Once I push myself away from the Thanksgiving dinner table, it seems to me that the remaining portion of the calendar year moves at lightning speed.
There’s an abundance of year-end items that need to be taken care of in
just a few short weeks. If you’re in your late 50s or early 60s and
employed by a large company, let me add one more item to your list.
If your company has a frozen pension, ask your HR department for a
handful of retirement projections covering a variety of retirement dates
over the next few years. You might be surprised at what you discover.
To set the stage, interest rates are extremely low. Bank deposits earn
next to nothing and mortgage rates are about as low as I can ever
recall. The surprise is how these low rates can impact your frozen
Pension fund managers need to be somewhat cautious in the manner they
invest pension funds. Hence, much of the money is in relatively safe,
low-interest bearing funds to meet their pension obligations. In this
low interest rate environment, that translates into a larger lump sum
compared to just a few years ago.
Consequently, if your company offers the choice of a lump sum buyout in
lieu of a monthly pension check, you just might be sitting on a
once-in-a-lifetime opportunity and not even realize it.
I recently encouraged a client in his late 50s to ask his employer’s HR
department for year-end retirement projections for 2014, 2016 and 2018.
Since the pension is frozen, retiring now and taking the traditional
pension wouldn’t be much different than if he continued working until
However, the lump sum offers provided by the HR department were quite
interesting. If he took the lump sum now or in 2016 or 2018 the amount
would be virtually the same. In other words, he could retire now and
receive a lump sum of $500,000 or wait a few years and collect the same
Mathematically and historically speaking, there is every reason to
believe that a $500,000 lump sum today would be worth more than the same
$500,000 lump sum a few years from now.
In my client’s situation, other than any new 401(k) deposits and company
match, there’s no compelling reason for him to stay with his current
employer. In fact, you could even argue that, since his benefits are
frozen and not growing, by staying on the job he is effectively taking a
reduction in pay.
In this low-interest environment, where my client’s speciality is in
high demand, and because he is somewhat disenchanted at his current
place of employment, he should consider taking the lump sum and retiring
now. Then, if he wanted, he could seek new employment with comparable
benefits somewhere else.
By investing wisely, his lump sum could actually grow over the next few
years, and at actual retirement some years later, he could have a
considerably larger nest egg than if he stayed on course.
I believe many of my readers may be sitting on a similar opportunity and
not even be aware of it. Take the time to request your retirement
projections. If the lump is a viable option, discuss it with your
financial adviser, along with ideas for investment.