Previously, the lower 30-year U.S. government bond rates were used to calculate lump-sum pension values.
This fact combined with the 2006 law change has created a negative outlook for lump-sum pension values.
How much could you earn on your lump-sum pension value if you invested this amount prudently?
As the 2006 law continues to phase in, the higher blended corporate bond rate is causing significant reductions in lump-sum pension values.
How much will your lump-sum pension value change if the interest rate used to calculate your lump-sum pension value changes?
As mentioned earlier, when interest rates increase, lump-sum pension values go down.
That change is being phased in from 2008 through 2012 and allows companies to utilize a blended corporate bond rate to calculate lump-sum pension values.
There are two reasons why we will likely see interest rates increase in the future, which may significantly reduce lump-sum pension benefits for millions of U.S. workers.
In my previous blog post, I discussed the rules and restrictions that employees should be aware of when evaluating early retirement and the opportunity to take a lump sum pension.
The former officers were awarded a lump sum on their pension after retiring before the age of 55.
The potential for significant lump sum reductions can be attributed to the teeter-totter relationship between pension lump sum values and interest rates.
Many people cut the link between the endowment and their mortgage, making alternative plans to pay off their home loan with other savings, investments, or a tax-free lump sum from their pension.
However, you may have the option of taking some of this pension as a tax-free lump sum when you retire, thereby reducing the annual pension you will receive thereafter to around half of your final salary.
For this group, a common factor in most plans is the utilization of a current market interest rate to convert the monthly pension to a lump sum figure.
True, more folks are running to financial planners these days, driven there by the fear that the large lump sum they got from the company pension plan may not last through their retirement, or by a sense that they haven't the time and knowledge to tend to their growing assets themselves.
Put another way, women may have further reasons to forgo a company lump sum payment in favor of a monthly pension stream of payments.
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In the past, I have almost always advised retiring public sector employees to resist the temptation to take their accumulated pension benefit in a lump sum.
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Under this, early departure payments in the form of a lower level of pension, and a lump sum, are paid to service men and women with at least 18 years service who are aged 40 or over.
In June, GM said it will offer 42, 000 white-collar retirees in the U.S. a lump-sum payment in lieu of their monthly pension check and will transfer pension responsibility for 76, 000 others to a group annuity plan managed by Prudential Insurance.
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Are you likely to take a monthly pension check instead of a lump sum?
Pensioners could still take up to a quarter of the pension scheme as a tax free lump sum.
Under the traditional Japanese system, employees qualified for a lump sum at retirement (over and above the state pension scheme) after 30 years at the same firm, which strongly discouraged mid-career moves.
Ford Motor said Friday it will offer 90, 000 of its retired engineers and office workers the option to accept a lump sum payment now and to forgo their regular monthly pension checks for the rest of their lives.
Military retirees are offered lump-sum cash payments in return for surrendering their rights to their pension payouts.
Retirees sign contracts to hand over their pension payments in exchange for a highly discounted lump sum by placing them in separate bank accounts.
Last year, both Ford and General Motors took bold new steps by offering lump-sum payments to white-collar retirees in lieu of a monthly pension check.
FORBES: Ford's Leaky Pension Boat Is A Multi-Billion Dollar Problem
Although decreasing pension values are a major concern for those considering the lump-sum option at retirement, there are additional factors to evaluate before you rush to retire.
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