For those fortunate enough to have a pension plan, generally one of the options available to receive the retirement assets is through a lump sum payment. A lump sum is defined as “A one-time payment for the total or partial value of an asset. A lump-sum payment is usually taken in lieu of recurring payments that would otherwise be received over a period of time.”

Seesaw with text

Lump sum values have an inverse relationship to interest rates. Much like a seesaw, when interest rates go down the lump sum value will go up. And when interest rates go up the lump sum value will go down.

There are a handful of interest rates that pension plans may potentially use to calculate the lump sum value. Two commonly used rates are the GATT rate and the PBGC rate. Consult with your benefits department to find out which rates are used when calculating your lump sum value.

Given the present historically low interest rate environment, now may be a good time to sit down with your financial advisor and review the retirement benefits that are available to you.

 

Sources:

Definition of lump sum: http://www.investopedia.com/terms/l/lump-sum-payment.asp#ixzz3cauPc1u8

Photo Credit: simpleinsomnia on Flickr, creative commons license.