Has anyone done the approximate math on this years IRS intrrest rate tables, compared to last year, and estimated a percentage drop in lump sum?
Is the IRS/Fed Reserve going to once again indirectly encourage 1000 Ford employees to retire earlier than planned come this November and take the lump sum... no incentive, no severance. Easy Squeezy.
@3lbl+1ohbwCi7 - Did you read my comment below? I'll state it again:
"Some folks prefer pension payment. That's fine, just keep in mind that the monthly amount is fixed for life. My friend took the package in 2017 and retired with a monthly ~$4500. Now 6 years later he is unhappy because of inflation and his monthly purchasing power has gone down about 30%."
Each person is in a different stage of life and a different circumstance. I get your point, the current pension payout is much less than last year and is likely to get worse in 2024. If you have kids and want to pass the money to your kids, then lump sum is the way to go. If you're healthy and expect to live to 100, and think Ford will be around to pay, then pension might be attractive. It is not an easy decision for many.
Don't retire if you are taking the lump sum. Retire with the monthly payment and if you are 65. You will have nothing to worry about except staying healthy. You will have more money than you can spend for the next 25 years.
Take the difference between each segment rate, add up and take an average. Multiply by 10.
This yields the 25% cut post 2022.
Doing the math on the 2023 values compared to 2022, approx 9% cut is what I forecast.
Mark your calendars folks.
If you think you’re lucky, put your hand up, ask nicely to be cut, and collect severance (9 months). Tell your boss “use my salary to employ 3-5 replacement workers in LCC.”
Tell you boss he will look like a hero to the LL3 or LL4 who is clueless as to how to decide who to cut.
Those of us who made the decision to retire and take lump sum in Nov 2022 had no choice, no package/severance. It’s a game of survival.
As I said in another thread, the mortality tables show men lost a whole year. If you compared with next year, that's another year off and a total of 24 monthly payments off the board. That alone will easily take care of 5-8% drop in the lump sum. Interest rates will do similar or worse, since they went up more than double.
For the ones that missed the boat last year, there is a tough decision ahead:
I would take option 1, and cut my losses, but I know everyone have their own preferences and lifestyles. Good luck, whatever you choose!
Echoing some of the comments made in the last three posts. I will add additional info to help folks decide.
If you retire in November 2023 and take the lump sum in December your lump sum will be calculated using last year's rates (August 2022). If you wait tell next year the lump sum will go down again because the calculation will use the August 2023 rates. I have a spread sheet that calculates the est. lump sum pay out and loaded the Aug. 2021, Aug. 2022 and Jul. 2023 rates and compared it to my 2022 Nov. retirement. My actual lump sum payout in 2022 was $870K, if I waited to retire in 2023, it would have dropped to $724K (YoY -17.4%), if I waited to 2024, est. $685 (YoY -5.3%). If you are thinking about retiring in the next two years, you may want to consider retiring this November and cashing out before the est. 5% drop. Use these numbers as an estimate, calculate your own payout before deciding. If you stay you should plan on trying to survive another 3+ years for the Fed to lower the Fed fund rate and try to survive the yearly terminations.
@1axg decent write up on how present value of pension is calculated here.
https://blog.acgworldwide.com/how-mortality-tables-work
You have to use the 3 different interest rates that come out in august. And the mortality numbers are published by the IRS. I don’t know the exact calculation ford uses but this will get you close
It all depends on your age and monthly pension amount but the lump sum took roughly a 20% hit last year. This year will be another 5% based on July’s numbers
While the exact calculation isn't specified, if you search for General Retirement Plan you should be able to locate a document that gives some details. Here's an excerpt ... The lump sum will be calculated using government mandated interest rates and mortality factors in effect for the calendar year in which you receive the lump sum payment. The first segment rate applies to payments made from your lump sum calculation date through the first five years, the second rate applies to payments made in years six through 20, and the third applies to payments made after year 20.
Here are the August 2021 rates (used for December 1, 2022 retirement) and August 2022 rates (used for December 1, 2023 retirement). August 2023 (for retirements January 1, 2024 thru December 1, 2024) should be out soon, but I included July 2023 which should be close).
Aug-21 0.66 2.50 3.12
Aug-22 3.79 4.62 4.69
Jul-23 5.35 5.28 5.10
The rate change was 2.25 last year and is 3.0 this year. The lump went down about 25% last year, so will go down an additional 33% this year. Poster makes good point about risk to take monthly though. Pension guarantee board will kick in but not at full value.
Likely will be 25-30% lower than last year lump sum (21 rates). I bet quite a few more folks will retire this year - employees that just completed 30 years of service in 2023
@cmc...if you think you know how to estimate the lump sum change, please share!
Yes, the August segments are out. As far as taking the pension vs. the lump sum, do you trust that Ford will be around, and financially healthy, for the rest of your life? If so, the pension is an option for you. Keep in mind that Ford does not insure it's pension fund.
The only option is monthly payment now. After 25% hit then 30-33% more this year, monthly is the only choice.
August rates aren’t out yet but based on July will be roughly 6 to 8 % hit on top of last years 20%
Ford uses the August interest rate segments (which are available now) and the new calculation will be available in mid to late September. The interest rates are up so there will definitely be a negative impact to lump sum calculations. I've been trying to find the formula for the calculation for several years now but it seems to be a state secret.