top of page

Rising Interest Rates Affect Your Lump-Sum Payment


Public Sector Workers: A major decision facing public sector workers is whether to take their pension as an upfront lump sum rather than an annuity.


At retirement, you do have options with your pension beyond the five or six listed on the sheet you receive from your human resources department.


If your priorities are financial flexibility, mental wellness and improved overall happiness, taking a lump sum payment could be a fit for you. You may also consider a lump sum payment if you:

  • Are in your early 50s with six-figure debt and want to pay it off.

  • Are widowed or divorced with children and don’t want your pension to disappear if something happens to you.

  • Want to change careers or take a sabbatical.

 
Let’s Throw in the Wrench

If you’re leaning toward a one-time payment and are edging close to retirement, you may need to decide sooner rather than later.


Why? Because rising interest rates will impact the amount you receive. The higher the interest rate used to calculate your lump sum, the lower the lump sum payment.


The interest rates pension companies use in the lump sum calculation has been rising with inflation. With interest rates being so low these past few years, the lump sum option has been an attractive one for retirees.


If the upward trajectory on rates continues, you will retire with a bigger lump sum this year than you would the following year. And the differences are significant. We are talking tens of thousands of dollars.



 

When deciding what to do, keep the following in mind:

  • Your best option depends on what you want your future to look like.

  • The key is to understand what you want to do, when you want to do it, and how much it is going to cost you. Then, your next steps become clear.

  • If your job is wearing on you and you don’t think you can take another 5+ years, it’s time to consider a lump sum.

  • If your focus is on maximizing the total amount of your pension and you are comfortable waiting, the lump sum is not your option.

Please reach out if you need help deciding when to take your pension.


We will help you understand each scenario so you can choose the best option for your future.




0 views0 comments

Recent Posts

See All

Comments


bottom of page