How much do you think your pension is worth?

How much do you think your pension is worth?

Whenever the topic of retirement planning comes up, it is often associated with building as much wealth as possible so that you can reach that time when you no longer have to work to create income. Building wealth, accumulating assets, investing money are always the centres of discussion.

What about your pensions? What if you have a Defined Benefit Pension Plan? What about Canada Pension (CPP) or Old Age Security (OAS)? How do these streams of income factor into your net worth?

What is net worth?

A few weeks ago, we talked about the term net worth. Your net worth is equal to all of your assets less all of your liabilities. Your net worth serves as a financial benchmark to understand wealth.

Valuations for streams of income

One of the challenges in calculating net worth occurs when you deal with assets that really represent a stream of cashflow like a pension plan. How do you account for these assets in your net worth calculation?

I talked to Rein Selles, one of Canada's most respected Professional Retirement Planners (PRP). Rein believes that the retirement planning industry largely ignores the value and importance of pension plans as an asset. Rein uses a simple rule of thumb when it comes to valuating a pension or a stream of cashflow,

“For every $100 per month of income, you have an asset worth $18,000.”

If you have a pension that pays you $3,000 per month, that pension is worth $540,000. If you get $800 per month from CPP, then that is worth $144,000. $500 per month from OAS is the equivalent of $90,000.

While this is a very simplistic approach it helps people to understand the value of pensions, government benefits and other streams of income.

A cornerstone of retirement income planning

In wealth planning, pensions are often ignored but Rein believes that they are incredibly important, “Defined Benefit Pension Plans and Government Benefits form the cornerstone of retirement planning. If you work for an employer that offers a defined benefit pension, you have an incredible asset because your employer contributes the same, if not more money to your pension the longer you work for the company.”

If you use Rein's rule of thumb, someone who does not have a pension plan needs to save $18,000 for every $100 of monthly income. For example, someone who desires $4,000 per month (in today's value) will need to accumulate $720,000. Factor in inflation and you have an even loftier target.

The unfortunate reality is that there are going to be fewer and fewer defined benefit pension plans offered in the future because they are more costly and complicated to administer and the employer bears more risk and responsibility.

If you are part of a defined benefit pension, remember that the value in these types of pensions really comes with tenure and time. Your pension plan can be more valuable than you realize. Use Rein's formula to help you understand the value of your pension plan.


  1. Sarah Vallieres

    Jim, This is a great article, but I can’t get the math in your article to work.

    “For every $100 per month of income, you have an asset worth $18,000.”

    If you use Rein’s rule of thumb, someone who does not have a pension plan needs to save $18,000 for every $100 of monthly income. For example, someone who desires $4,000 per month (in today’s value) will need to accumulate $720,000.

    Could you please give me a formula? I must be doing it wrong because I’m multiplying $100 X $18,000. I’m sure this isn’t what you meant.

    • Devin


      • Ted

        The easier way to look at this is annually. Every $1200 of pension income is worth $18,000. A $30,000 pension is as follows:
        30,000/1,200 = 25 25 * 18000 – $450,000

        Hope this helps!

  2. Anon

    Sarah: 4000/100 = 40, meaning that they earn 40x $100 per month. You multiply that number of increments by $18000, in this case yielding 40 * 18000 = 720,000.

    • Jonas

      It seems that Rein is assuming an interest rate of zero percent and an expected lifetime in retirement of fifteen years. The Time Value of Money formula calculates this nicely. I’m using my trusty calculator.

      If Future value = $0, Payment = $100, N = 180 (15 years * 12 months per year) and I = 0%, then Present Value = $18,000.

      However, I think it’s overly conservative to imagine an interest rate of 0%. That’s the equivalent of stuffing your money in the mattress. Or, if you factor in inflation, the equivalent of investing in bonds that just keep up with inflation.

      Historically, the broad stock market returns about 8%, so if you were to assume a relatively conservative return of 5% per year (0.42% per period), then your $18,000 savings commitment is reduced to $12,642.19.

