How will Rising Interest Rates Affect Your Kaiser Permanente Lump-Sum?

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Many Kaiser Permanente employees may not be aware that choosing which month you retire can actually have a significant impact on your pension lump-sum. The amount of money you receive for your pension lump-sum is largely based on interest rates and your age. The general rule is that when everything else stays equal your lump-sum will increase if interest rates drop. Conversely, if interest rates rise your lump-sum will decrease. Interest rates change each month so depending on which month you choose to retire and commence your benefits you may see your lump-sum increase or decrease. Ideally you would like to pick a month with the lowest possible interest rates. 

Recently interest rates have been declining, greatly increasing the value of many employees’ lump-sums, however that trend may be ending. Kaiser Permanente’s August interest rates were the lowest in the company’s history and had been steadily declining every month since March. Kaiser Permanente looks back two months from the date you commence your benefit in order to determine the interest rates. This means someone who retired in October was able to take advantage of the record low August rates. 

However, the September interest rates ticked upward, the first rise in 6 months. This means that employees who retire in November will see a slight reduction in their lump-sum payment as compared to if they had left the company in October. This may be a small change, but if this trend continues and Kaiser employees will need to take the interest rates into account when determining their retirement date. Some employees may consider retiring a few months earlier than they had originally planned in order to take advantage of the current interest rates which are very low. It is wise to discuss these decisions with a financial advisor who is knowledgeable about the Kaiser Permanente benefits plan. 

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Sources:

The Retirement Group “Kaiser Permanente Interest Rates Creep Upward Causing Lump-Sums to Decrease.” Daily Financial Intel, 4 Nov. 2020, https://blog.theretirementgroup.com/blog/kasier-interest-rates-creep-upward

“The Retirement/Transition Guide for Kaiser Permanenete Employees.” The Retirement Group, The Retirement Group, 11 Aug. 2020, https://pharma.theretirementgroup.com/kp-guide-download-google