Hi, just seeing if anyone can help with a pension elective for payouts. The choices are from a single pay monthly where your spouse gets nothing upon your demise. The other choices run from 50% where your spouse gets half to 662/3, 75, or 100% where your spouse would recieve the same benefit with no loss of payment. The normal elective is the 50%,I am just wondering if that seems to be the norm. the dollar diference between the 50% & the 100% to the spouse is about $1000 a month,and the increase monthly while both are alive would be about $200 a month. thanks
Pension Electives
- Thread starter lacawac
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Brett_Cameron
Thinks s/he gets paid by the post
I took the 50% survivor's benefit option.
Texas Proud
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I think it makes a difference if the spouse can live on less money...
Also remember... if you are both collecting SS, then one of the SS income streams go away...
On the plus side... when my BIL died my sister's pension payment went up since he was no longer a beneficiary.... but, not as much as her SS payment was...
Also remember... if you are both collecting SS, then one of the SS income streams go away...
On the plus side... when my BIL died my sister's pension payment went up since he was no longer a beneficiary.... but, not as much as her SS payment was...
GregLee
Thinks s/he gets paid by the post
Here, too, the monthly difference between 50% and 100% to spouse was around $1000/month, but also I get back that $1000/month if spouse dies first. They call that a "pop-up" provision. My wife and I have almost exactly the same pensions and made the same choices of 100% to spouse. Our reasoning was that after one of us dies, there is a good chance the other will run into extraordinary expenses for nursing care, and we wanted to keep the household income high to pay for that. (We've no LTC insurance.) When one dies, our household income goes down only $1000/month (loss of SS partially compensated by the extra $1000 from other pension).
martyb
Thinks s/he gets paid by the post
I'll be going with the 50% on both my pensions. I figure if I croak, and leave her with half the pensions, a paid off house, no bills, and her own Social security....she should be ok. I eat 80% of the groceries...
tightasadrum
Full time employment: Posting here.
I've also struggled with this one. I beat my head against the wall for weeks and ended up back where I started. I asked for recommendations from a Fidelity advisor and a USAA advisor. It was interesting that, even though they each had the same data about my financial situation, they came up with completely different recommendations. I'm older than my wife, so that figures in to the numbers. I finally decided to plot two functions, sorry but it's the engineer in me. One plots what I would received while living taking the different options. I then did the same assuming each option if I died immediately. It formed a sideways V with different slopes. The steeper slope being wife's line due to her younger age I assume. This helped me decide on a 100% option on one pension and 75% on the second smaller pension. I was willing to give up some income during my life in order to give DW a better income when I'm gone. I may keep my permanent life insurance too but haven't made the decision on that yet. Term life will go away in ten years or less anyway. One other wrinkle. I've decided to hold off applying for the pension for four months minimum to allow me to transfer additional money into my ROTH at a lower tax rate. Good luck on your decision.
Chuckanut
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
I have heard of different strategies. For example, skip the survivor benefits and instead use the extra income to buy a life insurance policy that protects the surviving spouse. Or some kind of old age annuity that kicks in if the spouse lives past certain age.
I don't recommend any of these. Just mentioning them. The devil, is in the numbers, and what works for one person may not work for others.
I don't recommend any of these. Just mentioning them. The devil, is in the numbers, and what works for one person may not work for others.
justplainbll
Recycles dryer sheets
Since my wife's pension amounts to 1/2 of what mine is, we elected to have no survivor benefit on her pension and a 50% survivor benefit on my pension. Consequently, the survivor should have pension income amounting to the size of my pension.
My employer had an (optional) life insurance package after retirement which was 1/4 of the cost of private life insurance. Therefore for me made more sense to buy it than any survisor benefit which really is just another type of life insurance.
Also I believe life insurance benefits may be taxed at a different rate than pension survivor benefits depending on your location?
justplainbll
Recycles dryer sheets
Some pension benefits have a cola feature; does life insurance?
Not a tax expert, but IIRC life insurance is usually not taxed in the US.