      • Ryan


        But shouldn’t we ignore the discount rate since with a government pension you don’t have the option to invest the present value in another asset with a higher rate of return? If we were “purchasing” such an annuity discounting the FV would make sense. Here it does not.

        Also, a big point this article fails to acknowledge is that government pensions are pegged to inflation. This raises the value a lot.


  3. Chief

    Money Sense suggests a 4% rule for withdrawing from a retirement fund, if you want your funds to last 30 years at a conserative rate of return. At a 4% annual withdrawal rate one would draw $4,000 from each $100,000 in the pool. This means to determine what you pension is worth you need to multiply the annual pension by a factor of 25 to achieve the value. This is a lot greater than your 15 figure.

    • Mike

      Yes, I have the same thoughts on this. It seems we are assuming a 10% return over the long term in this article. (3.5% inflation adjustment + 6.5% return). While the market is famously said to have “averaged” 10% over the last 80+ years, this statement can be a bit misleading and leaves no room for a down turn early on in your retirement.

      Taking $3,000 a month, from a $540,000 nest egg, equals a 6.6% withdrawal rate. If the market does well for the first 5-7 years of your retirement this withdrawal rate might workout just fine, if you invest aggressively in stocks. You would need 60-70%, or higher, invested in stocks to see this kind of return. And the chances of this income stream lasting 30 years or more, if you retire in a downturn or correction period, drops significantly even with a very aggressive, majority stock, portfolio.

      The 4% rule is a much more conservative approach, $3,000 a month in pension money, inflation protected, then becomes more like having a $900,000 nest egg.

      At a 6.5% withdrawal, your risks including coming up short deep into your retirement. At a 4% withdrawal rate your risks include working longer than you really needed to.

  4. Peter Wilkinson

    My wife feels that if a person is currently retired, then the net worth of their defined benefit pension is equal to zero since if you die, you receive nothing. What is your view on this?

    • Horsefly

      I see your wife’s view on this… Using pensions in a net worth statement is similar to life insurance. My life insurance is not a part of my net worth statement, but it is a critical component of the net worth statement for my wife. My pension is reduced to a little over 50% when I die and my wife survives. So I calculate my pension on the value to my wife when calculating the amount of retirement savings she will require to afford a comfortable lifestyle on half DB pension. This has greatly assisted in retirement and financial planning.

    • Kelly Kenworthy

      Most pensions from government entities here in the states offer a survivor option to the payout.. Mine offers a few options within this category. However, it can truly be evaluated as a life insurance policy and so, it should be compared to a life insurance policy when choosing those options. In other words, if the pensioner will receive $4000 a month without a survivor benefit or $3500 with the provision in place, how much money does that income represent and how much insurance will $500 a month purchase? The math should be pretty simple after that is determined. Of course there are plenty of pensioners that do not meet insurability requirements at retirement age and so the cost doesn’t matter (if you value your spouse’s well-being after your death.)

  5. Dave

    Depends on the DB pension plan and options. In my own case if I had died after the first month I had collected my pension, my estate would have received my monthly pension amount X 179 months(14 yrs 11 mths)as a lump sum payout. This is because I took a 15 year guarantee option when I retired.

    Also of note, when I did the arithmetic my situation does work out to about $17100 per $100 of monthly pension and 15 years of guaranteed pension payments also works out to approximately the same amount. Of course to get a guarantee period I had to take a slightly lower pension amount which both in foresight at the time and hindsight now may years later, was the correct decision. Even if I die after 15 years it will still have been the correct decision at the time because I wanted to provide for my wife and kids.

  6. Tom

    Great info here. One quick question I have. I am on track right now to receive $4,000 per month when I retire from my Pension plan. I have another 17 years before I reach retirement age…From the math you have provided, I have roughly $720,000 pension worth…do companies offer “buy outs” or “cash outs” very often? Also, if my company would offer that what would you advise I ask for as a lump sum, assuming that I will work here another 17 years?



