The November interest rates, which Kimberly-Clark uses to determine lump sum values for everyone who retires in will be released in mid December. Rates increased in November and if that trend holds we could see a reduction in lump-sum values for Kimberly-Clark employees who retire in . Kimberly-Clark interest rates decreased in causing lump sums to hit record highs. However, rates are now rising which will likely reduce lump sums for those who retire in . When interest rates move up or down, your pension lump sum amount will move in an inverse relationship. Through the pandemic, interest rates have dropped dramatically which has greatly increased many lump sum payments. This trend culminated in record lows for individuals who commence their benefits . However, rates have increased in , and larger trends show that they will likely increase further, potentially causing a significant reduction in pension lump sums in .

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The Kimberly-Clark Pension Plan is a great retirement benefit for Kimberly-Clark employees. Your exact pension depends on your hire date, original hire company, and if you are management or not. The core pension benefit uses a calculation method looking at your years of service and final average pay or wage bands to determine your monthly annuity. From there you have the option to choose a joint annuity or a lump sum. The lump sum calculation will depend on your age and the current interest rate environment.

For the lump sum calculation, Kimberly-Clark uses the PPA (Pension Protection Act) segment rates. These are 3 different segment rates based on years in retirement. The first segment is used for the first 5 years of retirement. The second segment is for years 6 through 20. The third segment is for years 21 and beyond. Your age will determine how many years segment 3 is used. These segment rates are updated monthly. Kimberly-Clark uses the results of the November rates to determine the interest rates used for the lump sum calculation in the following year. The segment rates are generally released about 3 weeks into the following month. Due to this, you will not know for certain what rates used for will be until late December. The best gauge is to watch the monthly rates as you get closer with the October rates being released around Thanksgiving.
In the rates moved up through the spring then came back down a bit in the summer. Since then, they have started moving back up again. As of this writing, the September rates are the most up to date which are 2 months shy of the November rates. Currently, those rates are .17% higher on the 1st segment, .24% higher on the 2nd segment, and .03% lower on the 3rd segment. Since the 2nd segment covers 15 years of retirement it has the largest weighting on the calculations. The current move of .24% will likely lead to a 2% - 3% decline in your lump sum in . However, with rates rising, and the volatility we've seen lately, it's possible you could see a significant increase between now and the time the November rates are released. This would cause a larger reduction in your lump sum.

In addition to lump sum reduction in , there are many other changes affecting employees, especially managers. If you would like to review your situation, we can run a complimentary detailed cash flow analysis to show you various retirement dates and how the Kimberly-Clark benefits may change. Click here to schedule a Cashflow Analysis.

The annuity is discounted based on mortality as well as interest rates, meaning the present value of each monthly payment reduces as the probability of living to receive each payment reduces. The older you are when you commence your pension benefit, the fewer the number of years that will be valued using the third segment rate (20+ years) and, conversely, the younger you are, the greater the number of years that will be valued using the third segment rate.

This methodology essentially means that there will be a unique monthly interest rate (lump-sum conversion factor) for each year of birth.

How Do Rate Changes Affect Your Kimberly-Clark Pension?

Pension pricing is based on interest calculations, which means a slight adjustment in your retirement date may have a significant financial impact on your pension due to changing rates each year.

Everything else held equal, a higher interest rate will produce a lower lump sum. The exact changes depend on your specific age, but on average a 1% change in rates can equate to an 8% to 12% change in lump sums. So, on average, a 1% change could increase or decrease your pension lump sum by roughly 10%.

The current changes discussed above of .24% will likely mean a decline of 2-3% in your lump sum. For someone with a $500,000 lump sum, which could mean a move of as much as $15,000. For a $1,000,000 lump sum, it would be roughly $30,000. It is very likely we will see rates move even higher in which will lead to a further drop in lump sums for . Should they go up by 1%, then changes could be 10%. That could mean a $50,000 decrease on a current $500,000 lump sum or $100,000 on a $1,000,000 lump sum.

Example:

John is a manager who is 61 years old and has reached Mod-75. He is a manager and is considering going early in so he does not lose the Kimberly-Clark paid portion on his retiree medical prior to age 65. His current lump sum is $800,000. After consulting Kimberly-Clark HR, he learns he could be giving up $600/mo. in benefits for the next 4 years which is a total of $28,800. He also sees that his lump sum will be going down by roughly $24,000 given the current interest rates and understands it may even go lower. His original plan was to work to age 62, however by working into , he could potentially be giving up $52,800 in benefits. He will effectively be working for reduced pay or even for free in given this scenario. Due to this, it may be better for him to retire in December to capture these benefits or review working longer to recoup them.

Review:

Given the current interest rate environment, it is highly suggested you discuss your options with The Retirement Group and allow us to monitor the rates and keep you up to date on the monthly changes. We can provide a complimentary cash flow analysis to show you how various retirement dates may play out.

It is important to remember the pension annuity may be a better fit no matter how attractive the pension lump sum may be. Every situation is unique, and a cash flow analysis will allow you to compare all pension options. To schedule a cashflow analysis please click the button below:

Solid estate planning starts with knowing exactly what Kimberly-Clark contributes to your financial foundation. For retirement planning purposes, Kimberly-Clark maintains a defined benefit pension plan that has been frozen to new benefit accruals -- meaning the plan no longer accumulates future benefits for most employees, but those who were already vested may still be entitled to receive the pension benefit they accrued prior to the freeze, subject to the vesting requirements described in their plan documents, meaning the plan no longer accumulates future benefits for most employees, but those who were already vested may still be entitled to receive the pension benefit they accrued prior to the freeze, subject to the vesting requirements described in their plan documents, meaning the plan no longer accumulates future benefits for most employees, but those who were already vested may still be entitled to receive the pension benefit they accrued prior to the freeze, subject to the vesting requirements described in their plan documents. Kimberly-Clark also offers retiree healthcare benefits to eligible employees, which can provide meaningful coverage for those who retire before reaching Medicare eligibility at age 65. Tying your Kimberly-Clark benefits into a unified retirement income strategy - where every component works together - provides the clearest view of your financial future.