Additional Cost of Choosing Joint Life Pension Income

[RetireAge50]

Pensions and annuities typically have options for single life, joint life 50%, joint life 75%, and joint life 100%.
In our circumstance we will likely choose one of the joint life options.
This can be achieved in one of two ways:
1. Through the pension provider by selecting the joint life option
2. Choose single life through pension provider and then buying a term insurance policy from another provider.
In my brief research I have found that option 2 is about half the cost of option 1. Am I over thinking this? What have others here done? Other ideas?

 

[pb4uski]

I've wondered about this as well and will face the question in 2-7 years depending on when I take my pension. Can a 60-65 year old male get 20 or 30 year term life insurance?

The other thing I see is that the need declines from when you pension starts to when you die since there are less remaining years to provide for DW but if I buy enough coverage to fill the need at age 60 then I am progressively "overinsured" as time goes by.

 

[Mulligan]

Being single, I had the no brainer of option 1, but other friends of mine will have to struggle with this choice. I would only offer a few thoughts on matter. 1) Is pension COLA'd? If so the reduced pension payout will widen over time due to lower original pension 2) Is survivor good at handling money and drawing assets to live on, as opposed to preference to receiving a monthly check? 3) Will the term life policy and accumulated assets provide enough security if you dropped dead in a couple of years? 4) Have you compared the "spread" between reduced pension from monthly insurance premium?
One friend of mine retiring soon is leaning towards 1/2 to 3/4 joint. Although she has a pension it is substantially less than his. They will go option 1 on hers as he says if she dies his monthly costs will go down more than her pension would bring in. I have another idiot friend who is 10 years away from retiring thinks he can get his wife to sign off on option 1 to have more money even though she has no pension or SS. He thinks she can find another husband. That plan isn't going to fly with her, no way.


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[aja8888]

I've wondered about this as well and will face the question in 2-7 years depending on when I take my pension. Can a 60-65 year old male get 20 or 30 year term life insurance?

The other thing I see is that the need declines from when you pension starts to when you die since there are less remaining years to provide for DW but if I buy enough coverage to fill the need at age 60 then I am progressively "overinsured" as time goes by.

We bought two $250K 10 year renewable term life policies (DW and I) when we turned 65 since we have no pensions and only SS and savings. Our families have a early death history.

 

[Animorph]

Only DW is getting a pension. She's 5 years younger, and of course female, so she should outlive me. She's the non-financial one, so more for her would be good. I could do without the pension just fine. So we're expecting to take the single life option.

 

[pb4uski]

We bought two $250K 10 year renewable term life policies (DW and I) when we turned 65 since we have no pensions and only SS and savings. Our families have a early death history.

I'm just wondering what happens if you still need the coverage at age 75 or 85 - though if you can reduce the coverage to approximate the reduction in need then it might help mitigate increase in premiums due to age.

 

[Mulligan]

I've wondered about this as well and will face the question in 2-7 years depending on when I take my pension. Can a 60-65 year old male get 20 or 30 year term life insurance?

The other thing I see is that the need declines from when you pension starts to when you die since there are less remaining years to provide for DW but if I buy enough coverage to fill the need at age 60 then I am progressively "overinsured" as time goes by.

I looking at needing term life at 65 for about 5 years, so I hope it isn't too costly for $150,000 or so. I want to get my GF out of work while I still know my name. We would just live off my pension while her 401k can still accrue a bit and delay her SS until 70. If I croaked right after she quit her job, she would be screwed.


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[Walt34]

DW doesn't have a pension so for me it was a no-brainer to take the spousal benefit option. The pension is COLA'd, I retired at 52 so going that far out, especially remembering the inflation of the '70s & '80s, I didn't even consider insurance.

But I am holding off on SS until at least 65, probably 66, and perhaps even later to reduce the financial impact on her assuming I go first because the pension drops 30% then. That way the net decrease will be a lot less. If I go sooner there's enough in savings/investments to more than make up the difference until she's 66.

 

[RetireAge50]

Inflation roughly takes care of the "overinsured" as time passes part. The future payout will be worth much less in real dollars.

 

[Alan]

Pensions and annuities typically have options for single life, joint life 50%, joint life 75%, and joint life 100%.
In our circumstance we will likely choose one of the joint life options.
This can be achieved in one of two ways:
1. Through the pension provider by selecting the joint life option
2. Choose single life through pension provider and then buying a term insurance policy from another provider.
In my brief research I have found that option 2 is about half the cost of option 1. Am I over thinking this? What have others here done? Other ideas?

I went with 50% spouse coverage and took out life insurance to cover the other 50%. Since the pension is not COLA'ed the need for the insurance fades over time. (DW does not have any pensions of her own)

 

[Moemg]

I would also see if the pension is tied to health benefits .I was widowed at 51 so health benefits were an important factor in the decision.

 

[Kaufmanrider]

I would also see if the pension is tied to health benefits .I was widowed at 51 so health benefits were an important factor in the decision.

As a retired FED, the only way I could ensure my wife would remain eligible for the Federal Employee Health Benefits Program was to select a survivor benefit. We opted for the max which will give her 50% of my retirement check and she could stay in the health care system. I gave up 10% of my retirement each month to purchase this option. I retired young at 49 and she is 47. I purchased a 250,000 dollar Life Insurance Policy to make up the half of my income she would lose. It'll end when we become Social Security eligible.

The flip side, if she dies before I do the government will stop taking the 10% out and my check gets bigger. Told my wife she better keep me happy.

 

[Walt34]

The flip side, if she dies before I do the government will stop taking the 10% out and my check gets bigger. Told my wife she better keep me happy.

