No one is mentioning the rising interest rates for the third and fourth quarters and how they affect the lump sum payout. This will probably cause more exits than the PIP could ever hope to.
17 replies (most recent on top)
Actually the luckiest people are the people who retired in 1Q20... Interest rate was higher but we could were able to buy into the market with our lump suum cash with S&P below 2500...we now have a 60% gain with S&P over 4000. Time to sell out... Also, I did a Roth Conversions on XOM shares in my rollover IRA. By converting XOM shares in IRA to a ROTH, I made future XOM dividends in the ROTH to be TAX FREE DIVIDENDS. I also converted my XOM shares in an IRA to a ROTH...when XOM was at $34/sh. That means I will pay only $10/share in taxes next year...but all my Dividends are TAX FREE in a ROTH...plus I can write covered calls in a Roth and earn extra income TAX FREE. ROTH conversion are best when XOM share price is LOW, because it lowers the taxes due for the conversion. My investment advisors thought this was the BEST TIMED strategy they LOVE seeing XOM Dividends TAX FREE and COVER call income TAX FREE in a ROTH. For those of us who accumulated a lot of shares over a 40 year career, my advisors LOVE this diversification strategy. TAX FREE XOM DIVIDENDS will likely be safe from Biden Tax increase also and safe from State taxes... and ROTH is a great estate planning tool
The biggest risk for retireees...is investing the lump sum and then the market crashing...And being stuck with high tax liability from the cash supplemental/NUA/Roth conversions etc. and having to sell down your equities into a weak market. My advice is make sure you set aside all the cash you need to pay taxes...upfront and a couple years of living expenses...before investing in a overheated market. Last time market crashed in 2001 and in 1987...I know several retirees who had to sell out of equities into a low market because they had too little cash to pay tax liability. I ALWAYS KEEP 3 YEARS of bare bones living expenses in Cash...and cash to pay estimated taxes, so I never have to sell equities in a fire sale
For anyone to not receive their pension, EM would have to violate federal law by not setting aside a pension reserve annually, then file bankruptcy, then have a federal bankruptcy judge allow the pension commitments to be dismissed, and then have PGBC not back the commitments due to limits or fine print.
Less likely than a meteor strike destroying the planet. But if you want to worry, go ahead.
Sorry @1xp meant to call out 1rvp is the person that should be more carefully thinking in the preceding post.
Sorry but you need to read all the fine print of the pbgc.; it is important you read this or you find someone whom can read this to you, so that you may better understand the limits, exclusions, and caps on liabilities. You may need to find a better financial planner or chat with 10 of your peers and gauge the diversity of opinions and understand true facts. You may be making important financial decisions incorrectly if you have not read all the fine print of what may or may not be allowed or covered under the pension program and the pbgc limits of liability. Already been there done that with family member losing out big time in a large corporate failure and pbgc only covering what legally obligated under the fine print. de▯▯l is always in details.
So - the taxpayers will cover my pension after the deep-six of this company?
Thanks, smart man.
You da king.
Ignorance of posters like you amazes me. How did anyone hire you in the first place? Federal law requires all companies to set aside sufficient funds to cover their pension benefit commitments. There is also a reserve/insurance system (PGBC) as an additional backup. Deserve it or not, your pension is secure. How can you not even know the basics of your benefits?
Who would trust this company to give an annuity until you d▯e?
I've discussed with my kids -
just keep me in the basement mummified and collect those checks.
All the benzene in my glands will keep the stink away.
I'd take the lump sum to save all that trouble.
The voluntary package that was offered by ExxonMobil is by far the worst. Even Southwest Airlines offered a voluntary package which included a one year severance. The moral is so below par it’s likely never to recover. Get out while you have the option of taking the Lump Sum. Take a look at what happens to your pension if ExxonMobil goes belly up....check out>>>> pbgc.gov
Leave with dignity and a light heart while you can.
Over the years I've watch far too many folks take the Lump Sum without having money management skills. Some d▯▯d early and broke after making ill advised investments. Advisors will tell you to take the Lump Sum so they can earn more fee on handling a larger holding.
I, on the other-hand will take the annuity. If I pass before my spouse, will know her allowance is managed and she will have that monthly payment throughout her life.
Therefore, interest rates have no effect on my decision to retire, only adding a few more years onto pension. Not worried about inflation. We have had zero debt since our early 40s and continue modest living regardless of income.
Inclusion of that falls in the category “PRICELESS”
Great point that it must be first on the line item spreadsheet!
Don’t forget to factor into your calculation what it would be worth to wake up on Monday and do whatever the h▯▯l you want to.
