Thinking about an early retirement? You’re not alone. If you’re one of the 15% of private sector working Americans who have a pension retirement plan, you might be wondering if now is a good time to make your exit.1 But before you start planning your retirement party, it’s wise to have all the facts, especially when it comes to how the rising inflation and interest rates may be affecting pension plans everywhere.
Pension Plans and Inflation
Pension plans used to be the norm for many companies (and their hard-working employees). But in recent years, company pension plans (and their beneficiaries) have seemingly been overshadowed by what seems to be the more popular 401k plan—especially companies in the private sector.2 Many government or service-oriented companies and organizations might still offer pension retirement plans.
If you’re planning on funding retirement on a pension plan, you know that there are two ways to receive your hard-earned money: a lump sum or a monthly check. The amount of money you receive, as a lump sum or through a monthly check, is based on a variety of factors, some of which include your age, how long you’ve been with the company, and the benefit interest rate.
If you’re near retirement age, you might be wondering how inflation and interest rates will affect your pension. Some pension plans may not account for the cost of living or inflation rates. Most employers calculate employee pensions at the start of each year based on the current interest rate. If the interest rate has been affected by inflation like it has throughout 2022, you’ll notice a hefty dent in your lump sum pension fund.
How Your Pension is Calculated
Pension calculators take your years of service, multiplied by your average ending salary, multiplied by your accrual rate.3 That number will give you your annual lifetime benefit. When you divide that by 12 months, that will tell you how much to expect if you choose to receive a check every single month instead of a lump sum.
If you are considering your options with your pension and want a better understanding of different payment options, check out this retirement with pension calculator. Retirement with pension calculators will help you put some facts and numbers down on paper to help you decide what may be the best plan of action for your individual situation.
Retiring with a pension
Retirement planning is an important part of having a solid financial strategy. And if you’re counting on your pension to get you through, that’s ok. But it’s also important to remember that having more than one stream of income during retirement is key.
Talking with your financial advisor is a good step you can take to work on a solid retirement strategy. We’ll help you determine how far your pension will take you during your retirement years. Contact a SageSpring advisor today.
Investment advisory services offered through SageSpring Wealth Partners, an independent registered investment adviser. SageSpring Wealth Partners is not a registered broker dealer and is independent of Raymond James Financial Services. Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Representatives may not be registered to offer securities and advisory services in all states.
The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of SageSpring Wealth Partners and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation.
These calculators are hypothetical examples used for illustrative purposes and do not represent the performance of any specific investment or product. Rates of return will vary over time, particularly for long-term investments. Investments offering the potential for higher rates of return also involve a higher degree of risk of loss. Actual results will vary.