If these low interest rates continue to remain low, or even move lower give the weakness in the Global economies, does it not make sense to delay taking your Pension lump sum payouts ?. I know there is the risk of a sudden acceleration in rates, but any safe investments to invest the pension proceeds are yielding close to nothing.
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I also read that IRS may change the way life expectation tables are set up as folks are living longer than the last time these tables were set up which would increase lump sum payouts in 2017. Not sure if this accurate nor do I fully understand how this would work. For folks who just retired and are looking to cash out their lump sum, this may be something to look into
"Japan has negative interest rates right now. Why can't interest rates go lower in the USA?"
When anything is at or near historic levels (whether high or low) it's a good bet to expect that thing to revert to the long term average...or perhaps you learned nothing from the recent reversion of oil prices to a point near the long term inflation adjusted average. You probably thought oil would stay about $100 forever.
@1uam, if you retired from Chevron before age 60, I'd recommend you don't wait long before taking your pension. The only reason to delay taking it depends mainly on the direction of corporate interest rates and whether you want the lump sum or annuity. Aside from that, waiting until 60 reduces the Early Retirement Factor by 5% annually, which can help you gain a little more on either form of benefit. Otherwise, if interest rates are to remain relatively flat for the next 12 months, it may be best to take the annuity now (if that was your inclination). Starting the annuity will start giving you a cash flow now, which in itself is building more wealth than waiting for lower interest rates.
A 1 percent increase in interest rates used in the calculation will decrease the lump sum payment by about 10 percent - something to be mindful of. Of course the interest rates do not matter if you take the annuity, which is not a bad offering either. I took the lump sum when I retired last July and could see from the Retirement Estimator that I would have received $20,000 less by waiting until the end of August.
The rates used to discount the income stream to arrive at the lump sum are not tied to the Federal Reserve Rates currently in the news. The actual rate is an average of 9 rates ( three tiers published by the IRS over three months). Hope that helps.
If interest rates remain the same - your lump sum payout will remain steady. If you were released prior to age 60, It may be worthwhile to wait until 60 for full retirement benefits. If you believe interest rates will increase - it may be advantageous to take your monies now. Just depends on your age and what you think about future rates. Of course, this is not advice or a recommendation but thoughts regarding lump sum pension payouts . I personally plan on waiting until I'm 60 to maximize my benefits. Im not aware of any investments which would exceed the incremental amount of pension gain I would recieve by waiting.
what happens if interest rates stay the same , will the payout amount not change as well ?
Japan has negative interest rates right now. Why can't interest rates go lower in the USA?
Interest rates can't get much lower.
Yes, you can play the interest rate game with the lump sum. Many retirees have done this in the past, I've heard of some doing it for a year or more.. You can even protect yourself from a sudden increase in the interest rate because the rates for the previous month come out on the 20th or so of each month, and the calculation won't use this rate as one of the 3 until the first of the next month, so you can submit your lump sum request in that time period and avoid having the latest rate factored in. Some people have even retired a month earlier than they were planning in order to avoid a rate hike. However, like any such timing attempts you will only know in hindsight what you should have done, as rates don't necessarily go up and down smoothly, so an increase one month might be followed by a decrease the next month or visa versa. Whether this is a good time to play the interest rate game is hard to say. The Fed definitely wants to raise interest rates, and job growth (outside of the oil business, of course) has been relatively strong of late. On the other hand, some European banks have even resorted to negative interest rates, so who knows.