By Scott Bishop and Tom Mountain
Working at the aeronautical behemoth, Boeing comes with a lot of benefits. There isn’t just tuition reimbursement and competitive salaries, but also opportunities to continually learn and advance your career. One perk many Boeing employees appreciate and want to maximize is their pension.
The Purpose Of A Pension
The Boeing pension is designed to provide for employees and former employees during their non-working retirement years. Many workers need their pension to not only provide for themselves but for the spouse that supported them during their working years as well. While pensions only provide while a worker or their spouse is alive, it is common to want to leave a legacy of money for heirs as well.
Boeing Pension Options
When it comes time to take your Boeing pension, either because you have left the company or retired, you have two basic options for collecting your benefits. You can either receive a one-time lump sum or regular payments.
When you choose a lump sum, Boeing’s responsibility for the money ends when they hand it over to you. From that point on, it is your responsibility to manage the money and ensure that it provides for you in retirement. You have complete control over the funds and can do with them as you, please. Choosing a regular annuity payment, on the other hand, leaves the money in Boeing’s hands. It is their responsibility to manage the money and make promised payments to you.
If you choose to receive annuity payments, then you have another decision to make. Do you want to receive the payments only during your lifetime or do you want them to continue for the duration of your spouse’s life as well? Choosing to cover your spouse as well is called a joint survivor benefit. If you want your spouse to receive the same payment after your death, it is a 100% joint survivor benefit. When you choose the joint survivor benefit, your payments will be lower to account for the chances that your spouse outlives you and Boeing has to make payments for a longer period of time.
How To Analyze Your Pension Options
Which is best, a lump sum or regular payments? There isn’t one right answer. You have to analyze the numbers to see which option maximizes your benefits in your own specific situation. In order to perform a thorough analysis, you first need to get a pension analysis for your current age. This should include the lump-sum benefit you are currently entitled to and the monthly payment you would receive for yourself and if you chose a 100% joint survivor benefit. Next, get a pension analysis for age 65 with the same information.
The question you need to ask yourself as you compare the pension analyses is whether or not you can improve on their standard offer. The benefits that Boeing offers you at age 65 will be higher than the benefits that you are currently eligible for. The question is whether or not you can end up with more at age 65 than what they are offering by taking the money now. Another consideration is whether or not you are hoping to pass some of the money on to your heirs, as a regular pension payment cannot be passed to non-spouse heirs.
Example Analysis
To illustrate the process, here is an example of a former Boeing employee that we just helped. It is important to remember that every situation is unique and your results may be different than those shared here. Some numbers presented here are also rounded for simplicity.
The client in question was a 55-year-old family man with 12 years of service at Boeing. The lump sum being offered to him at age 55 was $146,414.83. At age 65, his 100% joint survivor benefit would be $1,036.54 per month, or $12,438.48 per year. To help him in his decision, we had to answer two questions:
- What lump sum of money would be needed to generate $12,438.48 per year over his and his wife’s lifetimes?
- Is it possible to grow the current $146,414.83 lump sum to that amount by age 65?
Our calculations were as follows:
Question #1
First, we made a conservative estimate that either the Boeing employee or his wife would live to age 95. That means their retirement would last 30 years, from age 65 to 95. To last for that amount of time, he would need $244k at age 65 if the funds were to grow at a rate of 3%. Four percent growth would necessitate $215k at retirement, 5% growth would only require $191k, and he would only need $171k if he were able to achieve 6% growth during retirement.
Question #2
Next, we calculated how much his current lump sum would have to grow in order to meet his needs at retirement age. If we roll up the $146,414.83 lump sum by 5% simple interest on the income base, it would be $7,320.74 per year. Multiply that by 11 years and it would come out to $226,942.97, which is likely a worst-case scenario. That $226,942.97 of income base would pay $12,481.86 per year, which is almost exactly what Boeing had offered. You could potentially generate more income depending upon market performance, but we use these numbers as a base since income could not be worse than described.
Do You Need Help?
As you can see, there are a number of calculations that go into determining how to maximize your Boeing pension and the right decisions for your unique situation. It is important to understand financial markets and the various products available as you consider your options.
If you would like assistance running your Boeing pension analysis, or any other former employers’ pension plan, we at Mountain-Bishop Private Wealth Management can help. We would be happy to help run the analysis free of charge. Reach out to us at 562-432-3783 or info@mbpwm.com to schedule an introductory meeting.
About Us
Mountain-Bishop Private Wealth Management is a full-service independent financial services and investment services firm that has been providing retirement and investment guidance to high-net-worth individuals, business owners, and Boeing employees for more than 25 years. Through our long-term guidance, we strive to help our clients build, protect, distribute, and transfer their wealth, tailoring our services and strategies to address each client’s unique needs so they can bridge the gap between their current financial situation and their long-term goals.
Scott and Tom built their practice on trust and excellence. They focus individually on each client, delivering the personalized touch that is missing with many other firms.
The Financial Consultants of Mountain-Bishop Private Wealth Management are registered representatives with, and securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC.
The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with residents of the following states: (AK, AZ, CA, CO, FL, GA, ID, IL, MI, MO, NC, NJ, NM, NV, OR, PA, SC, UT, VA, WA) SCOTT E. BISHOP CA LICENSE OB55872 THOMAS P. MOUNTAIN CA LICENSE OB55827
This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.