Dear HR,

I’m retiring from Kaiser Permanente this year, with interest rates rising, when is the best month to retire?

-Mr. Leaving KP for the Beach

Last Updated 6/24/22

Dear Mr. Leaving KP for the Beach,

Thank you for your question. Kaiser Permanente workers are experiencing a drastic drop in their pension as the short, medium, and long-term interest rates were considerably higher in recent months. Those who commence their benefit in July can expect to see about a 3% decrease in their lump-sum compared to if they had commended their benefit in June. It is impossible to predict which month is right for a specific person to retire, but with rates continuing to rise, lump-sums will likely continue to fall. The reason being is when employees from Kaiser Permanente decide on which month they want to start their pension, the organization takes into account the previous two months to determine the rates for the pension payment. As a result, if interest rates increase or decrease, a person’s lump-sum amount will move inversely. Throughout the COVID-19 pandemic, interest rates significantly decreased, which made the value of lump-sum payments significantly increase; however, interest rates have only been increasing since then, reducing lump-sum values.

People that are mostly affected by these high interest rates are those planning to choose the lump-sum option as its value is established on one’s age and interest rates. An employee’s pension is aggregated based on the date they stop working with Kaiser Permanente and the date they commence their pension benefits. An individual’s benefit is determined by their length of employment and average wage. A worker wanting to retire in July 2022 will most likely have their earliest possible pension start date on August 1st, 2022; as a result, they should ask for their Pension Election records before July 15th, 2022.

The rearrangement of an individual’s retirement date may be necessary to avoid taking a large financial loss, especially in a month with high interest rates. The precise changes to a person’s lump-sum amount are determined by their age; however, a 1% change in rates, on average, is equivalent to anywhere from an 8% to 12% shift in value. As rates are updated every month, people wanting to retire have various choices to begin their pension. But if they want to obtain their pension before they are 60 years old, then they will encounter age penalties, ultimately preventing them from acquiring the full pension amount. Lastly, it’s fundamental to know that people don’t have to promptly start their pension when they retire. If a person prefers to wait on their benefit commencement due to high interest rates, they certainly have the option to defer it until another time in the future.