ExxonMobil Pension Update: Q4 2022
Concerns around the effect that higher rates have on the ExxonMobil Pension Plan’s lump-sum values continue to be a key theme throughout 2022. As we highlighted in our pension updates in February and April, higher interest rates (driven by inflation) cause a negative effect on the value of your ExxonMobil pension. We’ve helped many ExxonMobil employees assess the negative impact of these rates on their retirement plans and, where appropriate, recommended an earlier retirement date to avoid pension losses. If you’ve elected to stay with the company, it’s important to understand where things stand now, and what future interest rate moves might look like. Will rates go higher? Will your lump sum go lower? We discuss more below.
Q4 Rates Published: Another Significant Rate Increase
As we’ve noted previously, each quarter’s rates are calculated by averaging the rates from the 4th and 5th month PRIOR to the beginning of the quarter as published by the IRS here. Therefore, the average of the May and June rates dictate the segment rates used for any individual retiring in Q4 of 2022.
As you can see, interest rates made an even more significant jump from Q3 to Q4, as occurred the prior quarter. We’ve touched on the magnitude of rate moves previously, but to reiterate:
So far this year, rates have responded abruptly to a higher inflation environment, as we predicted before the increases began. See the figure below for a simplified explanation of the relationship between interest rates and your lump-sum value:
If you wish to avoid the substantial decrease associated with retiring in Q4 rather than Q3, It’s critical to begin the planning process as quickly as possible. Contact our team here to schedule a no-obligation planning appointment.
Where are rates going after Q4?
Despite the significant rate increase so far this year, market interest rates are displaying only a slight tendency higher going forward, with investors’ expectations of interest rates actually falling at some point next year. Should this occur, lump sums may recover a portion of the 2022 decline.
Historically, when the Federal Reserve hikes interest rates to decelerate the economy and control inflation, there comes a point where economic activity tapers off due to the monetary policy implemented.
Subsequently, the Fed tends to “pivot” and reduce rates to begin tilting back towards an “accommodative” policy. If this cycle is consistent with history, lower rates could appear in the medium term and provide an opportunity for those near retirement to once again optimize their lump sum value when separating from employment.
The Rhame & Gorrell Team is pleased to provide complimentary retirement planning sessions geared towards helping you make the best of your pension. We will help you assess your ideal retirement date, given the fluctuating situation with the pension, so that you enter retirement in the most advantageous financial position.
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If you’d like some help from a CERTIFIED FINANCIAL PLANNER (CFP®) advisor, the Rhame & Gorrell Wealth Management team is here to help.
Our experienced Wealth Managers can help you review your financial and tax situation and come up with a custom tax optimization strategy going forward – all at no cost to you!
Feel free to contact us at (832) 789-1100, [email protected], or click the button below to schedule your complimentary in-person or virtual strategy session today.
