I would appreciate the thoughts of all the savvy folks that hang around here. This feels like a big decision for me.
After 33 years of service I’ve earned a pension from megacorp. Now I need to decide whether or not to pull the trigger on my retirement $ in 2011. Here's the deal...
I ER’d last year. However, I have not yet cashed in my retirement $. My monthly pension is calculated based a formula that reduces the payout by for each year below age 62. I’m 57. This means that, if I let it ride, month by month I pic up roughly 4.3% on my pension on an annual basis. There is no investment risk involved.
However, I’ve been intending to take the pension as a lump sum. I feel I need to do this to maintain some up-side and to protect against potential inflation (the monthly pension is non-COLA). These funds are a large percentage of my total net worth- and I have “just enough” to retire.
The monthly pension gets converted to the optional lump sum payout based on ERISA interest rates for August (published in September). So, while the age-based formula yields about 4.3% WITHIN each year the lump sum for January gets re-set based on interest rates.
The newly issued 2012 interest rates affect me as follows:
1-1-2012 my lump sum is (1.3%) lower that it would be on 12-1-2011.
6-1-2012 my lump sum is .7% higher than on 12-1-2011
12-1-2012 RIGP is 3.2% higher than on 12-1-2011.
Main points I’m considering are as follows:
I’ve always thought that any pending market correction/double dip would give me a buying opportunity. I think flexibility to react may be very valuable. I understand it will take 4-5 weeks to get a $ transfer of the lump sum into my IRA or 401K. If a real correction occurs this is not that long. However, it may be important to be able to move more quickly if desired. The market swings can be pretty abrupt these days.
Absent any wild swings…Generally speaking summer is an off market. So, it might be good to enable some buying at that time. If so, sticking with “the formula” for 6 mos only in 2012 does not yield much.
{Mod edit]The 2012 election results may also affect the market. How early this could become baked into the market is a good question.
There is some lump sum risk based on megacorp maintaining an 80% funding threshold for the retirement plan. If funding goes below 80% over half my retirement might need to be taken as a non-COLA monthly pension instead of a lump sum. I’m not convinced I would be given advanced warning of such a change. So far this has never happened. I consider it a low probability risk.
There is the possibility that 2013 ERISA rates might look attractive to me. This would require corporate bond rates (esp the long ones) to be at a lower interest rate than today. If the 2013 lump sum re-set is favorable based on lower rates in August 2012, that would be great. In addition, the age formula will continue to credit me for age yielding a 4+% positive return within each year.
I have some weeks to decide.
If I knew that rates would fall (or even hang steady) between now and August 2012 Id hang tight. I note that the LT corporate rates have already demonstrated a multi-year upward trend. However, the Fed is a wildcard and a recession looms.
Comments are welcome.
Cheers
After 33 years of service I’ve earned a pension from megacorp. Now I need to decide whether or not to pull the trigger on my retirement $ in 2011. Here's the deal...
I ER’d last year. However, I have not yet cashed in my retirement $. My monthly pension is calculated based a formula that reduces the payout by for each year below age 62. I’m 57. This means that, if I let it ride, month by month I pic up roughly 4.3% on my pension on an annual basis. There is no investment risk involved.
However, I’ve been intending to take the pension as a lump sum. I feel I need to do this to maintain some up-side and to protect against potential inflation (the monthly pension is non-COLA). These funds are a large percentage of my total net worth- and I have “just enough” to retire.
The monthly pension gets converted to the optional lump sum payout based on ERISA interest rates for August (published in September). So, while the age-based formula yields about 4.3% WITHIN each year the lump sum for January gets re-set based on interest rates.
The newly issued 2012 interest rates affect me as follows:
1-1-2012 my lump sum is (1.3%) lower that it would be on 12-1-2011.
6-1-2012 my lump sum is .7% higher than on 12-1-2011
12-1-2012 RIGP is 3.2% higher than on 12-1-2011.
Main points I’m considering are as follows:
I’ve always thought that any pending market correction/double dip would give me a buying opportunity. I think flexibility to react may be very valuable. I understand it will take 4-5 weeks to get a $ transfer of the lump sum into my IRA or 401K. If a real correction occurs this is not that long. However, it may be important to be able to move more quickly if desired. The market swings can be pretty abrupt these days.
Absent any wild swings…Generally speaking summer is an off market. So, it might be good to enable some buying at that time. If so, sticking with “the formula” for 6 mos only in 2012 does not yield much.
{Mod edit]The 2012 election results may also affect the market. How early this could become baked into the market is a good question.
There is some lump sum risk based on megacorp maintaining an 80% funding threshold for the retirement plan. If funding goes below 80% over half my retirement might need to be taken as a non-COLA monthly pension instead of a lump sum. I’m not convinced I would be given advanced warning of such a change. So far this has never happened. I consider it a low probability risk.
There is the possibility that 2013 ERISA rates might look attractive to me. This would require corporate bond rates (esp the long ones) to be at a lower interest rate than today. If the 2013 lump sum re-set is favorable based on lower rates in August 2012, that would be great. In addition, the age formula will continue to credit me for age yielding a 4+% positive return within each year.
I have some weeks to decide.
If I knew that rates would fall (or even hang steady) between now and August 2012 Id hang tight. I note that the LT corporate rates have already demonstrated a multi-year upward trend. However, the Fed is a wildcard and a recession looms.
Comments are welcome.
Cheers
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