Doesn't start until January 1, 2024.
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I don't know why RMD has anything to do with lump sum. It doesn't.
Anyways... RMD are moving from 72 to 75 (based on your year of birth).
Another factor to consider. If you take the monthly, you'll start paying taxes on it right a way. if you take the lump sum and don't need the cash now, you can have it grow in an IRA at 5% T-bills YoY. Partial start converting to Roth at 12% tax rate (15% starting in 2026).
Don’t forget about mandatory RMD’s at age 72 when planning/tax planning. This is a huge advantage of a Roth vs Traditional account.
No, lump sum is not always the way to go. Last year, when you were getting 20-25% above the actual present value, it was the way to go. After another drop, next year you will be looking at over 30% reduction total in a little over a year. That is a lot for your investments to make up.
Wow. Painful hit to the lump sum. A $1 million lump sum turned into about $675,000 in two years. That does not seem like enough money for a 60 year old to live the rest of their life without adjusting life style significantly. Looking way ahead in time, it is worrisome. I just had to put my mother in an assisted living facility at the cost of $5,500 per month, which believe it or not is a pretty good deal. She is a retired teacher with a pension indexed for inflation and social security. Luckily her net monthly income can cover it. For me, I may be in trouble at age 88 because my numbers don’t look nearly as good as hers.😥
For those that did not retire last year...It su-ks working for free.
I had friends that were on the fence and they decided to ride out the storm..
Covid and the Trump/Fed policies to drive down interest rates made for a perfect storm on the lump sum. It was a once in a lifetime event.
I was lucky as they pushed me out and I got 9 months of pay on top of that... That is a perfect storm bonus.
Take the pension lump sum and run.
From the comments section of a freep article, Look at where GM stock was at IPO after bankruptcy $33. Today stock price $33.
Look at Ford in same period. Same flat price.
So inflation adjusted, other than small dividend, share price has languished.
Take the money and run.
@2juj+1oGgjn8h - GM retired salary employees ended up the same as IBM employees.
Another consideration with monthly pension: A couple years ago IBM transferred some of its pension obligations to Prudential and converted them to a fixed annuity. The retirees still get their payments but there is no longer protection from the PBGC. IBM could have also chosen to pay out a lump sum though they didn’t do so in this case
Research pension de risking if you want to learn more.
Of course it doesn’t mean Ford would do the same thing but it was definitely a factor in my deciding to take the lump sum
Lump sum is always the way to go. Then you can invest it, stick to the 4% rule, and live comfortably. As stated, the pension annuity never goes up! So $4000/month today will be worth about $3000 (in buying power) in 10 years (and even less if inflation continues to be high).
Conversely, if you take a $1 million lump sum and invest it conservatively, even at 4% annual growth it will grow to $1.5 million in 10 years. And likely more as it's also likely to keep up with inflation.
Anyone that is taking a monthly pension is risking being stymied by a fixed income as they age.
@1zge+1oGgjn8h - just like the others have said, you're not missing anything. Just keep in perspective the cost of inflation.
My friend retired in 2017 after ~35 years of service. He was getting a monthly pension of ~4500. He was happy to have some left over every month. Now just 6 years later, he is not happy as the cost of living has gone up so much. He has cut back and dipped into his 401K.
The stock market will go up and down, overtime it will go up on average 6-8%. Keep your 401k as is, if you take the lump sum, you could diversify and buy 3, 5, or 10 year Treasury Note paying interest every 6 months (current interest is 4.2 - 4.7% depending on the duration of the note). Do the math and see what best works for you.
It is not an easy decision. Good luck.
@1zge+1oGgjn8h
Depends on a number of factors, but this calculator might help.
https://www.calculator.net/pension-calculator.html
I have a very low risk tolerance for the stock market, plus already have a sizable 401k, so I would take the monthly pension too.
Best pension option for:
Retirees between 12/01/21 and 11/30/22 --- lump sum (LAST YEAR)
Retirees between 12/01/22 and 11/30/23 --- annuity (18-27% drop in lump sum)
Retirees between 12/01/23 and 11/30/24 --- annuity (6-9% further drop in lump sum)
@1zge+1oGgjn8h. You are not missing anything. Until interest rates fall, the regular pension is probably the way to go. Last year was the time for a lump sum.
@1zge+1oGgjn8h: The regular pension is not indexed for inflation. The lump sum calculation is not either, but your investment approach for your lump sum can work to overcome that.
So, as a lowly gsr8 my thought is to take the regular pension. It will be protected from the stock market. I'm not a hight earner so if FoMoCo goes bankrupt the PBGC will cover it. Not planning to leave it to the kids. What am I missing?
It's a pretty simple formula. Just an income stream calculated for it's NPV. Your age, your monthly payments are all known and provided. Just need the mortality table to see what they use for an end point (of you) and any undergrad finance major could figure it out.
(maybe not a Ford finance person)
Don't forget that you lose the early retirement supplement at 62. The impact of the supplement on your lump sum decreases as you approach 62.
Age also plays a role in lump sum number. Somewhere around 62 the lump sum starts to drop because actuarial tables predict you won’t live as long.
@1pfq . Thanks for sharing. Interesting that you see the difference from when you ran the calculations earlier this year and now. I have the feeling that there is another number that they use to manipulate (legally) to make it better/worse whenever they need to.
I asked multiple times to get the full formula, but they refuse to give it.
Anyone else care to share the % change they see?
I wrote ...
"Using a January 1, 2024 retirement date, mine was an 8.8% reduction in lump sum when I compared it to the calculation I ran earlier this year."
and for those of you who are comparing Dec 1 vs Jan 1 ... my reduction was 6.2%.
Using a January 1, 2024 retirement date, mine was an 8.8% reduction in lump sum when I compared it to the calculation I ran earlier this year.
The online projection tool has already been updated.
1dsv - thanks for posting. There is another factor to consider: the IRS mortality table.
Let’s give HR few days to get all that data updated. I expect an email from HR just like the one I got last year warning me of a reduction. Unless they want to keep us this time around. LOL.
August 2023 segments rates are out: 1st seg. 5.45. 2nd seg. 5.52. 3rd seg. 5.43
Compare to August 2022: 1st seg. 3.79. 2nd seg. 4.62. 3rd seg. 4.69
Compare to August 2021: 1st seg. 0.66 2nd seg. 2.50. 3rd seg. 3.12
It seems that the pension value will reduce only about 6 to 8 percent.
FYI, this starts on 12/1/2023. If you want the 2023 calculation, you need to retire on or before 11/30/2023. Do the projection using a retire date of 12/1 vs 11/30 and you will see the difference. Hope this helps.
We are going to get paid 8 to 10% less?
Yes sharing to help others. My math on the tool shows only a 6% reduction or $49K for 2024 compared to current 2023 rates for me in SG8.
yes, this was discussed yesterday. 8-10% decline.