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  • Writer's pictureJames S. Falcone

This fall, a final decision is due on your retirement plan–“Go / No Go”& Lumpsum vs. Monthly Pension

Executive Brief:

An essential financial decision that needs to be taken by you before Nov 30, 2022, may affect your post-retirement lifestyle in a significant way. The options for consideration are a one-time lump sum payment OR a monthly pension for the rest of your life, and most importantly, when you should retire.

I was recently interviewed by the Seattle Times as part of an article reporting that many veteran engineers may retire this fall as pension adjustments may cut lump sum payments due to increased interest rates. Read the complete article here - Pension Deadline Could Speed Retirement at Boeing.

Here is my short list of what most people at Boeing may need clarity on the following before even taking the first step:

  1. What elements of information are needed to determine the best option for me?

  2. What numbers will I end up with if a decision is taken to retire by Nov 2022?

  3. Considering various factors like inflation, unforeseen expenses, investment rate of returns, and the actual purchasing power, which option will be the best for me?

  4. Will premature retirement affect my additional earnings during the rest of my remaining employment period? What are the pros and cons??

Financial Planning:

It's a daunting task to make a decision that has implications after retirement when income options are limited. Both the options have their inherent benefits & risks; with a lumpsum use, you accept the risk of managing the money, while a monthly pension loses its value over a period.

Many factors play a role in deciding the options above. For instance, if you have already invested in stocks and have a diversified portfolio, taking the lump sum and adding it to the portfolio does not make much sense. In that situation, an assured monthly pension would balance the risk of your portfolio investments.

Your lumpsum amount is a portfolio asset that may get eroded when a withdrawal is made due to an emergency or unplanned expenditure but serves the same purpose as timely cash. Another consideration is inheritance. The estate's value may not be so significant if you live longer. If your kids are prosperous and are not expecting an inheritance from you, then the possibility of leaving money to kids may not be a tremendous financial advantage to them.

Making a professionally informed decision:

The first step is to conclude your retirement decision before the end of November 2022. Lumpsum Payments made from the next year will be reduced due to growth in interest rates resulting in a reduction. This is expected to be to the tune of $78,000 for every 1% increase in the interest rate, and for some executives, it may be cut by more than $ 200,000

Taking the lump sum may not always be the better choice; watch this short video to understand why – Should I Take the Lump Sum Pension?

The second step is to write down a lot of assumptions, like expected monthly expenses vs. monthly pension income. Assuming that you will be healthy and alive to reach the average life expectancy, you need to plan for additional expenses for your health and assisted living care for the later parts of your life. Finally, do the math relating to the Time Value of Money and perform Internal Rate of Return calculations for every assumption/element of your decisions.

Work through this maze of information easily and arrive at the best decision to take under the present circumstances and information available to you.

With many years of experience in financial planning and experience in managing the personal wealth of individuals, Fulcrum WA understands the issues involved. We will work with you and run various options and scenarios to arrive at a decision that you are satisfied with and look forward to a fulfilling retired life.

If you need help understanding your options or making a decision, register for our Sept 27 webinar BOEING: To Lump-sum, or not to Lump-Sum.



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