Chevron employees are seeing a significant reduction in the value of their pension lump-sums, as interest rates jumped again this month. Interest rates were just released for Chevron employees, and there was a 0.33% increase, in just 30 days, for the second segment (which is the most impactful). When interest rates move up or down, an employee’s pension lump-sum amount will move in an inverse direction. Usually a 1% increase in interest rates means a 10% decrease in lump-sum value. Since rates rose by 0.33%, lump-sums will be dropping in value by 3-4%. This means that an employee with $1,000,000 lump-sum could lose around $33,000 by retiring in June, as opposed to May.
When Chevron employees elect the month they would like to begin receiving their pension, Chevron looks back to the third, fourth, and fifth month’s rates to calculate their pension disbursement. Interest rates dropped dramatically over the course of the pandemic, which caused lump-sum payments to increase in value. This trend culminated in record high lump-sums for individuals who commenced their benefits in December of 2020. However since then, rates have risen substantially, reducing lump-sum values for current employees.
Video Link: https://www.youtube.com/embed/XxXlu43noSY
The Retirement Group is now offering a complimentary cash flow analysis for Chevron employees to help determine their preferred retirement date. The goal for Chevron employees in receiving a cash flow analysis is to avoid making big retirement mistakes, and potentially increasing their pension lump-sum value. With a cash flow analysis, Chevron employees will get a clear picture of how rising interest rates will affect their retirement.
The Retirement Group is also offering a webinar series for Chevron employees which discusses rising inflation and interest rates. Inflation can be detrimental to both pension options. Inflation often leads to a rise in interest rates which, as discussed earlier, reduces lump-sum values. Inflation can also reduce the value of an employee’s annuity payments. The annuity is a fixed payment, meaning it is not adjusted for rising inflation. Therefore, if inflation were to rise by 10%, a fixed annuity payment becomes 10% less valuable.
With interest rates rising significantly over the past few months, The Retirement Group suggests that Chevron employees discuss their options with an advisor. These advisors monitor the interest rates and can keep employees up to date on any changes which may impact their retirement plans.
The Retirement Group states on their website that no matter how attractive the pension lump-sum looks, it is important to remember the annuity option may be a better fit for certain individuals. Every situation is unique, and a cash flow analysis will allow employees to compare all pension options.
Disclosure: The Retirement Group is an independent financial advisory group that focuses on transition planning and lump sum distribution. Neither The Retirement Group or FSC Securities provide tax or legal advice. Please call the office at 800-900-5867 for additional questions or for help in the retirement planning process. The Retirement Group is not affiliated with, nor endorsed by Chevron.
Securities offered through FSC Securities Corporation (FSC) member FINRA/SIPC. Investment advisory services offered through The Retirement Group, LLC. FSC is separately owned and other entities and/or marketing names, products or services referenced here are independent of FSC. Office of Supervisory Jurisdiction: 5414 Oberlin Dr #220, San Diego CA 92121. ExxonMobil is not affiliated nor endorsed by The Retirement Group or FSC Securities.
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