Inflation is the enemy of pensioners since it erodes the buying power of fixed pensions over time. Normally most private pension lump sum alternatives are government by an interest calculation based on established IRS interest segment rates which periodically reset for a specific pension, often annually but it could be quarterly. The end result is that interest rates can greatly impact the amount of a lump sum alternative. In times of rising interest rates they may tend to lower the lump sum alternative. A couple of years ago lump sum alternatives were very high based on the IRS rates but those rates have risen causing lump sum alternatives to go down for many pensions.
If you expect to take the lump sum and you expect interest rates to rise it may be advantageous to take the lump sum sooner rather than later.
When a pension plan sends an estimate of potential benefits at various ages it calculates those based on current interest rates at the time of the notice. When it projects a lump sum payable if someone waits till age 65 (in 10 or 15 years for example) the estimate assumes interest rates will remain unchanged. If interest rates change before the individual decides to take the lump sum the actual amount of the lump sum can change substantially. So even though the monthly benefit options at various ages remain steady in spite of interest rate changes the alternative lump sums can change, sometimes dramatically.
If pensions end up getting turned over to the PBGC for management there are certain monthly payment caps that apply. Additionally if pensions get turned over to the PBGC only the monthly payment options are available, lump sum alternative payments are not offered.
If you expect to take the lump sum and you expect interest rates to rise it may be advantageous to take the lump sum sooner rather than later.
When a pension plan sends an estimate of potential benefits at various ages it calculates those based on current interest rates at the time of the notice. When it projects a lump sum payable if someone waits till age 65 (in 10 or 15 years for example) the estimate assumes interest rates will remain unchanged. If interest rates change before the individual decides to take the lump sum the actual amount of the lump sum can change substantially. So even though the monthly benefit options at various ages remain steady in spite of interest rate changes the alternative lump sums can change, sometimes dramatically.
If pensions end up getting turned over to the PBGC for management there are certain monthly payment caps that apply. Additionally if pensions get turned over to the PBGC only the monthly payment options are available, lump sum alternative payments are not offered.
Statistics: Posted by 123 — Sat Jun 01, 2024 8:01 pm — Replies 2 — Views 613