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Rising interest rates also play a large role in the decision of whether Louisiana-Pacific employees should take their pension as an annuity or a one-time lump sum payment. As inflation continues to rise, the Fed has responded by gradually increasing interest rates, which decreases the value of future pension payments as well as the lump sum value. This is because the future pension payments are worth less today as the dollar devalues and the higher investment return drives the total present value of the payments down. To show this mathematically, imagine an individual with pension payments of $48,000 annually ($4,000 monthly), a 20-year time horizon, and a 5% interest rate
The present value of all of these payments is worth $598,186, which should roughly be the value of the lump sum payment. With a single percentage increase in interest rates from 5% to 6%, the new present value of the payments is reduced to $550,556, just under an 8% decrease over the old present value. Evidently, rising interest rates negatively affect the present value of future payments so given Federal Reserve Chairman Jerome Powell’s mention of 2-3 more interest rate hikes this year, the decision of whether to take a lump sum now or later could have a big impact on your retirement from Louisiana-Pacific.
'Taking your pension as a lump sum and knowing how to manage your funds to last for your retirement requires hard work.' |
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In practicality, taking your pension as a lump sum and knowing how to manage your funds to last for your years of retirement from Louisiana-Pacific requires hard work. Figuring out how much to withdraw, when to withdraw, and how much you can spend each year are just a few of the many decisions that are needed to be thought out in order to maximize the benefit of taking your pension as a lump sum. If you don’t take the time to think out these decisions, you could find yourself running out of funds during your years of retirement from Louisiana-Pacific.
For our Louisiana-Pacific clients who would prefer the safety of a guaranteed stream of income for the rest of their lives, taking the annuity over the lump sum may be the better option for you. With taking your pension as an annuity though, there is no certainty that the company paying your pension will remain in business for the duration of your retirement so you run the risk of receiving smaller pension payments from the PBGC (Pension Benefit Guaranty Corporation) in the event that Louisiana-Pacific goes under. Both options have their pros and cons and in the end up to you to decide which suits your personal financial situation and lifestyle.
If you are interested in more information about this topic, view our e-book here: https://retirekit.theretirementgroup.com/effects-of-inflation-e-brochure
What is the primary purpose of the Louisiana-Pacific 401(k) Savings Plan?
The primary purpose of the Louisiana-Pacific 401(k) Savings Plan is to help employees save for retirement through tax-deferred contributions.
Who is eligible to participate in the Louisiana-Pacific 401(k) Savings Plan?
All full-time employees of Louisiana-Pacific who meet the age and service requirements are eligible to participate in the 401(k) Savings Plan.
How can Louisiana-Pacific employees enroll in the 401(k) Savings Plan?
Louisiana-Pacific employees can enroll in the 401(k) Savings Plan by completing the enrollment form available through the company’s HR portal.
Does Louisiana-Pacific offer a company match for 401(k) contributions?
Yes, Louisiana-Pacific offers a company match for employee contributions to the 401(k) Savings Plan, subject to specific terms and conditions.
What types of contributions can employees make to the Louisiana-Pacific 401(k) Savings Plan?
Employees can make pre-tax and, in some cases, after-tax contributions to the Louisiana-Pacific 401(k) Savings Plan.
Are there any limits on how much I can contribute to the Louisiana-Pacific 401(k) Savings Plan each year?
Yes, the IRS sets annual contribution limits for 401(k) plans, and Louisiana-Pacific adheres to these limits.
How often can Louisiana-Pacific employees change their contribution amounts?
Louisiana-Pacific employees can change their contribution amounts at any time, subject to the plan's rules.
What investment options are available in the Louisiana-Pacific 401(k) Savings Plan?
The Louisiana-Pacific 401(k) Savings Plan offers a variety of investment options, including mutual funds and target-date funds.
Can Louisiana-Pacific employees take loans against their 401(k) savings?
Yes, Louisiana-Pacific allows employees to take loans against their 401(k) savings, subject to specific plan provisions.
What happens to my Louisiana-Pacific 401(k) savings if I leave the company?
If you leave Louisiana-Pacific, you can choose to leave your savings in the plan, roll them over to another qualified plan, or withdraw the funds, subject to tax implications.