Is My PG&E Pension Dropping With Rising Interest Rates?

How do interest rates affect my PG&E lump-sum?

-Soon to Be PG&E Retiree

Thank you for your question. With the most recent IRS segment rates showing a sharp increase and no indication of decreasing, those at PG&E that are looking to take their pension as a lump-sum could see their payment drop. This drop occurs because of how PG&E uses these segment rates to calculate your lump-sum value. Because of the calculation, interest rates and lump-sums share an inverse relationship which means that when interest rates rise, lump-sums fall. On average, interest rates increasing by 1% results in lump sums dropping by 10% in value. This relationship is true across most companies, for example, ExxonMobil employees saw a 0.8% increase in interest rates, therefore employees saw up to an 8% drop in their lump-sum values. In other words, if you were to receive a lump-sum of $1,000,000 and interest rates increased by 0.8%, you could see upwards of a $80,000 loss on your lump-sum.

While interest rates are one of the most important factors for your pension, it is not the only one. Since your pension is a defined benefit, it is established by the length of your employment, and your total average wage. These things can be used to generate your single life annuity. Various structures of pension amounts are also determined from this figure. However, if a retiree wants to claim their pension as a lump-sum, then the company will take interest rates and the retiree’s age into account to compute their final lump-sum amount.

If you’re looking to retire this year, there are some things that you can do to minimize or potentially avoid these heavy interest rate losses. The most significant of which is moving up your retirement date. A person’s modification of their retirement date could prevent them from losing out on a substantial amount of money, especially if they evade retiring in a month with high-interest rates.

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