How does this affect your Retirement plan?

How Does the Interest Rate Affect Your Pension?

In a traditional pension plan, your retirement benefit is often offered as a choice between a lifetime monthly payment or a one-time lump sum. The lump-sum value is calculated based on factors like your age, life expectancy, and—critically—the interest rate at the time of calculation. Here’s how it works: the lower the interest rate, the higher your lump-sum payout will likely be.

This happens because, with lower interest rates, the present value needed to generate a given future payout increases. For example, if you’re expecting $1,000 per month in retirement, a lower interest rate means your employer needs to set aside more money upfront to meet that commitment.

Why Now May Be the Time to Take Action

If you’re nearing retirement and considering a lump-sum payout, keeping an eye on interest rates could be key to maximizing your benefit. As we’ve seen in recent years, even small rate changes can lead to noticeable shifts in pension lump-sum values. By strategically timing your retirement, you could potentially lock in a higher payout if rates are trending down.

Planning Ahead with a Financial Advisor

Choosing between a monthly pension and a lump-sum payout is a major decision, especially with interest rates in flux. That’s where partnering with a financial advisor familiar with your company retirement plan can be invaluable. To help plan and see the impact of choosing a monthly pension payout or the lump-sum and how it can affect your retirement.

Advisory services are provided by Apollon Financial, LLC (“Apollon”), an investment adviser registered with the Securities and Exchange Commission.