    • Elsie

      Hi Tom, I suggest you speak to the pension specialist with your employer to check on the rules for commuting your pension. Many pension plans don’t allow members to take the commuted value (lump sum) of their pensions once they reach age 50 or 55.
      Other issues to consider are your (and your spouse’s) odds for longevity, how skilled an investor you are, your temperament, the financial security of your employer, etc. Studies of retirees show that those with regular DB pension payouts tend to be more content, as their financial well-being is less dependent on the markets and they don’t have to worry about volatility, recessions, pandemics, climate change, etc.
      Also bear in mind that your financial advisor stands to make a lot of money in annual fees if you commute your pension value and will probably have a bias towards your cashing out – while actuaries (pension and longevity experts) generally advise those with DB pensions to hang onto them as long as they anticipate long lives and the employer is financially secure. DB pensions benefit from top-notch financial advice at rock-bottom prices and the large ones can invest in vehicles closed to small, private investors.
      Good luck!

  7. Dan

    I disagree totally. My pension plan will pay me apprpxately 40% of my earnings when I retire. Considering that I earn $200k this would equate to $80k per year. Since I’m eligible to receive this at age 55, then I figure I will live another 30 years. So $80k x 30 years = $2.4 million. That’s how I value my pension. Of course if I live longer than the 30 years after I retire @ age 55… Then this number will be higher. Seems fairly sime and straight forward to me.

    • John

      Dan I’m in about the same boat at the end of this year with my 40% at close to 90k. But your argument ignores depletion of principal. Remember, when you die with a DBPP, there’s no principal remaining. Because I’m 62 years old I figure my $90k DBPP is worth about $1.5m. If you had $2.4m instead, with a 4% rate of return you could withdraw $120k each year for 30 years before you hit zero. Die broke.

      • Mike

        I am 67 years old retired and my monthly pension check is 1850. I been offered 400000 dollars payout. Should I take it ?

  8. Dave

    “Of course if I live longer” has to be said with “of course if I die at 56……

    I value my pension on what amount invested it would take to realistically provide the monthly pension income.

    I would value 80K per year at 1.6 M using a return rate of 5%.

    Also if you had the cash in hand to buy an annuity to provide the monthly pension , How much would it take. Answer approximately 500 per month per 100,000 invested = 1.3 to 1.4 M (500 x 13.5 x12 = $81 K per yr.).

  9. Horsefly

    Great discusson. I am a follower of Money Sense logic in terms of 4%, but see the value in how others are calculating pension value. In our circumstance, our net worth changes depending on whether I am alive or not because of the change in pension, (about a 50% drop), but this is adjusted by life insurance that is of no value to me, but is to my spouse but only when I die. Question…. Are these calculations based on net monthly income or gross monthly pension…? I am using gross.

    • Jim Yih

      Gross. Tax is not taken into account here

    • Mark

      I was wondering what my CV would be worth. Our DB pension is doing a windup and is switching to a DC plan. They are offering a CV or have an outside insurance company take over the DB pension.
      My pension is 4,400 plus 1,100 bridge
      I’m 64 I’ve been with the company 44 plus years my benefits stay intact whatever I choose. I’m just curious what it might be and your thoughts.

  10. And0101

    On average most people will die 3 years after they retire.
    At age 68. The trend is higher rates of cancer. Another trend is working later in life. People will think they live forever. But they eat meat at the top of food chain for toxins. They eat vegetables which are cheap and laced with toxins. Need to be realistic.
    Take the cash now. Buy a nice car.

    • Hans0100

      Average lifespan of a Canadian is 82 years, not 68 years. And though the rate of people living with cancer is up marginally in the last couple of decades, the mortality rate is way down (and likely explain much if not all of the increased rate of people living with cancer).

  11. PLM

    I agree with And0101. Every one here is talking as if they are all going to live to be 98 years old. This is very unlikely, especially in men. The average life span of a male today is still only about 77 years old. Then there are the elderly years, where you’ll be too old to do anything, so you won’t be spending nearly as much money as you were in you fifties and sixties. I say retire while you’re still relatively young. You can’t taker it with you when you die!

