I've been running the pension estimates over the past several years and I don't seen anything special that happens at 30 years. Is there something I'm missing? Am I on a different program than others? Is it just for union workers? I am a LLx salaried employee with many years of employment.
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I met with Edelman as well. While their rate was very cheap, I had the impression that I was just going into an algorithim without much personal management.
I ended up going with a CFP from Raymond James who offered a more dynamic portfolio as well as wealth planning/tax efficient planning/etc to manage the lump sum.
Everyone told me to manage it myself, but there aren't any do-overs with this - I felt more comfortable with professional management. So far - so good for the last 3 years!! No regrets.
I have met with several different advisors, and different strategies on lump-sum versus pension. I met with Edelman Financial engines as well in person to see if they were more than just a machine, and the office manager couldn't wait to get their hands on my lump sum, and basically offerted no alternative. Put off by that, I left.
@2zdm, all excellent points. A lot of people who don't have a pension and retire end up buying an annuity anyway with part of their 401(k), for the guaranteed income. The pension takes the place of a marketplace annuity. Also, having guaranteed income each month means a person can be somewhat more aggressive in their 401(k) investments without fear of losing money in order to pay bills, which might happen if someone were to withdraw from their 401(k) during a market downturn. Over time, the more aggressive stance practically ensures a better return (based on historical market returns), without the inherent risk of taking a lump sum distribution.
Wow - looks like some of the folks here need to do more homework when deciding on the lump sum or taking the payments, based on the info that they are stating.
You should be meeting with at lease 3 different advisors and get a feel from them on your numbers, projections based on various market conditions, life expectancy, legacy for children, 7% inflation, tax efficiencies, etc. This is not an easy decision, and everyone's situation is different.
I know several old timers that are kicking themselves for taking the payments (some did not have a choice of the lump at the time). Spending power has been greatly reduced (especially now).
@2zdm+1fufqMLz
Interesting ideas - just curious further questions.
Am receiving pension against all advice to take the lump sum. With the pre-62 supplement, spouse and my life expectancies, calculations showed a break even assuming a conservative and cyclical return on a lump sum. I also have an OK 401K balance to supplement.
I needed a pension or annuity immediately at 55+ and I decided on the pension for 4 reasons.
- Why put all of your funds, ALL legs of the stool, at immediate market risk?
- Pension is guaranteed. Guarantees don't mean much these days but Ford has not dared bail on that/ yet, and the PBGC is solvent.
- I needed pension funds, plus the supplement is not something I could leave on the table for 7 years. Yes you 'get' equivalent in a lump sum but its not accessible. A lump sum must be rolled over to some vehicle, or instantly taxed correct? Can you roll into the Ford 401k and withdraw immediately for rule of 55? If so those are taxed on the spot 20%.
- One advisor said its much easier to finance an auto or property with provable month income ( pension) if I wanted to do so.
- again I do not know every answer but curious other thoughts
@ 2zdm —
I took the pension stream of payments, and I treat that as our “bond” portion of our investment portfolio. This frees us up to invest the vast majority of our IRA holdings into those higher risk / higher reward equities which are our “stock” holdings. We are very much diversified, with the added safety of PGBF protection (you can look up the tables for protected pension amounts vs age) down the road should FMC go belly-up.
Bingo! You might be able to call the NESC or Financial Engines to model interest rate increases BEFORE they take hold- might be worth it even if you have to pay for it. If the Fed were to hike 7+ times in the next 2 years and the Fed Funds rate were to jump 200 basis points+, we could be in for a not so pleasant surprise with our lump sum amounts so much so we have to work that extra year to make up for it on a dollar for dollar basis- even worse if we were to enter this stagflationary environment. We just don't know how the war in Ukraine is going to affect things economically down the road either.
I just can't fathom a scenario in which I take the stream of payments. In translation terms this is like buying a lower rated annuity on the open market because you're very undiversified for starters. The return and terms would have to be very compelling, and I suspect they are not in comparison to what is offered in the open market. And its made worse if you hold a bunch of Ford stock on top of that.
What people fail to realize is that an annuity assumes you're completely risk averse. With an annuity you need the absolute piece of mind that comes with being able to completely know and predict your stream of payments into perpetuity. Most people aren't this and can tolerate at least some risk exposure. If you were to take the lump sum, you could conceivably buy an annuity that moves you up more on the risk curve with more favorable attributes - not talking about buying something less than an A- rating. Or you could buy investments that act like an annuity but are much more liquid far cheaper to liquidate, and return far greater. If something were to happen to Ford, your stream of payments goes with it. The value proposition would have to be so compelling in this scenario and it's not.
