Lump Sum = $1.44MM
50% Survivor Annuity = $6,187/month
100% Survivor Annuity = $5,866/month
I am 53, my wife is 48, have 2 kids entering college in the fall
Have about $1.4MM in other investments, owe $80k on mortgage
Should I take the lump sum or one of the annuities?
Which annuity? The company says most people take the 50% one
Thanks
How secure is the pension? Current funding levels? Is it private or a public pension?
Also, are your numbers correct on 50%/100%? Statistically, your wife will live to be about 4 years older than you. She is currently 5 years younger, so she'll be a widow for (statistically) about 8-9 years after your passing. Taking the 100% survivor's option will 'cost' you about $300/mo while you are alive. If both of you live to average age (say, 78 for you and 82 for her), you'll lose out on $300/mo for about 25 years. But when she's a widow, she'll gain about $2,772/mo with 100% survivor's vs 50% survivor's option, for about 8 years.
Total "cost" while you're both alive is $90,000 (over 25 years), while the "gain" if she's a widow is $266,000 (over 8 years). Problem is that those 8 years she's a widow is 25 years hence, and has a greater discount factor, while the $300/mo cost is from now until 25 years, so not discounted as much. But still looks like your smart choice would be if you took 100% survivor's option instead of the 50% survivor's.
But that assumes both of you are in good health and have decent family genetic health histories.
As far as what "other people do", it completely depends on their particular situation, and what their ages are and projected health outlooks are. Wouldn't make as much sense if your wife were 10 years older for you to take 100% survivors option unless you are in frail health and she's the definition of healthy living.
Bigger question is the stability of your pension. Good news is that your pension is roughly half of your income. Do you quality for SS? What is your projected SS benefit? What is your projected monthly spending with taxes? If your pension is very secure, I'd probably opt for the 100% survivor's option.
Some other things that might tip the scales in favor of the pension:
-State taxes: does your state tax pensions more favorably than capital gains/dividend income? Same question for IRAs.
-Investment portfolio: how is your $1.4M in other investments split up in taxable/ROTH/Traditional accounts?
Is it possible to take part of your pension in a roll-over (if it's maybe not as secure), and take a majority in a 100% survivor's?