Pension at these interest rates?

[Big_Hitter]

^^ the math is staying the same, it's the interest rates that have changed. 417e rates generally have a one-year lookback, hence the exodus

 

[Rianne]

This happened to us. Our mega corp pays a lump sum the following month DH turns 65. If we took the lump sum early, we'd lose 6%/year. Since his B-day is in December 2022, we would lose 30% of the lump sum paid in January 2023. We are taking it now, as it's considered a year early and only losing 6% as opposed to 30%.

I hope that makes sense.

 

[cyber888]

We are both FIRE'd...I'm 61 and she's 64. We have enough liquid funds to live off, so don't "need" any additional money at this time.

A small portion of our retirement is a defined contribution Pension plan from a Fortune 500 company (it's about 10% of our overall savings). I was planning to wait until the latest date they will let me take this (age 65), and then annuitize it so that we have another "chunk" of income that will be there "forever" (in addition to SS).

But, the company website allows me to do projections of income based on the current balance and it has a note about the projections...

"Your benefit and forms of payment have been calculated using current interest rates. Interest rates are subject to change quarterly after they released by the IRS. The benefit amount you actually recieve will be based on the interest rate in effect for your Benefit Commencement Date per the terms of the Plan. (Note: Carefully consider the impact of interest rate changes when choosing your payment start date and form of payment especially if your payment start date is more than 60 days in the future.) "

I check the projection every 6 months or so to see how it moves with rates, and usually the change is very minor. But I checked today and the monthly amount went up $50/month...the largest jump I've seen. I've also done comparisons on other annuity websites, and it seems my company gives better rates...the monthly amount my company would pay is always higher than what I can see elsewhere.

Based on this, I'm wondering if I should/can somehow lock this in now given the higher rates. I'd have to talk with the benefits group, but I'm assuming that to get these higher rates "locked in", I'd have to start taking the annuity now. As I said, don't really need the money now, but could reinvest it.

Of course another option is to take the lump sum, but as I said...locking this annuity in (non-COLA'd) along with a COLA'd SS for both of us (both of us were relatively high earners) would mean that all our basic living expenses would be covered by annuities, and the rest of our savings would be available for "fun" things.

Thoughts?

I also want to take a small defined portion of my nest egg and turn it into a lifetime annuity. I also save the projection on the website, and that jumped to about $80-$100 from October to November 1 depending on what age I want to take it. Website says rates continue to be high until early next year.

 

[Finance Dave]

Ok, I have a partial update.

I've not been able to get a clear answer from Megacorp yet, but I've been going into their pension estimator about once a week, and today things look different.

Previously (just about 2 weeks ago), if I took an annuity at the earliest BCD (Benefit Commencement Date) of 12/1/22, I would have received about $1,272/mo for a 50/50 J/S annuity. That calculation used the "old" segment rates from June, which were 3.64%, 4.8%, and 4.78%.

Today, I ran the exact same calculation and came up with the exact same numbers. However, I also re-ran the calculation for the LATEST BCD (age 65), and then looked at the segment rates...and they were different...they were 4.48%, 5.26%, and 5.07%. The monthly annuity amount is irrelevant...as they have a big footnote that states that if you're looking at an annuity more than 60 days in the future the interest rates may change and therefore your annuity amount may not be accurate.

HOWEVER, I then ran the calculation for a BCD of 1/1/23 and the annuity amount for the same annuity came up at $1,314/mo...an increase of $42/mo. I know this is not a huge amount, but it's something. The segment rates are the higher group as above (4.48/5.26/5.07).

I don't know why the 12/1/22 annuity is still using the old segment rates, but it looks like everything after that is using the new rates. And, as long as I get my payout started before they change the rates AGAIN (which they do every 90 days), then I should get the $1,314/mo amount, essentially locking in the higher segment rates.

I will discuss with DW tomorrow and likely get this going. The only advantage to waiting is if I think the segment rates in 3 months will be higher than they are now...I don't think I want to take that risk.

 

[bada bing]

I have a similar cash balance plan in deferral. The terms on mine are a little different, but the structure is the same. I am allowed to defer until up to age 71. My interest rate on the lump sum is 30 year treasury rate with a minimum floor of 5%, so its been 5% for many years. I posted in an earlier thread - I was not the OP - about what I had found investigating the details on my plan. The one striking thing is that the interest segment rates applied on the day of electing the annuity were already known, coming from IRS tables 2-3 months earlier. Because of this, because we are in a rising rate environment, it's a no-brainer to continue deferring. If/when rates begin to decline, I will have 2-3 months to make the decision to annuitize at a relative peak. You should find out the exact schedule and rates used in your particular plan, it maybe - probably is - similar.

My current projected age 70 annuity went up a little over $200/month, just in the last update, so I am loving the rising rates, at least with respect to my annuity. My annuity is now projected to be a little more than my SS at age 70, which certainly wasn't the case one year ago. Of course, what the interest rate gods giveth, they can take away. I don't know what I'll do if rates begin to drop quickly.