Don’t try to figure out your buyout package alone, email gary.lutick@atl-ga.net or call (404)303-9994 if you have any questions.
Update January 1, 2022: There is not a current buyout program being offered with UPS. We can help with their 401k, Computershare, open window selling, LTIPS and RPU planning as well as planning for retirement with their pension information.
Update July 12, 2017 at 6 pm EST: According to our sources at UPS, while there have been buyouts in late 2016, there are no new buyouts planned for 2017. We apologize for any miscommunication regarding current buyouts. An article late last month in Bloomberg reported that UPS plans to freeze pensions for 70,000 workers to reduce costs, but sources at UPS say the shift won’t take place until 2023 and that they plan to enhance their 401(k) plan to compensate for pension changes. Many employees hired after 2008 have a deferred savings plan that is portable which could allow for a lump sum payout or allow for an annuity payment.
If you or your spouse were a part of the UPS Retirement Plan and/or the UPS Pension Plan, you may have received a buyout offer from UPS. This means that instead of waiting until retirement to receive your pension, you could have the option to receive a lump sum or begin monthly payments immediately.
Recipients of the offer may have a limited time to accept. But how do you evaluate your options? Should you stay with the pension, take a lump sum, or start monthly payments? There are a number of things that you need to consider when making your decision.
Evaluate The Numbers
The first thing that most people want to discuss are the numbers. What option does the math favor?
Run Example Calculations
Let’s look at a hypothetical example. A 40-year-old previous UPS employee may be offered a $15,000 lump sum or $70 a month for life. With the pension, his benefit at age 65 would be $388 a month.
A life expectancy of 80 years would mean that the total pension payout would be $69,840. If he went with the $70 a month immediately, his total payout would be $33,600. That’s about half of what he would get from the pension. However, if he only lives to age 70, starting payments now would be a better deal, and he would end up receiving almost $2,000 more.
How does the lump sum compare to these options? That will depend on where you put it and your rate of return. A $15,000 lump sum growing at 6% until age 80 will become just under $155,000. That, however, doesn’t take into account taxes, fees, or withdrawals.
Don't Forget To Consider
The above calculations are simple, but in reality, there are a lot of other factors that must be considered.
- Life Expectancy. No one can predict the future, but your current health and family history are good indicators of how your lifespan will compare to the average. As we saw above, how long you live can greatly impact which option is more profitable.
- Rate Of Return. There is no guarantee that historical rates of return will continue in the future. Also, having a more conservative asset allocation will affect returns. You will need to understand your risk tolerance and do calculations based on various possible rates of return.
- Taxes. If you take a lump sum, you can roll it into a traditional or Roth IRA. If you choose a Roth, you will have to pay taxes up front, which could be a significant expense. However, with a traditional IRA, you will have to pay taxes on your withdrawals.
- Inflation. A monthly $388 payment will not buy you nearly as much in 30 years as it would today. How will inflation impact your benefits?
- Legacy. Your pension may have a 10-year benefit for your spouse after your death, but it will provide nothing for other heirs. An IRA, on the other hand, will be passed on complete to any heirs.
Keep Your Lifestyle in Mind
Are you considering retiring completely as a part of your UPS buyout package? Numbers are important, but retirement is about a lot more than just the numbers.
Leaving the workforce behind is a huge lifestyle adjustment. Are you ready to turn off your alarm clock for good? If you’re yearning to slow down and relax, retirement may be the right thing for you. But if the thought of sitting at home all day and not being productive raises your blood pressure, it may not be the right time for you to retire.
How would retirement affect your social life? Whether you truly enjoy your colleagues or just tolerate them will play into your retirement decision as well. Some people keep working even after they can afford to retire, simply for social reasons.
Conclusion
As you can see, there is a lot for you to think about in a short window of time. Because of all the factors involved, there is no one right answer for everybody. What works for one person may be a bad choice for another.
I’ve seen many people turn to the forums on browncafe.com for advice. Our sources at UPS advice against this forum, as information presented is notoriously inaccurate. How could someone who doesn’t know you and your specific situation give you the right advice over the internet? At times like these, you need to consult a professional.
An experienced financial advisor can help you evaluate your choices and develop strategies and perspective that will help you make the best decision. We can help you minimize risk and taxes and educate you on other options for generating retirement income with your UPS plan assets.
Don’t try to figure out your buyout package alone, email gary.lutick@atl-ga.net or call (404)303-9994 if you have any questions.
About Gary
Gary Lutrick, MBA, RFC is a financial advisor and partner at ATL Global Advisors, an independent financial services firm serving transportation and logistics employees in the greater Atlanta area. Along with nearly 30 years of industry experience, he holds a MBA in finance and the Registered Financial Consultant (RFC) certification. He focuses on helping his clients plan for retirement, manage risk, and define financial objectives that integrate their family values. Learn more by connecting with Gary on LinkedIn.