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Old 11-12-2011, 08:02 AM   #21
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When I retired I the follwoing monthly benefit options. Either option 1 - no sposual benefit, 2 - 50% on my death, 3 - 100% on my death. I asked the CFO of our organization which option he took when he retired. He did get price quotes for insurance and did a financial analysis. He ended up with a 100% sposual benefit. He said it made sense financially, and if he made a mistake and left his wife with too little to live on he would hear her cursing him in the afterlife... He choose the full spousal benefit and so did I.
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Old 11-12-2011, 08:27 AM   #22
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Originally Posted by Finance Dave View Post
The way I think about this is matching the cash flow to the situation. If you think about it, your expenses will not be as high once one person passes, but at the same time they will not be cut in half. Heating costs will stay the same, as will property taxes....but food and clothing expenses will drop by about 50%. As such, I've decided on the 75% option after one passes...I think this most closely matches how the expenses will act.
I agree- certain expenses will remain the same- the house doesn't care how many people live in it... but when one person dies, so does the expense of their food, clothing, entertainment and perhaps one of two vehicles. This means overall costs may decrease by 20-30%, making the 75% annuity option perfect for many.
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Old 11-12-2011, 08:37 AM   #23
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but when one person dies, so does the expense of their food, clothing, entertainment and perhaps one of two vehicles. This means overall costs may decrease by 20-30%, making the 75% annuity option perfect for many.
Don't forget that when one spouse dies, you have to start filing single instead of MFJ, *and* your SS becomes 85% taxable at a ridiculously low threshold.

When my dad died, my mom's income dropped by about $10K (her SS benefit, as she inherited Dad's when he passed) but her federal income tax burden almost doubled because of this.
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Old 11-12-2011, 09:42 AM   #24
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The way I think about this is matching the cash flow to the situation.
This is certainly true and any 50% "reduction" should not be assumed.

As a personal story, DW did not return to w*rk until I had left the military, and she was ready to send our child to daycare. That was six years after we were married.

I took on the "responsibility" (gladly) to cover all expenses for those early years and when she returned to w*rk, we made the decision that we would live on one income (mine), as we had done since our marriage.

As it turned out, some 42 years later, we still follow that same process. I'm the one who covers 99% of household expenses, along with some of "hers" (i.e. car insurance & maintenance), which means that most/all of her income (and future retirement income) is hers to spend as she wishes - mostly in her travels somewhere in the world, multipe trips each year.

If I were to pass first, she would have to cover expenses she never had to worry about and could never cover on her expected income.

Due to that fact, I've decided to delay SS till age 70 (for her benefit), continue life insurance - even though I'm retired (for her benefit), and have more than enough to pass on to her to continue the life "she is acccustomed to" assuming I pass first.

If I were to pass after her, I would need little/nothing to replace her pre/post retirement income.

If I were to pass first, she would have to have many, many multiples of her income to cover our expenses, to continue to live "in the life she is accustomed to".

Planning needs to be more than just a 50-50 split as a standard assumption, IMHO. You really have to look at your shared experience to determine multiple outcomes.

BTW, she's worth it ...
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Old 11-12-2011, 10:53 AM   #25
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I took about a 13% reduction in benefit so my wife would have a 100% survivor benefit. Rationale - she is female and 3 years younger so likely to outlive me. I am a 4 time cancer survivor with chemo and radiation history. Retired at 55 so if I live to my life expectancy of about 82, inflation will have reduced the purchasing power of my pension by 50% anyway - who needs another 50% cut on top of that.

I asked my financial advisor about "pension maximization" (buying term life with the extra pension) and he claimed he had analyzed dozens of cases and it always worked out cheaper to take the reduction and survivor's benefit.

Finally, knowing that my widow will have her basic needs covered by her pension, my pension, and her widow's SS benefit (I plan to draw at 70 to maximize that) allows us to spend more of our portfolio now while we are young and can enjoy it.
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Old 11-12-2011, 12:44 PM   #26
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Electing survivor benefit should also consider LTC requirements. I think if the pension is relatively secure and covers large part of expenses then it may be beneficial to not have LTC insurance and select 100% survivor benefit. This may not fit all the situations but worth considering.
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Old 11-14-2011, 01:22 PM   #27
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A friend of mine who will have a secure government pension in about 10 years was mentioning he was going to take the full 100% option on his retirement. I kept my mouth shut and laughed on the inside. Seems he doesnt know in our state the spouse has to sign off on this to get the option 1. Since she does not have a pension, I will let him find out in due course time, that this decision is out of his hands
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Old 11-14-2011, 05:03 PM   #28
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A friend of mine who will have a secure government pension in about 10 years was mentioning he was going to take the full 100% option on his retirement. I kept my mouth shut and laughed on the inside. Seems he doesnt know in our state the spouse has to sign off on this to get the option 1. Since she does not have a pension, I will let him find out in due course time, that this decision is out of his hands
In fact what you say is true in ALL states since it is a federal law under ERISA that a spouse must sign away their rights to a survivor's benefit and it must be notarized.
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Old 11-14-2011, 08:24 PM   #29
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Originally Posted by chemist

In fact what you say is true in ALL states since it is a federal law under ERISA that a spouse must sign away their rights to a survivor's benefit and it must be notarized.
I had similar choices at age 57. Mega corp with no cola We did the numbers and agreed a 20 year term was better for us. And yes she had to sign her rights away. In 20 yrs the purchasing value with no cola will be one half or less.
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Old 11-22-2011, 08:15 PM   #30
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I took 75% survivor for my dh. If he dies before me, it pops up to single for me. Part of my pension was a lump sum that was rolled to IRA. All of his was a lump sum. Difference for my monthly pension was $300 reduction.
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Old 11-22-2011, 11:16 PM   #31
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In fact what you say is true in ALL states since it is a federal law under ERISA that a spouse must sign away their rights to a survivor's benefit and it must be notarized.
That's true...

I took 100% and my husband is going to do the same. Sometimes I tease him and say "I don't know if I'll be able to survive on my pension".

Anyhow, we feel when one dies the other will have their pension, SS, 401K's and IRA's to survive on as long as the nursing home doesn't take it all.
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Old 11-22-2011, 11:24 PM   #32
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Old 11-29-2011, 10:11 AM   #33
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We are currently in the process of evaluating this option. At first blush it looks like a reduction in pension is the way to go but we are working through the options.

There are tax implications for us. The life insurance route means working with after tax income (our pensions are fully taxable). The pension reduction route uses 'less expensive' pre tax income. The life insurance payout is not taxable but the pre tax cash requirement can change the time value of money equation.

An insurance premium of $400. per month could require a pre tax income amount of $500. in order to compare to a $400. per month reduction in pre tax pension income.
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