Not usually. I would imagine a policy could be written that called for an increasing payout, though.
rescueme
Thinks s/he gets paid by the post
FIL took no survivor benefit. His DW passed first, and he followed her a decade later. In that case, his decision was correct.
DW's best friend passed a few weeks ago. Her DH did the same thing as FIL, to maximize benfits. In their case, he also purchased life insurance with the chance that he would pass first. The annual preimums were a fraction of the increase in his retirement benefit, per his situation which was for term life at his age (60's).
In this case, it also worked out well, by not taking the 50% spousal benefit and of course, he does not have to maintain the insurance since her passing.
I don't have to make that decision (no pension), but DW has two small benefits that start in just over two years. She is taking the single life option to max out her benefit (I don't need the survivor benefit
).
Just another view, based upon our family/friend's experience.
DW's best friend passed a few weeks ago. Her DH did the same thing as FIL, to maximize benfits. In their case, he also purchased life insurance with the chance that he would pass first. The annual preimums were a fraction of the increase in his retirement benefit, per his situation which was for term life at his age (60's).
In this case, it also worked out well, by not taking the 50% spousal benefit and of course, he does not have to maintain the insurance since her passing.
I don't have to make that decision (no pension), but DW has two small benefits that start in just over two years. She is taking the single life option to max out her benefit (I don't need the survivor benefit
).Just another view, based upon our family/friend's experience.
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Texas Proud
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That is true, live insurance is not taxed as income.... but can be in the estate....
I have not heard of a life insurance policy that was adjusted for inflation...
Now, my mom's annuity that has a life insurance component attached to it does increase in payout value as the annuity increases... something to do with the tax laws....
Also, I am surprised that someone was able to get life insurance (that was not subsidized) to replace the income as cheap as some has said... it is a numbers thing... IOW, if you buy enough life insurance to replace the income you are giving up, that cost should be similar to the cost of an annuity... we did look at this for my sister, but could not get any insurance at a low enough cost to justify taking the higher amount...
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youbet
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
I agree. We looked at the life insurance vs survivor's benefit trade off and found that life insurance was expensive. Starting a substantial policy in your 60's with guaranteed renewal in your 70's, 80's and 90's cost more annually than taking the 50% survivors option on the pension. At least for the LI quotes we got vs the cost of the 50% survivor's benefit on my pension.
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When DH retired we took the 100% to survivor option. That option reduced his pension to 88.9% of the single option, a difference of about $300/month. If I die first, his pension payment will increase to the single pension amount.
I'll get a little SS, maybe at 62, maybe hold off until later. DH won't get anything as my spouse or widower due to GPO.
We have term life insurance, 20 year policies (age 45-65) with 9 years left to go. It's cheap now but when it ends at age 65 it will probably be too expensive to continue.
I'll get a little SS, maybe at 62, maybe hold off until later. DH won't get anything as my spouse or widower due to GPO.
We have term life insurance, 20 year policies (age 45-65) with 9 years left to go. It's cheap now but when it ends at age 65 it will probably be too expensive to continue.
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Actually the amount of the benefit decreases over time (as does the premium).
As I thought about it, that makes sense. The older my spouse is the less dollars she will need to replace my pension income, just based on life expectancy.
Heaven forbid she dies first, I can cancel the life insurance, or keep it in place for my children.
There is a lot of having to compare apples & oranges in this issue which drove me fruity!
I will be taking the option where if I die she will get 100% with no loss of
payment. She took a lumb sum from her last employer and put it in a 401k
so if she dies first I get 100% of that.
I checked the reduced amount with life insurance for the diference and it was more expensive than giving her the 100%.
martyb
Thinks s/he gets paid by the post
Finance Dave
Thinks s/he gets paid by the post
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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.
retiredncolorado
Dryer sheet aficionado
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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.
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.
ziggy29
Moderator Emeritus
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.
rescueme
Thinks s/he gets paid by the post
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
...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.
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.
