Why Now May Be the Time to Act

Thinking about retiring? If you have a Honda pension plan with a lump sum option, you might have a good incentive to do so sooner than you planned to.

Low interest rates have boosted bond prices, which in turn gave a boost to your lump sum payout value, potentially making it more attractive than a monthly annuity payment. Now that the Federal Reserve is shifting its focus to lifting inflation, interest rates are expected to go higher, and that could send your lump sum payout value in the other direction.

Why? When the tables are turned and interest rates go higher, the company no longer needs to set aside as much money to make your monthly pension payment because the magic of compound interest is working in their favor. This is taken into account when your lump sum value is calculated, resulting in a lower number.

The other thing that’s taken into account is your age. And like interest rates, when it rises, it doesn’t work in your favor in this case. You see, your current age and estimated life expectancy is also factored into the calculation (how much money the company needs to pay each month x how many months they think they’ll need to pay it = your lump sum value). Once you pass the age of 60, years start to be shaved off life expectancy, which in turn reduces your lump sum value.

With these two factors in play, retirees who were considering a lump sum payout may be wise to run the numbers, especially before April 1, 2022, when Honda implements the updated rate for its pension fund, which will be influenced by any interest rate changes. The good news is employees who retire prior to that date will be able to get their current lump sum, instead of the adjusted one.

Should you consider retiring early and taking a lump sum payout? There’s no hard and fast rule. It’s certainly not a decision to be taken lightly and should be made in consultation with an experienced Retirement Planner. If you do choose a lump sum payout, a Retirement Planner can also help you minimize your tax burden, and if you’re under 59 ½ years old, ensure that the funds are directed to a properly titled account so you aren’t subject to an early withdrawal penalty.

Want to explore your options? We can help you evaluate the value of your pension benefits and provide insights that assist you in making the right choice for your circumstances and goals. Give us a call and we’ll be happy to help.

About Golden Reserve 

As Retirement Planners, it’s our job to look out for the dangers your traditional financial planner may miss in retirement.

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