Yes, many think something happens at 30 years. Unless you are under 55, the only thing 30 years gets you is the early retirement supplement rather than interim retirement supplement. This only pays until you are 62. You can use the online calculator and look at the difference, and how it impacts a monthly check, or lump sum. Otherwise, hitting 30 years is not much different than hitting 29 years. It is a year of service and a year older. Of more significance for a lump sum is the interest rate. The online calculator is only good from about late September (after August rates released) until December of the following year. Put it this way. If you are at 29 years in 2022, and interest rate upward trend holds through August, you might find holding on for 30 into 2023 costs you quite a bit on your lump sum. Again, the online calculator for 2023 is useless until late September, but you can compare the August 2021 rates and plan ahead accordingly.
I certainly understand that each person's pension will be different depending on the factors listed. I've just heard over the years that something 'magical' happens to your pension at 30 years. I've run the numbers for the past 5 years and I don't see anything special happening after 30 years or age 65. And I have been on contributory since day one. FRP is almost worse than not having anything.
FYI: I'm all in with the lump sum. Once I leave, I don't want any ties back. Also, I want control of my money, and want to be able to leave an inheritance.
Regular early retirement is indeed 55 year of age and at least 10 years. However, the shortest seniority to still be on the GRP is something like 18 years of service as of this writing, which is early 2004. This conversation is not useful to somebody on the FRP.
Wow- there is a lot of misconceptions and falsehoods in what I'm reading. People cannot say mine is this @ x years with contributory, etc and how does that compare to yours at the same SG? Even a few variable differences can change the modeling significantly. The single biggest variable people tend to overlook is the projected salary rate increases to retirement. Your pension projections will look very different, depending on if you just recently got promoted, if you're low in the salary range to begin with, on TWA, etc. The difference between good, clean individual research and acting on misconceptions can be the difference between working because you need to get to the OPTIMAL retirement point vs. working very unnecessarily.
Granted, the pension is very back end loaded for whatever reason, which compounds the, "We always have too many people" Ford problem. It amazes me to witness the mentality around, "I have to stay to at least 30 years." This may or may not be the case, largely dependent on your age as it pertains to retirement eligibility around your age + service (points). Also market interest rates DRAMATICALLY affect pension payouts, especially for an LLx with a huge pension to begin with. If huge rate increases are on the horizon, it might make sense to go before they take place so you're not adding to a pension worth less money.
My advice is to graph it in Excel under a few scenarios to look at when the pension accumulation/payout starts to decline and it probably will under most circumstances. Remember the supplement stops at age 62 so it may not be worth that much more as you approach that age even though the estimator makes it look like it's a lot more. Normalize it and the monthly annuity amount to the lump sum for starters.
It most certainly is an annuity and is very comparable to other free market annuity offerings. You need to find out the term for starters and then you can start to back into the credit rating it's based on, etc or visa versa. Remember that two key annuity drivers are credit ratings and life. For example if you can take the lump sum and invest it in an A++ annuity under the same terms, that might make all the sense in the world if your were going to take the stream of payments. Just be careful in listening to amateur retirement "advice," attempting to apply it to your situation. Heck, I would even get 2-3 opinions from the so called pros before making my final decision. Good luck!
Remember pension goes way up if you are in the “contrib” part. After 35 years your pension is frozen at that level. Being in the contributory portion will double your pension. If you wait to retire at 65 will give you the best number. Many people take the lump sum but you can’t on the open market buy an annuity for the price of the lump sum.
My pension is peanuts but I am pre 62 and the supplement is over $25k annually. Its nothing to sneeze at / run the numbers for your situation.
@tzr+1fufqMLz: Yes, Normal Retirement is 65 years old with at least one year of service and Regular Early Retirement is Age 55 with 10 years of service or 30 years of service. Even when I hit 65 and will have over 30 years, I still don't see any significant changes.
As @ecv+1fufqMLz mentioned, benefits will be frozen at 35 years.
One thing to keep in mind if you are truly a long timer is that you can only accumulate up to 34 years of service toward your pension. Nothing special happens at 30 years unless you are under the age of 55.
Everything is explained in the SPD which you can download from Alight.
No, ExFW. The full pension amount is based on being 65. It is reduced for every year prior. Your husband's pension was reduced because he was not 65. All 30 gets you is the same increase as adding another year of service and age, plus early retirement supplement. 2019 was a bad year for a lump sum, because of higher interest rates August 2018.
@byq+1fufqMLz/Ex-Ford Wife: Not sure what you mean by 'full' pension. When I look at it from a lump sum perspective, it is more money, but that is because of more years. I don't see any sudden jump after 30 years.
You get the full pension amount at 30 years of service. My hubby was an LLx with 23 years & got SRD in 2019. He was over 55 so he qualified for retirement. He took the lump sum but it wasn’t the full amount like it would’ve been at 30 years of service.
It isn't really that significant unless you are under 55, then 30 years makes you retirement eligible. After you are 55, the only benefit is the interim retirement supplement turns into the early retirement supplement - maybe 1000 per month more. This only pays until you are 62. Other than that, it is no more meaningful than any other year.