.