  12. Isadore Huss

    The best and most honest (with yourself) way to “value” an income stream that starts at a given date (assuming it is not going to adjust with inflation/COLA)is to simply ask “What will an average,stable insurance company charge me to buy an annuity paying that monthly amount, for life?”. Not at all the same as asking how much you would need in your 401K to make the same number withdrawing at 4%, since you don’t have the money in hand and it dies with you and doesn’t go to heirs.

  13. Kerry Twamley

    My company pension is going to pay me $950.00 a month for life. I’m just trying to figure out how much is this plan worth? I’m thinking of asking if I can move it to my own retirement account. With companies today there is no guarantee the fund will pay forever and I have some concerns.

    Your thoughts?



      Can you cash in your full pension, if so how do you go about doing it.

  14. John

    Take your monthly pension $ times that by 12 and decide it by 3% (3% is the yield on the 10 year bond).

    • Len

      I agree with your position but not the numbers…All previous comments above, in reference to the article itself were misinterpreted. Rein is only speaking to how much the pension is worth on a monthly basis. How much money would you need to have in a 10 yr Govt Treasury earning (right now) 1.75% to create a 3,4,5K monthly income stream.
      Ex. $80000yr /.0175 x .90 (probability of pension funds lasting-insured) =$4,114,285.
      Even at 7 % earning power $1,028,571

  15. Jeff

    I need to calculate what the equivalency would be comparing a government pension to RRSPs? Currently I am 48 with a pension that grows 2% per year of my annual income. If negotiating a comparable pension in the private sector what would be a comparison be in dollars ? Use $80K as a base salary.

  16. Todd Pattersen

    Hello Everyone.
    I was wondering if Those here could help me. I tried even calling the investment firm to ask for an estimate however they wouldnt even go there. Let me start off by saying – my company Converted our old pension plan to a cash balance plan yrs ago when many other conpanys where following suite. All I would like to know is how to figure out the math- keeping everything constant. I have been 100% vested for awhile and just reached the top tier that my conpany will deposit.

    I am 42 Yrs old now and would like to know how much I would actually have in that account at the end and more importantly what I would expect to get per month…..

    The Balance on the acount Now is $150k….
    the plan js set up to know give me quarterly interest deposits from the company and it says its a MINIMUM of 4% Interest.
    Also Yearly they will NOW START depositing 10% of my pay- which is aprox. $6500 a yr going forward. How would I take those numbers – keep them the same for now- and figure out at the age of 63 yrs old – what the balance of that plan should be and MOST Importantly An average guess of what I should get a month at retirement from them.
    Can Anyone Please Show me how to even start to figure this out with compounding quarterly interest as then as they continue to deposit the 10% they owe me ?

    • Brian Ferguson

      I used Dave Ramsey’s retirement calculator. I plugged in your age, your current balance, your expected contributions monthly, 4% annual return, retirement age to get $557,661. Now, because yours is quarterly, I expect it to make some difference, but it should give you a general idea.

  17. e laurino

    the company holding my pension will NOT tell me the total values so I can petition for a lump sum distribution
    with the above formula, if the yearly distribution is only $than t150 a month than the total value of the pension would only be 24k?

  18. arthur

    I find this stream interesting but one must dig into their own company pension plan to truly understand. My pension plan has a lock in after 5 years of contributions so it is not even possible to use the 100 equals 18,000 to ask for a lump sum payout. It simply is a FYI number. One should be more concerned with the payment options like single, married and guaranteed for a term. These are the only numbers that count if your plan has a locked in feature after a duration of time. Think about your own situation like your health, spouse health number of kids(age and financial situation) but unfortunately these are the type of retirement considerations that do fit any spreadsheet. I am so happy that I get a informative year end pension statement to help my retirement planning. I am surprised that people write in stating that nothing is provided. I would dig into what is the minimum legal reporting requirements in Canada. just google the subject and hope for good results.

