Does anyone know the percent impact to the lumpsum with the 150 basis point interest rate cut in 2020? Updates should have been in the system by now.
30 replies (most recent on top)
Looks like the lump sum calculation is reflecting the interest rate cut. Just ran the numbers and it was 11.6% higher. The retirement age I used in the calculation was 59.
Pension decision... lump sum or monthly payments.
I’m struggling with this myself.
Question is what kind of company will Ford be in 20-30 years? Will they even still be around?
I’ve seen many plants closed in 30+ years.
Seems like a lot of managers and execs don’t know what they are doing. I’m not confident about the future for this reason.
The Lump is calculated using the August IRS Minimum Present Value Segment Rates. August hasn't been published yet. They are due out this week.
https://www.irs.gov/retirement-plans/minimum-present-value-segment-rates
(Almost) too late now, but I made a bad decision regarding the GRP and think I’ll have to work at least five more years to make up it.
Was advised by a Ford employee (when the NESC actually still had Ford employees ) to contribute to my pension - I finally started doing that about 4 years ago, but should have originally 20 years ago. If I would have, likely would be in a place to take VIP offer and not have to worry so much about next part of life.
So, moral of the story is educate yourself and pay for some advice if you are not sure. Not everyone is out to rip you off, and having someone help could make difference between comfortable living or just getting by...
Wow this topic seems to get everyone worked up, touting how smart they are (MBAs) and the wealth that they have accumulated.
Lump or monthly is a difficult decision that is unique to every person. So many variables involved, but most important, you have to be honest with yourself and your adult habits.
Some people need to pay a financial advisor - I know of several folks who got weak in March and pulled all of their investments out of the market at the lows. They are not feeling so good right now. Others don't have the head for the markets and prefer to pay to have someone manage their lump. There aren't any do overs with this, so you have to be honest with yourself again, about your capabilities.
I chose the lump. No debt, empty nester, enough assets to allow us to continue current lifestyle for at least 8+ years without touching the lump. Lump is cooking in the markets. Any social security will be gravy - not using it for any calculations.
Everyone should be working on this now as your decision point will be here before you know it!
I almost forgot. Don’t worry about keeping up with the Jones’s. They never read the book “The Millionaire Next Door”.
https://www.amazon.com/Millionaire-Next-Door-Surprising-Americas/dp/1589795474
Multimillionaire in my case just on a Ford Engineer salary. Stop watching sports and read the Wall Street Journal - time better spent IMO.
You are correct noting it was not a full pension. Only 24 years worth but you get a big bump when you reach age 55. You were also correct about having no debt. The house and cars are fully paid for. While working I had all new concrete driveway and walks, new siding, and metal roof (good for at least 100 years an considered an improvement) installed so all are low maintenance now. We raised 4 kids with a stay at home mom. We put them through private schools K-12 and public universities. After all that expense, I still get my free pension money every month and have over $2M in investments still growing. No lifestyles of the rich and famous here but I have no problems sleeping at night. Living below your means is the key.
Be careful of shiny red truck syndrome. Many people blow thru their lump sum quickly. Then it is would you like fries with that time.
Hopefully most people funded HSA while working for unexpected medical needs.
Hopefully most people have savings for household expenses.
Look he/she said lump sum value would have been ~800k that is not full pension. Based on that basic expenses would be minimal. I live a very active lifestyle and have a few hobbies. Lifestyles of the rich and famous.
But a monthly stipend based on an 800k lump sum payout is not that much if you consider future healthcare costs, transportation cost including insurance, taxes on home, unexpected biggies - roof on home and such.
I don't know bout you folks but I didn't retire to to sit on my porch and watch the lawn grow or stand at my window in winter and wait with baited breath for snow to stop so I could all day shoveling snow here in Michigan.
Getbizylivn
The key is to have no debt when you retire, this includes no mortgage.
The pension will then easily cover all your expenses. With only normal bills -gas, electric, phone, internet,food- there is ample money for fun and travel, and saving for a rainy day.
No MBA required.
If your pension comfortably covers your monthly expenses your expenses must be pretty lean. Assuming your the person with the MBA and making 400k on investments in 2 years which was said to be "almost half" of what your lump sum.
Your "MBA knowledge"? HAHAHAHAHA, you must be a BFD to your mom and dad!
The guy that cuts my lawn has an MBA too. I don’t think I’ll use him as my financial planner.
Happy that you have an MBA, very impressive. That does not make your solution a fit for everyone.
