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 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

First, that the raise is smaller than it looks. Nineteen consecutive $1,000 increases take the pension from $33,000 at 66 to $52,000 at 85 — a cheque half as large again, which against the 2.5% inflation this projection assumes buys slightly less than the $33,000 did on the day he retired. A percentage escalator compounds and a flat one does not, which is why checking a COLA box instead overstates it and why the distinction is worth the field. Then, what to do about the pre-tax balance underneath it: converting $20,000 a year until 74 pays $85,123 of lifetime tax against $76,188 for leaving it alone — more tax, deliberately — and cuts the first RMD at 75 from $24,781 to $14,100. Terminal net worth is lower ($694,508 against $731,101) because pre-tax dollars are counted before the tax on them; after-tax wealth is $655,515 against $591,336, which is $64,179 more of what he could actually spend. The pension is what makes the room: it covers most of the spending, so the low-bracket years before RMDs are the ones doing the work.