    • Dave 2019-03-19

      I suspect that if you look into your pension plan further you will find that “locked in” also means that if you want to withdraw before a certain age that the CV value will then go into a LIRA.(Locked in retirement account)

      My pension was also “locked in” after 2 years but when I retired after 30 years because I was under age 55 I was offered a Commuted Value in addition to pension options. Part of the CV total I would have had to pay income tax on it immediately because it was outside CRA limits and the remainder would have to go into a LIRA. I chose a pension option and the 18000 per 100 of monthly pension did approximate the total CV value I was offered. My decision to take the pension and the particular option I did was correct then and only with the benefit of many years now of 20/20 hindsight would I change it. Of course no one knows the future. Certainly agree if people are not getting good statements and information they need to press for it.

      • Rose

        Hi Dave. I am in the position that you were in when you were 55. I am two months from my 55th birthday and I’m considering taking the commuted value but the large tax hit on the cash portion outside CRA limits is what’s holding me back. Can you please tell me why, with hindsight, you would have made a different decision. I hope that your insight will assist me. Thanks so much.

      • Marcy

        Your idea about looking into your rights is spot on. My husband was trying to decide when to start his pension. He wanted payout info for 60, 62, and 65. He was tol he could have ONE of those estimates per year. That totally defeated the point! I complained to the state and suddenly, we could run all the scenarios we wanted. It turns out there was almost no difference in the amount paid monthly. We quickly spread the word to retirees still waiting, thinking their pensions would greatly increase. I suspect that was the reason to say One estimate a year. (This was a very large, well known company.)

  19. max

    I like this topic,recently retired.Pensions plus social security are pretax $7650.00 month.

  20. Robert

    Hello everyone, I have a question.. The company i work for is closing out our old pension plan from years ago and i was wondering if anyone can give me a ballpark of the value.. Im currently 40y/o and the plan retirement age is listed at 62.. I have 10 years vested in our old plan and has a value of 245 per month.. Im looking for the cash value.. Thank you

  21. Bruce

    First I agree with comments above that there are many differences in plans and usually options within them, all to be carefully explored. As pensioner who has been fortunate enough to accumulate several small pensions, my advice is to hang onto and pay up for every opportunity for someone else to bear the risk through bad times & good for buying your daily bread. My peers who agonies over every change in interest rates and stock market fluctuation, (will our nest egg last??) envy the fact that my wife & I travel the world knowing that our needs are covered and our nest egg is largely “fun money”.
    Average Canadian longevity is 82 (more for women) but if you are 70, as I am, you will likely exceed that, given all your peers who were unfortunate enough to die earlier. I too think the base suggestion for $18,000/$100 monthly income is very conservative (I will collect that by the time I’m 80 and hope to see 90). I like the suggestion of comparing to annuity rates, which would be much higher and remember the investors making that pay are professionals. Don’t be fooled by the marvellous results you have obtained in your portfolio over the past 10 years. Its going to get harder and riskier as this cycle comes to an end.

  22. Gerard

    Here is my situation. 59years old with a DB pension can retire with 85 pts rule (years service plus age) monthly pension of 2178 for life or CV of $571900.00. Of that $277000.00 is taxable at 48% = 132958.00 leaving 144038.00 plus tax free amount 294911.54 = 438949.54 roughly to invest in LIRA to serve as retirement income. I can live a year without withdrawing any investment. I’m looking into dividend funds and an annuity. I would really appreciate anyones advice or opinion. Thanks in advance.

  23. Marcy

    So, if your pension is $85,000 a year, started at age 59 and goes unto death, how would that convert? (Long life runs in my family, grandparents died in late 90’s, mom was 101. Not a drinker and never a smoker.)

  24. Jj

    This wouldn’t seem to work at all if you’re already collecting a pension. My widowed mom is 95 and collecting a pension every month. You can’t possibly tell me with a straight face that her pension is worth the same as someone whose pension income estimate is the same while they are still working at age 40.

