A worked example

A pension that rises by a fixed dollar amount

Ray, 66, single, retired with a $33,000 pension that goes up $1,000 every year (a flat dollar step, not a percentage). $400k pre-tax, $100k in a brokerage account, spending $45,000 a year, Social Security not claimed yet.

“My pension increase is a fixed dollar amount, not a COLA. Every calculator I find only offers a percentage. What does mine actually do, and should I be converting to Roth before RMDs start?”

What the projection shows

The first thing it shows is that the raise is smaller than it looks. Nineteen $1,000 increases take the pension from $33,000 at 66 to $52,000 at 85. That sounds like a big raise, but after the 2.5% inflation this projection assumes, $52,000 at 85 buys slightly less than $33,000 did the day he retired. A percentage increase compounds and a flat dollar increase doesn't, which is why ticking a COLA box instead would overstate the pension, and why the form has a separate field for it. Then there's the pre-tax balance. Converting $20,000 a year until 74 costs $85,123 in lifetime tax, compared with $76,188 for doing nothing. That's more tax, on purpose, and in exchange the first RMD at 75 drops from $24,781 to $14,100. Ending net worth is lower ($694,508 versus $731,101) because net worth counts pre-tax dollars before the tax owed on them. After-tax wealth tells the real story: $655,515 versus $591,336, which is $64,179 more he could actually spend. The pension is what makes this work. It covers most of his spending, so the low-bracket years before RMDs are available for conversions.