Think you have time to decide about your lump sum distribution?Maybe not. . .
Think working another year or two will mean a larger lump sum at retirement? Maybe not. . .
Thinking about changing jobs, but don’t want to give up the pension benefit?Maybe it’s time. . .
Toby Harrison, PETRA’s retirement investing expert, explains that for benefit pension plans providing an option for lump sum or partial lump sum payout, the payout difference between a 2022 election and a 2023 election can be lower by 25% to 50% depending on the beneficiary’s age.
The steep increase in interest rates affects the IRS regulated discount rate that must be used by pension plans to calculate the lump sum benefit.
First, develop a sense of urgency. Most pension plans are managed on a calendar year basis and adjust the rates to the IRS posted rate(s) on January 1st of each year. Many plans also require an election of benefit to be made in the month before any actual payout. This means anyone trying to avoid the lump sum value loss must make an election by November 30 to avoid the new discount calculation.
What it means for you also depends on whether you are close to retirement, a younger vested employee, or have a pension benefit from a former employer.
Older employees who are close (within 1 to 5 years) to making their retirement decision and are not expecting any substantial bonus or other incentives after 2022 will be highly incentivized to move up their retirement plan or else faced with working additional years with no income benefit.
Younger employees who are vested in pension plans are facing up to 50% reduction in lump sum benefits so many are considering changing employers in this tight labor market so they can take the higher lump sum benefit in their current pension plan in 2022 upon termination, and then move to another employer. You cannot take the pension benefit if you are currently still employed by the pension sponsor.
If you have previously left companies with pension benefits, and it’s sitting there waiting for your eventual retirement decision, you need to be aware of the current situation on lump sum degradation and learn how you can take your pension at any time from the previous plan – lump sum or annuity.
We can help you make decisions around retirement and pension payouts in the next 90 days. Our PETRA Protect product is designed to help retirees turn their pension benefit into an 6-7% income stream post-employment without the fees and principal liquidation of annuity products. We protect your original cash balance with stable Midwest real estate assets.
PETRA also helps investors roll their pension benefit to tax-deferred programs that will allow you to avoid early tax liabilities and allows access to self-directed investing in real estate or other asset classes.
Call PETRA to see how you can benefit from real estate investment income. We are ready to simplify the process even if you have a short window of opportunity!