@3diu+16SqO8Xz I ran thru the same logic and took the pension. We treat it as our bond allocation and it pays all our monthly expenses and then some. 401k, traditional ira and Roth IRA are all fully invested. We keep 4 years of living expenses in cash equivalents just in case shtf.
Retiring in late 50s means we get the supplemental pension until 62. Current plan is to hold off on SS until 70, but that could change.
Friends who have taken the lump sum did it for one of three reasons:
they did not feel they would live long and wanted the money now,
they wanted to leave the money to their children,
they had no other money- no savings, no 401k, no ira.
The first two are logical reasons for the lump sum.
The last concerned me as they will burn thru the lump sum quickly with their money management skills.
Good Luck to all.
To “Do some inflation math” is partly correct. However, only a fool would not have invested in the 401k over the years. Once retired, you have to live off something. Bonds and high yield dividend stocks have not performed well for the last few years. The pension is like a bond that produces a steady stream of income. Once retired, about 1/3 of your investments will need to be turned into income production. If not done well, you might have to start drawing down your principle which is not good. MY bond income (ie pension) means I can be more aggressive with my 401k because I have the pension income to live on. Since retiring 2 years ago, my investments have increased on value about 400k which was almost 1/2 of my lump sum value plus I still have a pension to comfortably live on for now. When inflation eats my pensions value to the point I have to draw down, I’ll have social security (another steady stream of income) to top it up again and my aggressive growth of the 401k continues. This approach produces a better long term financial situation than the lump sum. But what do I know running multiple scenarios using my MBA knowledge.
Unfortunately Ford does not adjust the monthy pension for cost of living/inflation. What you get now doesn't change, ever.
Do some inflation math - does not look good down the road when your buying power is reduced. Many pensioners who retired before the lump sum was an option, are experiencing it.
Something to think about when making the lump decision.
Correction to my previous comment, if you don’t take the lump sum you have to decide if you want to leave anything for your spouse.
I trust the PBGC to insure all of my pension. I spent two days studying this.
Bloomberg had a piece on TV last week where they went over the hardships Covid had placed on companies forced to do business from home. They made mention of the fact that not every company in every industry would survive especially one who were floundering before covid.
That would put the Blue Oval right smack in the middle of the hurricane.
Anyone who does not take the Lump-sum is crazy. You have to ask these simple questions.
- is Ford going to be around in 5 years?
- do you trust the Govt. to bail out Fords Pension Plan? Right now, you might get 10 cents on the Dollar
- can Fords financial ppl invest YOUR money better than you can?
I will never pay for a financial advisor. My spouse and I both have masters degrees in engineering, so we understand investing and finance. You alone are the best person to look after your finances and investments. Everyone else just wants a piece. Good luck.
Lump sum. Yeah i hate paying a financial advisor but if you get a good one it is worth it. In the worst economy since the depression I am doing better than the monthly pension after fees. Roth conversion planning advice has paid off as well.
Anybody could have made money pre COVID. So happy I had an expert handling things during this crazy time.
If you take the lump sum you have to decide if you want to leave a portion to your spouse after you pass away. Lump sum invested allowed my hubby to leave it to me after he’s gone without any loss. Also if something happens to both of us our children will get it. Good luck. Tough decisions to be made.
Keep in mind the interest rate used is the corporate rate NOT government rate. Corporate rates are higher resulting is lower lump sum that if government rates were used.
Based on my lump Doecould not find an annuity that would pay the same as the pension. I took the pension rather than gamble I could do better in the market. Your Financial Advisor will always recommend you take the lump sum and invest with them. That guarantees a steady stream of income for the advisor and less compounding for you in the years to come.
Pensioneers considering lump sum should realize a substantial uptick in the lump sum portion after it's re calculated end of September. Updates should be reflected by Early October.
The lump sum is essentially the Net Present Value (NPV) of your pension payments for the remainder of your life expectancy. The future payments are discounted by an assumed interest rate. Lower interest rate results in higher NPV, lump sum and visa-versa.
Sometimes the change in lump sum amount can be dramatic year to year. A retired colleague said he worked his last year at Ford "for free" as his lump sum dropped more than his salary in one year.
It's recalculated end of September. Not sure what the equivalent is of 150 basis but last year the rate dropped 50 basis pts and my lump sum went up 90k from 9/19 to the day I retired in June. ~30k of that was due to my 1 1/2 % and the companies kick in so it was around 55k to the + side.
Best to get out before they re calculate if it's 150 basis pts. Imo if you can swing the #'s
October