As a financial advisor working closely with Boeing professionals on their retirement plans, I have witnessed a significant event in the Seattle-area aerospace industry. Last year, hundreds of experienced Boeing engineers chose to retire early, sparking concerns about a local brain drain and an experience gap at the jet maker. Their decision to retire early was influenced by an impending interest rate adjustment that would have substantially reduced their lump sum pension payouts if they delayed retirement. This situation is not unique to Boeing; it highlights the challenges many employees face when deciding between taking their pension as a lump sum or opting for monthly payments.
Boeing has been preparing for the launch of an all-new airplane toward the end of the decade. However, the exodus of experienced engineers, many of whom worked on the development of the last all-new plane – the 787 – poses a challenge. There will be a limited number of senior engineers left with detailed knowledge of the complex development process and its pitfalls.
Last year, Boeing’s white-collar union reported that more than 500 highly experienced U.S. engineers and over 130 technical staff retired in November. For most of them, the primary reason for early retirement was the potential significant reduction in their lump sum pension payouts due to the annual interest rate adjustment.
To retain critical expertise, Boeing identified 26 key engineers represented by the Society of Professional Engineering Employees in Aerospace (SPEEA) and offered them financial incentives to stay. The company offered each engineer about $400,000, primarily in Boeing stock, if they remained with the company for two more years. However, only nine engineers accepted the offer, leaving Boeing with the challenge of hiring new engineers to replace the departing experienced staff.
The dilemma, lump sum vs. monthly payments. For Boeing engineers with traditional pension plans, the decision of whether to take their pension as a lump sum or opt for monthly payments is complex. With inflation on the rise, many engineers chose to take their pension payouts as a lump sum that they can invest, rather than as fixed monthly checks. The lump sum option provides greater flexibility, allowing retirees to manage their income, and potentially grow their wealth.
However, there are important factors to consider before making this critical decision. One significant challenge is the “Sequence of Returns Risk,” which refers to the danger that the timing of withdrawals from retirement accounts can negatively impact long-term returns. To mitigate this risk, retirees should have some flexibility in their financial plans, avoiding the need to withdraw funds during a down market.
Additionally, employees must carefully weigh the benefits of taking their pension as a lump sum versus receiving monthly payments. While the lump sum option provides control over investments and income, it comes with potential tax burdens and the risk of running out of money if not managed wisely.
A question we get asked a lot by our retirees with pensions is, can I leave a legacy to someone other than my spouse? We find this of particular interest to longtime employees, for example with children. By taking the lump-sum instead of the monthly payment, they have the ability to manage the taxes due on the timing of the distribution, generate income, and if there are funds left, they can be passed to your beneficiary.
The early retirement of experienced Boeing engineers due to potential interest rate adjustments highlights the importance of comprehensive financial planning for employees facing similar choices. Working as a financial advisor with many Boeing employees over the years we understand the unique challenges Boeing employees may encounter during their retirement planning journey.
Our team is dedicated to helping retirees bridge the gap between their current financial situation and their long-term goals. We strive to provide personalized retirement strategies that consider market volatility, inflation, tax implications, and more. If you are a Boeing professional facing retirement decisions, we invite you to schedule an introductory meeting to discuss your goals and explore strategies tailored to your needs.
At Mountain-Bishop Private Wealth Management, we aim to empower you to make informed financial decisions, allowing you to enjoy a comfortable retirement and secure your financial future.