Why You Should Retire Before Dec. 31

yahoo ^ | Thursday, December 10, 2009 | Ty Bernicke

[BenLurkin]

Millions of workers who are lucky enough to still have traditional defined benefit (meaning employer paid) pensions, are planning to take lump sums when they retire. But they're in for an unpleasant surprise: The value of the lump sum may go down substantially in the years ahead.

Currently, close to half of all pension plans allow for a lump sum distribution as opposed to the traditional annuity option—meaning a monthly check for your life and possibly the life of your spouse, too. If you've got one of those pensions, and you're considering retiring in the next few years, pay attention: Leaving a little earlier than planned could translate into a bigger lump sum.

The potential for significant lump sum reductions can be attributed to the teeter-totter relationship between pension lump sum values and interest rates. When the interest rate used to calculate a lump sum increases, the lump sum value goes down. When this interest rate decreases, the lump sum amount goes up.

There are two reasons why we will likely see interest rates increase in the future, which may significantly reduce lump-sum pension benefits for millions of U.S. workers.

The first reason for the likely increase can be attributed to a change that was part of Congress' big 2006 pension law rewrite. That change is being phased in from 2008 through 2012 and allows companies to utilize a blended corporate bond rate to calculate lump-sum pension values. Previously, the lower 30-year U.S. government bond rates were used to calculate lump-sum pension values.

The second reason for likely interest rate increases can be attributed to the correlation between the Federal Funds Rate and bond interest rates.

[norraad]

.." uh , oh"

[decimon]

Millions of workers who are lucky enough to still have traditional defined benefit (meaning employer paid) pensions...

Lucky if the employer can keep up the payments.

[Popman]

I have a feeling all this will be moot as the dollar becomes more and more devalued.

I see no real difference in getting X or Y if you retire earlier if a loaf of bread costs $12.50 and milk is $9.50 a gallon and your house is worth $.10 on a dollar.

I know, I'm an optimist / s

[incredulous joe]

Lucky if the employer can keep up the payments.

Lucky if the employee can remain employed under this Marxist Three Card Monty government.

[mountainlion]

Where I worked some guys retired before January 1 so all their saved vacation and sick leave would be paid as income in the next year when the income was lower. Some of these guys even got almost $30K buyout also. All of this amounted to almost a years pay.

[Paladin2]

Retiring (esp early retirement) these days is like going Galt.

[knarf]

"this Marxist Three Card Monty government."

I wishI could draw or had some of those clever programs some FreepeRs seem so good at ....

zero on a street corner, a TV dinner type table in front of him ... he's dressed all huckstered up, arrogant face ... a crowd is gathered around him as he calls to the crowd to try their luck at the table.

Three walnut shell halves on the table have written on them; Health Care, Job and Freedom.

The little 'pea' is really a small person, wearing a shirt that has printed on it the word, You.

(Or something like that ..... c'mon FreepeRs .. someone do this)

[Muzzle_em]

I think folks are looking to get the lump sum because of the fear of their annuity payments stopping altogether in a few years with O and the dems in charge, spreading their “wealth” around.

[joelt]

I like it,,,, but I can’t draw either.

[norraad]

I like it too,’cause it’s true!

[fatnotlazy]

My brother took a company buyout at age 57. But he also serves as a consultant to his former employer, which he is paid for. He's made some really good investments over the years, plus his wife still works; so they will do fine.

Me? I had to take disability last year. Unless I go back to work, I'll be living on peanuts. My IRA is swirling the bowl and my company pension is already nearly worthless.

Guess I'll have to be a greeter at Wal-Mart if I can stand up.

Thanks a lot, feds!

[Safetgiver]

I’m retiring Jan 15th, 2010. Have a small operation coming up on the 22nd, run out some sick time, go on my remaining vacation, get my lump sum, moving to Belize and put my ass in the sand and my feet in the water.

[XEHRpa]

And taxes. Don’t forget tax rates will likely rise in the near future, too.

[Paladin2]

Better to do it sooner than later, when you may not be able to have as much fun.

[aimhigh]

This article is a little late. Most retirement decisions are effective the first of the following month.