Question about Timeline Application

Pat38493

Hi - I have a question for anyone out there who uses or has used the "Timeline" application - I think this is mainly used by financial advisers but it's available free if you only set up one client.

In this tool it allows you to set up your scenarios of investment accounts, pensions, and other income sources.

I have a deferred DB pension, deferred value £16.828.59 that was deferred in 2008, but this amount seems to be split into several sections one of which has retirement age 60 and the others 65.

I obtained a estimate from the administrator for retirement NRA for an annual pension of £28239.  My impression is that this value is not in today's real terms but the actual amount that they estimate I will be paid in 2034 after adjusting for forecast inflation.

I have plugged this number into Timeline starting at 2034 which is my normal retirement age.

However, when I look at the cash flow chart, it shows the income value of this as around this amount (probably adjusted for tax) starting 2034, and the chart states, "values are in real terms".

What I am wondering is whether I am over-estimating the future value of my DB pension, and actually I should be putting in the value of the DB pension in real terms as of today.  My impression is that the Timeline tool is assuming that the amount I put in there is the real terms amount today, which I don't think corresponds to that value £28239.  Therefore I am thinking I need to adjust this value backwards to estimate it in real terms today?

Does this make sense to any timeline user out there? 

GazzaBloom

Pat38493 said:

Hi - I have a question for anyone out there who uses or has used the "Timeline" application - I think this is mainly used by financial advisers but it's available free if you only set up one client.

In this tool it allows you to set up your scenarios of investment accounts, pensions, and other income sources.

I have a deferred DB pension, deferred value £16.828.59 that was deferred in 2008, but this amount seems to be split into several sections one of which has retirement age 60 and the others 65.

I obtained a estimate from the administrator for retirement NRA for an annual pension of £28239.  My impression is that this value is not in today's real terms but the actual amount that they estimate I will be paid in 2034 after adjusting for forecast inflation.

I have plugged this number into Timeline starting at 2034 which is my normal retirement age.

However, when I look at the cash flow chart, it shows the income value of this as around this amount (probably adjusted for tax) starting 2034, and the chart states, "values are in real terms".

What I am wondering is whether I am over-estimating the future value of my DB pension, and actually I should be putting in the value of the DB pension in real terms as of today.  My impression is that the Timeline tool is assuming that the amount I put in there is the real terms amount today, which I don't think corresponds to that value £28239.  Therefore I am thinking I need to adjust this value backwards to estimate it in real terms today?

Does this make sense to any timeline user out there? 

I use Timeline and have added my DB pension annual amount in today's money and ticked the 'adjust by inflation' tick box below it. But, I am current in receipt of benefits from my DP pension so it's easy to input an accurate number in today's money. I'm not sure I can answer your question as on closer look I have more questions than answers!

I have also input state pension amounts for myself and my wife which will start in future years, I have input those in today's money (this years state pension amount) and set the start state at age 67 in 2034. However, it looks like Timeline isn't inflating the amount between now and the start year so I probably need to re-input the starting amount with an inflation assumption for each year between now and when it starts being paid out.

This is interesting and for me highlights that while a great app, Timeline doesn't let you see under the bonnet of how the details are being calculated, what are the assumptions on inflation being used as an example. Also, some tool tips or a user guide would be good.

Pat38493

GazzaBloom said:

Pat38493 said:

Hi - I have a question for anyone out there who uses or has used the "Timeline" application - I think this is mainly used by financial advisers but it's available free if you only set up one client.

In this tool it allows you to set up your scenarios of investment accounts, pensions, and other income sources.

I have a deferred DB pension, deferred value £16.828.59 that was deferred in 2008, but this amount seems to be split into several sections one of which has retirement age 60 and the others 65.

I obtained a estimate from the administrator for retirement NRA for an annual pension of £28239.  My impression is that this value is not in today's real terms but the actual amount that they estimate I will be paid in 2034 after adjusting for forecast inflation.

I have plugged this number into Timeline starting at 2034 which is my normal retirement age.

However, when I look at the cash flow chart, it shows the income value of this as around this amount (probably adjusted for tax) starting 2034, and the chart states, "values are in real terms".

What I am wondering is whether I am over-estimating the future value of my DB pension, and actually I should be putting in the value of the DB pension in real terms as of today.  My impression is that the Timeline tool is assuming that the amount I put in there is the real terms amount today, which I don't think corresponds to that value £28239.  Therefore I am thinking I need to adjust this value backwards to estimate it in real terms today?

Does this make sense to any timeline user out there? 

I use Timeline and have added my DB pension annual amount in today's money and ticked the 'adjust by inflation' tick box below it. But, I am current in receipt of benefits from my DP pension so it's easy to input an accurate number in today's money. I'm not sure I can answer your question as on closer look I have more questions than answers!

I have also input state pension amounts for myself and my wife which will start in future years, I have input those in today's money (this years state pension amount) and set the start state at age 67 in 2034. However, it looks like Timeline isn't inflating the amount between now and the start year so I probably need to re-input the starting amount with an inflation assumption for each year between now and when it starts being paid out.

This is interesting and for me highlights that while a great app, Timeline doesn't let you see under the bonnet of how the details are being calculated, what are the assumptions on inflation being used as an example. Also, some tool tips or a user guide would be good.

Many thanks for your reply.

Actually, I think you are probably ok with the state pension amount.  My best interpretation without seeing the full “under the hood” data set, is that Timeline expects all data to be input in today’s money.  

The cash flow chart in Timeline basically shows everything in today’s money as well, so I think it’s actually ok that your state pension still appears with today’s amount at a future year.

I believe the problem for me may come because my DB pension is not in payment yet and I do suspect that the estimate they have given me for my pension at state retirement age, is not in real money but in future estimated money.  

Adjusting this backwards by 12 years actually makes quite a big difference - I tried to calculate this and I estimated that it would go down by 7K to £21.9K if I go back to real terms.  That’s quite a big difference in the whole retirement planning scenarios.

My original request to the pension administrator was to give me my pension at NRA in real terms, but, I am not convinced they have done this because I doubt that a 16K deferred value in 2008 would result in a £28K real terms deferred benefit today.

Then if I look at the estimate they gave me for early retirement it gets even more complicated because it’s a mix of future forecast inflation and commutation which is not at all transparent.  I did ask them about it but after about 2 months, I got a vague reply which basically translated to “call us when you are 55”.

Edit:  To add to this regarding the assumptions for Inflation - according to the Timeline Blurb, the inflation is not an assumption but is measured for many real world historical scenarios, so the cash flow that you see is based on one of those scenarios according to the button you click "optimistic / pessimistic" and so on.  On the main screen you can see how many % of those scenarios was successful on your pension plan, but they don't give you a full control to select or view any scenario - you can just select "Optimistic / Median / Pessimistic / Worst-Case" - so depending on your selection you are seeing the results of only one of those scenarios.

For the "Balance" chart it does actually represent all the scenarios with a colour indication of probability, and allows you to put the amounts in "nominal" terms, but this doesn't help if you are trying to figure out how it treats future DB pension income for each scenario.