    This calculation only makes sense it’s you haven’t yet retired and still young. It makes no sense for an aged pensioner.

  25. John Reich

    Interest rate is important but if you’re calculator the value of a pension, you won’t include interest rate unless there’s a cost of living adjustment, right?

  26. White Tiger

    I have investment portfolio already over $700K split between stocks and RE besides owned home. Recently I switched a job to the University Hospital which offers HOOPP Defined Benefit pension plan (available only for healthcare employees) with increased COLA (cost of living adjustment) every year. The power of DB is undeniable, based on my calculation of popular 4% withdrawl and the PV – present value of future money to compensate inflation, it adds at least $15,000 to my salary – assuming 6.5% ROI over a decade to get to $300K DB value. I’m only 40’s, though I agree with the security that DB provides, would only morons leave something stupid comments like “The cycle of current stock market comes to an end.” Really? Where does your DB get invested into, do you think, moron?

    I like my HOOPP pension from the Hospital, but in terms of ROI, no friggin’ pension plan is going to beat the performance of great blue chip stocks. If you do 10% ROI in stock, you’d know pension is for suckers, you’d rather get paid in cash to invest in market yourself. I do both, because I ain’t dumb enough to claim “The cycle of current stock market comes to an end.” It will NEVER because it never did. When it did, it came back even stronger.

    • Dartagnan64

      I’m not sure I’d call someone a moron for valuing their pension over their investment portfolio. The advantage of the DB pension is the employer taking the risk and if it’s a government employer that makes it near bullet proof. For that security alone, many folks would take a slightly smaller ROI. We all talk diversified portfolio but one of the greatest diversifications you can have is a DB pension mixed in. There are also additional perks to a DBPP that can include prolonged 3rd party health insurance in senior years at a preferred rate and employer matching of contributions. These things add to value in DBPP.

      Historically the stock market offers great long term returns but as your “long term” gets shorter and shorter with age, risk of being scuttled by a downturn and not having time to make it up is increased. Its not crazy or moronic to have keep these things in mind.

      • About to retire

        moron? Hmmm not exactly an intelligent response, besides the fact that there seems to be a distinct lack of understanding how a Defined Benefits Plan works, invests, mitigates risk for the employees or provides long term stable income streams for retirees. Who is the moron here again?

    • Bob Wen

      “I’m only 40’s” – that partly explains your bravado and lack of concern about the potential real-world scenarios that could befall your retirement plans.

  27. Mark


    My mom has a similar scenario as a few of you do regarding wanting to know your commuted value in order to determine if cashing out early would/would not be worth it.

    Basically she asked her employer to give her an approximation but they denied and said they would not release it to her but only to an actuary to which she must pay 600+ dollars to give her the total. This seems like a rip off. Has anyone else encountered this?

  28. Andy

    Can you help me with calculating my DB pension worth ?
    IF I stopped working now .
    At Age 55:
    Under Single Life Guaranteed 10 years , I get lifetime monthly 1230 + bridge 410 = total 1640
    Under 100 joint life , I get 1150 + bridge 410 = total 1560 .
    What’s the current monetary value on this plan ? BTW, I am married so number under 100 joint life should apply , right ?

    Thank you for the help

  29. Bob Wen

    I have an inflation-linked Defined Benefit pension plan, and I value it at 25 x the annual pre-tax income I received at the commencement of the pension. I arrived at this value by asking this question: how much do I need in my investment portfolio to provide that same inflation-linked income, guaranteed for life? It’s the 4% rule!

    Unlike an investment portfolio, there will be no inheritance on my death, but as I’ll be dead that’s not a significant concern for me. What’s important is how I feel while I’m alive, and I feel like I’m living, income wise, similar to someone living by the 4% rule.

    As it turned out, the amount I could commute my pension for was 8% more than my 25 x calculation. For a non-indexed pension 18 x seems reasonable to me, although I’d use 20 x because that income guarantee, lower stress and worry, and no management fees has value too.

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