Interest Rates, Lump Sums and leaving Mega Corp

[Tekward]

As I pondered the exit from Mega Corp I was struck by the advantages of leaving early and taking the lump sum at today's low interest rates. I was tempted to stay for the money but the sobering realization is that I could toil for a couple of more years and not show any lump sum benefit if (when) interest rates rise. The math is complicated by a lot of assumptions but this one example is that a ~25% increase in rates would lead to a 20% reduction in the lump sum.

I could see rates rising 50% at the drop of a hat. A bird in the hand.....

Resources for Plan Sponsors - Commentary by Mike Barry

My last day is 5/31. Then I start teaching at the local university.

 

[Midpack]

My former Megacorp used 6-month periods so lump sums did not fluctuate as wildly, but it's probably an important question for each of us to ask our "retirement department" well in advance (and follow up in case of a plan change. I didn't realize other companies might use spot rates, so a good heads up for us all, thanks.

Sponsors may use a stability period of: (1) one calendar month; (2) one plan quarter; (3) one calendar quarter; (4) one plan year; (5) or one calendar year. Many sponsors use a plan year/calendar year stability period, so that the lump sum interest rate is "stable" (i.e., the same) for an entire year.

 

[heeyy_joe]

It pays to keep your eyes on the ball.