How to hedge against loss in lump sum value due to GATT rate rising?

[myfire123]

Quote:

Originally Posted by flimmy Sounds like you work for the same co I do. On $600k mine is dropping $51,000 on July 2nd

Wow, you're taking a worse beating than me! If you don't mind telling, how many years do you have and how old are you?

[flimmy]

Quote:

Originally Posted by myfire123 Wow, you're taking a worse beating than me! If you don't mind telling, how many years do you have and how old are you?

I'm 50 yrs old and just got 30 yrs in March. I'm not going to be able to retire next week due to still owing about $70k on my house. So I'm going to see what my options are and watch the lump sum for the rest of the year and see if I can make it happen by then. Worse case is I wait until the house is paid off in 4 yrs. Not the end of the world but it sucks seeing the lump sum drop like that.

[Texas Proud]

Quote:

Originally Posted by flimmy I'm 50 yrs old and just got 30 yrs in March. I'm not going to be able to retire next week due to still owing about $70k on my house. So I'm going to see what my options are and watch the lump sum for the rest of the year and see if I can make it happen by then. Worse case is I wait until the house is paid off in 4 yrs. Not the end of the world but it sucks seeing the lump sum drop like that.

If you lump sum payout is dropping $51K in a month and it does it a couple of months it would be best to take the lump sum and pay off the mtg with the extra money....



But I would only pay off the mtg if interest rates are high.... that is a different thread...

[iloveyoga]

GATT rates were standard practice when I worked in the biz. They take your immediate monthly benefit and multiply it by the GATT rate for the month you retire. Where I worked the actuaries determined the GATT rate. Rates are so low that even a small change will make a big difference as noted above.

[flimmy]

Quote:

Originally Posted by Texas Proud If you lump sum payout is dropping $51K in a month and it does it a couple of months it would be best to take the lump sum and pay off the mtg with the extra money.... But I would only pay off the mtg if interest rates are high.... that is a different thread...

I'm pretty sure the mortgage intrest rate is 3% .

The dropin the jump sum is on July 2nd and I wont be able to make that decision that fast. I planned on retiring in 4 yrs then heard about the drop in lump sum for a few guys at work that decided to retire now. One problem I have is my emergency fund isn't as high as I would like it to be or to the level that my wife is comfortable with either. The calculate the lump sum using the rate in thev2nd mo of ea quarter. So come Aug I will know what it will be ea mo for the next quarter.

[Texas Proud]

Quote:

Originally Posted by flimmy I'm pretty sure the mortgage intrest rate is 3% . The dropin the jump sum is on July 2nd and I wont be able to make that decision that fast. I planned on retiring in 4 yrs then heard about the drop in lump sum for a few guys at work that decided to retire now. One problem I have is my emergency fund isn't as high as I would like it to be or to the level that my wife is comfortable with either. The calculate the lump sum using the rate in thev2nd mo of ea quarter. So come Aug I will know what it will be ea mo for the next quarter.

But if you lose about $50,000 every time the ST interest rate is raised by .25% you have another $100,000 lose coming this year and maybe $75,000 next... it really will not be that much as the losses will get smaller as you balance gets smaller, but ignoring the potential loss could be big money....


It might be more advantageous to quit, take the lump sum and get a job somewhere else... even for less money you would be ahead of the game..

[Sunset]

Quote:

Originally Posted by Texas Proud But if you lose about $50,000 every time the ST interest rate is raised by .25% you have another $100,000 lose coming this year and maybe $75,000 next... it really will not be that much as the losses will get smaller as you balance gets smaller, but ignoring the potential loss could be big money.... It might be more advantageous to quit, take the lump sum and get a job somewhere else... even for less money you would be ahead of the game..

+1
If s/he waits 4 years, s/he will OWE them money as a lump sum when s/he retires

[flimmy]

Well I did it , I retired yesterday.

[pb4uski]

Congratulations!

[Texas Proud]

Quote:

Originally Posted by flimmy Well I did it , I retired yesterday.

If this saved you the $51K, then that is a very smart move...


And as mentioned before, if you think you still need to work then find another job somewhere else for a few years... OR, just wait a few months and go back to your company... if they need skilled workers they probably would take you back and you still have your money...

[pb4uski]

So... that means... how to hedge against loss in lump sum value due to gatt rate rising = retire!

[gauss]

I always liked the concept of "it's not retiring, the company is just paying you a lot not to come to work". In other words you could find another job.

-gauss

[Helena]

Quote:

Originally Posted by Sunset Besides the better answer by braumeister . How to hedge would be to NOT take the lump sum. I am guessing that their lumpsum is going down as interest rates go up. The idea being that the lumpsum would equate to some pension amount over X years.

That is exactly how my company pension lump sum payout worked.

.

[Big_Hitter]

Quote:

Originally Posted by Texas Proud Anybody know the current rate? I tried to look it up but April is the latest rate I can find... and it did not change much from the previous months.. 2018 GATT Rates % December November October September August July June May April 3.07 March 3.09% February 3.13% January 2.88%

GATT is a constructed 30 year treasury rate

[Big_Hitter]

Quote:

Originally Posted by iloveyoga GATT rates were standard practice when I worked in the biz. They take your immediate monthly benefit and multiply it by the GATT rate for the month you retire. Where I worked the actuaries determined the GATT rate. Rates are so low that even a small change will make a big difference as noted above.

the minimum lump sum is equal to the benefit at NRD times a deferred annuity factor using 417e interest and mortality

[Big_Hitter]

Quote:

Originally Posted by myfire123 I'm wondering if if any of you smart FIRE people can tell me if there is any way for a person to protect against this?

yes, take the annuity

[Big_Hitter]

Quote:

Originally Posted by myfire123 This is why I need to find out exactly how the lump sum amount is figured out, because I seem to be losing $45k on only a $619K lump sum. This seems excessive.

the present value of your pension has a duration that actually increases when interest rates decrease, this is called convexity

when interest rates are low, a small change in interest rate can cause a large change in a present value

if you want to find out exactly how your lump sum is calculated you can try the plan administrator, or you can hire an employee benefits actuary

the theory behind using "current" interest rates to calculate lump sums is that it theoretically allows one to take the lump sum and purchase an equivalent annuity from a third party, although that seldom happens

[Helena]

Quote:

Originally Posted by pb4uski So... that means... how to hedge against loss in lump sum value due to gatt rate rising = retire!

But what about a possible inverted yield curve ?
Interest rates are going up now... but...

.

[Texas Proud]

Quote:

Originally Posted by Big_Hitter GATT is a constructed 30 year treasury rate

Constructed by what? The 30 year treasury is not changing much either... heck, going down the last 2 months..


Jan 2.98
Feb 3.13
Mar 2.97
Apr 3.11
May 3.00
Jun 2.97

[Big_Hitter]

Quote:

Originally Posted by Texas Proud Constructed by what? The 30 year treasury is not changing much either... heck, going down the last 2 months.. Jan 2.98 Feb 3.13 Mar 2.97 Apr 3.11 May 3.00 Jun 2.97

after GATT became effective for lump sump calculations, which I believe was in 97 or so, they stopped selling 30 year bonds so the rate was essentially made up until they started selling them again. that's why I said constructed

do you guys think I just make this stuff up?