Interest rates quickly increased in 2022, creating a unique opportunity for Honda pension plan participants this year.
Honda is using 2021 interest rates to calculate the lump sum pension amount for this plan year. Starting in early 2023, Honda will use interest rates from 2022 to calculate the lump sum pension amount. The 2022 rates will likely be around 2% higher, which could result in a lump sum pension reduction of around 20%.
To illustrate this, let’s assume that your lump sum pension is $750,000 based on the 2021 rates. If we factor in higher interest rates, your lump sum pension could reduce to around $600,000, resulting in a lump sum pension reduction of $150,000.
The lump sum pension amount should not be the only factor in deciding when to retire. But for someone within a year or two of retirement, this could be a compelling reason to retire sooner and take advantage of the larger lump sum pension.
If you want help understanding your pension options or reviewing your retirement plan, click the Schedule A Call button at the top of your screen.
Brian Tegtmeyer, CFP® is an Ohio fee-only financial planner with over a decade of financial planning experience. He has a passion for helping people make a smart transition to retirement. Brian uses a life-centered approach to financial planning, which helps clients focus on both the financial and non-financial elements of a successful retirement. As a fee-only financial planner, Brian provides comprehensive and objective financial life planning to help clients over 50 organize, grow and protect their assets as they transition to retirement. As a fee-only, fiduciary, and independent financial advisor, Brian Tegtmeyer is never paid a commission of any kind, and has a legal obligation to provide unbiased and trustworthy financial advice.