@vij is offering very sound advice. The online pension estimating tool has been updated for the 3Q21 increased interest rates so you can look at your scenarios very easy. If you had been contemplating retiring at anytime in 2022 you really should evaluate various scenarios.
If the 1Q22 or 2Q22 interest rates increase a further 1/2% beyond the substantially increased 3Q21 rates, you may lose equivalent of about 5-6 months salary; and If the 1Q22 or 2Q22 interest rates increase a 1% beyond the substantially increased 3Q21 rates, you may lose equivalent of about 10-12 months salary from your lump sum being severely discounted with higher interest rates (of course these numbers will depend on your actual years of service, but should be in the ball park for people with 25-35 years of service.)
When you do you analysis, you may also wish to make some assumptions on the rate of return you may achieve with your no "unstranded capital" in the lump sum payout that you can now invest. Getting your lump sum 9 - 12 months earlier may allow you to invest it ... if you assume you may achieve 3 - 7% rate of return and believe markets may continue to expand, then this incremental rate of return that has been accelerated is a further substantial upside.
If you think you can get ~6% ROR with you lump sum reasonably invested, and if you think the 1Q22 or 2Q22 rates will be up 1% - 1.25% from the current 2Q21 all time historic low rates, you will come out substantially ahead by taking retirement in 2Q21 at these all time low rates and all time high lump sum payouts.
Seems like this a big game of blackjack ... Do You Retire in 2Q21 and come out way ahead if interest rates continue to go up; or Do You Retire in 2022 and run a substantial risk of perhaps work for the company for free or possibly even effectively "pay the company" out of your own pocket.
For those employees whom are under the 3 tier interest rate calculation for the pension ... it is very important to understand that the interest rates are tied to short, mid, and long term Corporate Bond interests rates and these are now increasing substantially with the continued progress in covid recovery and the stimulus money being pumped into the economy.
These interest rates are not tied to the Federal Treasury rates; so when the Fed says they are holding interest rates flat to 2022-2023 ... This Absolutely Does Not mean the Corporate Bond Rates will stay flat, the Corporate Bond Rates it is fundamentally a different basis with some loose directional correlation to the Fed. It seems lots of our colleagues may not clearly understand this, and think that if the Fed hold s rates flat the pension lump sum discount won't change — a very wrong understanding that could costs you a years salary or more under certain circumstances.
Do your research and analysis using the pension extimator tool, and in analysis consider the $'s you may earn for working up to retirement, $'s for any unused vacation - noting you get your vacation accrued on Jan 1 of each new year, and the likely higher interest rates coming in 4Q21 and 1Q22 and 2Q22 forward, and be certain to account for the investment rate of return that you accelerate if retiring in 2Q21 if invested and you see a reasonable positive rate of return.
No one can predict markets or the future ... but all the direction is now pointing to increasing interest rates and lower lump sum payouts 3Q21 and beyond. The 2Q21 discount rate is the historic low ... and running about 1.2% - 1.4% lower than the previous historic lows pre-covid. You may wish to run scenarios in the lump sum tool for 1% higher and 2% higher ... and then interpolate between the results if you want to fill in for 0.5% or 1.5% increase in interest rate in the online tool. Unfortunately the online tool only seems to allow increments in whole percent in their number generation.
Hope this may help anyone contemplating retirement think through what to include if you had been seriously contemplating a 2022 retirement date and had assumed interest rates would remain flat into 2022 ... that is not going to happen.
The layoff crew is actually some of the luckiest bunch. Best interest rates for the lump sum since before many of us were in elementary school, if not ever. And more weeks of severance than most would get in a PIP situation. Still not comparable to the packages offered by other majors, but that’s par for the course for most things XOM these days. If you’re thinking about retiring or resigning, do so sooner than later if you want to maximize your lump sum pension payment and get free of XOM. Depending on your yrs left to retirement you may be able to more than compensate for any discount!
Third quarter interest rates will be 0.6, 2.73 and 3.57. The second quarter rates are 0.52, 2.29 and 3.05. The pension estimator tool is probably being updated now for the new rates since it is offline. Higher interest rates = lower lump sum payout and add to that the real chance of being PIP'd along with forecast of rising rates for fourth quarter too and the picture becomes more clear.
Anyone who is retirement eligible and hasn’t run the numbers needs to. High probability you will be working for free if you don’t retire now and take the lump sum while interest rates are low.
And they gutted the 40-50 demographic with the layoff. Exxon is an absolute train wreck waiting to happen.