Same thing here. The hit on the pension for DW's benefit goes almost entirely away if she goes first.

But she's cute and frankly I'll probably live longer, and definitely happier, if she's still around.

 

[retire2020]

Pensions and annuities typically have options for single life, joint life 50%, joint life 75%, and joint life 100%.
In our circumstance we will likely choose one of the joint life options.
This can be achieved in one of two ways:
1. Through the pension provider by selecting the joint life option
2. Choose single life through pension provider and then buying a term insurance policy from another provider.
In my brief research I have found that option 2 is about half the cost of option 1. Am I over thinking this? What have others here done? Other ideas?

Just had the similar discussion for a friend who and his wife both will get pension when they retire. Husband is seven years older than wife. They were leaning for 50% surviver benefits for each of their pension. I told them to go for full for each and enjoy the double payment while they're together. Just buy a term life to compensate for loss. We looked in online calculator and 1 million for 20 years was around 900/month. If you buy term around 55 then some providers offer 30 years policy but you try to buy around 60 then max you get for term is 20 years.

 

[jazz4cash]

Our cost for 65% survivor benefit is 5%. I always thought it was a pretty good deal, but I never actually verified it. I would prefer 75% coverage but not sure if we have that option. If we play the odds, 65% on my pension and 0 on DW's would probably work the best.

 

[Independent]

In my brief research I have found that option 2 is about half the cost of option 1. Am I over thinking this? What have others here done? Other ideas?

My employer continued group life insurance (in a reduced amount) for retirees. That is part of the reason I went with the 50% to survivor.

The other is that my wife is convinced that she is the thrifty one in the family and she could live on less than me.

If the life insurer used the same mortality table as the retirement fund, I think the insurance would be more expensive. But the retirement fund uses average mortality, and the life insurance will give you credit for significantly-better-than-average mortality (if you qualify). I expect that's what's driving your result.

 

[Chuckanut]

Interesting discussion. One thing I did was check to see what happens if my marital status changes after I start taking my pension. I can flip between the various options with some limitations on waiting time and frequency.

 

[jd0850]

I am going with the 50% option. The cost is 10.2%. At 100% it is 18.5%. It is non cola but with a "pop up" feature in the event if DW goes first, the pension will revert to the single annuity payout. We have plenty of funds to cover expenses so I can delay SS till 70. That would in effect self insure her from there on out. I have researched the pension max concept as the the insurance industry calls it and it seems to work only in about 20% of cases. I am ineligible to even think about it because some bad habits presently in the off stage (hopefully for good)but I would get a thorough analysis done by a third part (no connections with the ins industry if at all possible) because your choice is most likely irrevocable. Just too many hoops to jump through and risks associated with the concept plus DW would never sign on the dotted line.

 

[kcowan]

What we did was chose the 100% option. This provided term insurance for the years the DW would outlive me. At the time (age 49), that was 4 years. It was pretty cheap. Now after 22 years of collecting the pension, I don't know anymore. I suspect it was cheap because they were using actuarial tables for Megacorp and the retirees worked until 65 and died rather soon after that.

We are hoping to get those actuaries fired by living another 15 years! But we will only win if she outlives me by more than 4 years!

 

[mickeyd]

Choose single life through pension provider and then buying a term insurance policy from another provider.

I chose #1. Don't want DW to have any surprises when I predecease her.

#2 (above) assumes that you know how long the correct term of the LI policy will be (don't die after term). Will LI company still be in business at time of death? Don't let policy accidently lapse.

 

[jd0850]

Yes mickeyd " Don't let policy accidently lapse". Or you could say "Don't let policy conveniently lapse". The benefactor should be in charge of making payments because if the marriage ever ended up on the rocks, a few conveniently missed payments and....then what?

 

[oldphd]

Don't have the exact numbers at hand, but we had to make this decision with two different pensions in the last few years when DW retired.

Pension #1 - state teacher's, wanted to ensure some ongoing annuity for me if she passes in order to have health insurance, cost for 100% survivor benefit (with popup should I go first) was about 10% +/-

Pension #2 - private catholic school pension, not covered by ERISA so no PBGC coverage and no requirement to publish the full documents regarding financial health, what I could get told me it was OK, but not as good as state. It was also recently frozen, with dollar amounts fixed (someone young who had earned $x benefit will get that amount in 20-30 years upon retirement). The option for 100% survivor benefit was approximately 1/3 reduction.

I was surprised at the difference in the reduction for the 100% joint benefit. Given that difference, no PBGC coverage or COLA for the private, we elected 100% on #1 and SLA for #2... still have a few years of term life from way back, so we'll keep that in the event something happens soon, but once we pass that date I figure she'll have collected extra for enough years that I'll take the hit... Another factor is that both are modest, though enough to be appreciated... We have the proverbial multi-legged stool...

 

[pb4uski]

....Will LI company still be in business at time of death?....

If you think this is a legitimate concern then you obviously don't understand how regulated the insurance industry is and how few companies have experienced financial trouble since regulatory reforms put in place in the 1990s. The likelihood of a life insurance company still being in business is very, very high. And even for those very few companies that run into financial trouble, in most cases healthier companies assume the business the troubled companies have written.

 

[mickeyd]

If you think this is a legitimate concern then you obviously don't understand how regulated the insurance industry is

I fully understand the LI industry. I'd want it as part of my calculus if I was making a decision.

 

[Independent]

Yes mickeyd " Don't let policy accidently lapse". Or you could say "Don't let policy conveniently lapse". The benefactor should be in charge of making payments because if the marriage ever ended up on the rocks, a few conveniently missed payments and....then what?

I'm no lawyer, but I believe that "What happens to the life insurance?" is a standard part of a divorce agreement.