Alternatives to pension survivor benefit

[donheff]

Quote:

Originally Posted by Texarkandy (60k federal worker who would like to ER at age 55 after 30 years w/50% survivor benefit: Annuity = $10,500 woo hoo! This employee better hope their TSP did well & SS stays afloat!!)

The FERS annuity would be $20K for the employee plus about $18K for SS, based on age 62. So you are starting out at $38K about half of which is fully COLAd and the rest partially COLAd. Not as good as CSRS but not awful. Add in the 5% match on TSP and you can do OK.

[Texarkandy]

Quote:

Originally Posted by donheff The FERS annuity would be $20K for the employee plus about $18K for SS, based on age 62. So you are starting out at $38K about half of which is fully COLAd and the rest partially COLAd. Not as good as CSRS but not awful. Add in the 5% match on TSP and you can do OK.

Yes, based on age 62 (btw, your employee would have 37 years service at age 62 - so actually 22K but don't forget to reduce by 5% or 10% for either a 25% or 50% survivor benefit) note: not "fully" cola'd: diet cola'd at CPI minus 1%.

But in my example of the 30 yr employee wanting to retire at age 55 (this is an ER forum ): 60K*1%*30 yrs = $18k-35% reduction for 7 yrs b4 age 62 = $11.7k-10% reduction for 50% survivor = $9900 annuity & no cola's for 7 years)

In either case you can see why the 30 or 37 year federal worker doesn't consider his/her Social Security as "insurance" or "welfare"

[Sue J]

My husband is in a similar situation, he's in our state's pension plan. He pays in 10% of his salary, his employer matches that but does not offer any match on 403b.

He just reached 25 years of service and hopes to stay 5 more years and make it to 30. At 30 years his pension would be 2.2% of his 3 average highest years, times his 30 years for his single life. Reduce that to 79% if he takes it with a 100% spousal life benefit. There are other options for other percentages to the spouse.

As the spouse, my preference is the reduced benefit with 100% to the survivor. I like a "sure thing". But we are also considering the other options, possibly 75% to surviving spouse. We still have some time. I'll get a small SS payment and if DH completes his SS credits he will get something, but it will be reduced because of his pension.

You and your wife are a lot younger than us and your possible pension is a lot larger than what my husband's will be. When the time comes we will consider taking a larger pension amount and buying life insurance but my gut tells me that life insurance companies are riskier than our state pension plan. I could be wrong with that.

Also, in considering life expectancy, my DH's father died at 70. One grandfather died at 52 and other grandparents died at 90. His mother if in very good shape and turning 80 in a few months. Hard to predict that one.

[SteveL]

Possibly there is some math you can do to help. The present value of the $594 difference (without COLA) between the top and bottom option is $123,000 at 5% interest through age 84. If you get hit by a truck later this year, and you picked the top option, your spouse would be out $1,260,000 during this 40 year period. Your plan has enough life insurance to offset not receiving your pension, assuming that she can manage to invest these funds in a way that will generate equal payments. If she isn't good with money, she'd be better off with the pension.

[rickier55]

rbat,

Looks like you have pretty good benefits there. While the incremental cost of the 100% survivor benefit is reasonable, it might also want to look at whats needed.

There a lot of discusion about how much you need after retirement compared to before retirement, but not quite as much on this board as to how much a "survivor" would need.

You wife will surely need more than 50% but will she really need 100%?

I didn't have a choice of survivor benefit levels (the survivors benefit is 50%). So I went through a fair bit of estimating to determine the level of insurance I needed to provide for her.

I'd look closely at the 75% survivor option. Though you really need to look at expected expenses and a break down of expenses to make that decision. The real question is how much will her expenses go down when you're not there to help her spend money? (or will they, as my wife says, claims go up if you're not there to slow down her spending)

Rick

[Zoocat]

Quote:

Originally Posted by burch64 I say again, "once an employee retires from the city, the city has no further obligation to that employee for his pension". The pension is paid from the pension fund which is independent from the city. The city could go broke and it would not directly affect the pension fund because it is separate from the city. .

That's good to know. Thanks for the info.

[NW-Bound]

Quote:

Originally Posted by Texarkandy In either case you can see why the 30 or 37 year federal worker doesn't consider his/her Social Security as "insurance" or "welfare"

I did not intend to demean people who rely on SS, either entirely or partially. Heck, I just ran FireCalc again with SS entered in for ourselves at 62, and it sure helped.

What I meant was that SS is not the same as other true retirement funds, in that if person A contributes twice as much as person B, then person A should get twice as much benefit. The higher-income workers end up subsidizing the lower-income workers. To check this out, you can download the SS benefit calculator to play with different scenarios to see for yourself.

If I remember correctly, Cato Institute had a calculator that shows how much benefit you would have in retirement, had your SS contribution been invested in S&P500. It was much higher, as I remember. Perhaps even double.

Now, I do not say that we should not provide for our elderly lower-rung citizens. But the government does not want to separate out what is your deserved portion, and what is a tax to help others. In fact, it appears politicians like to obfuscate this fact.

I always have worked for megacorps with 401k with $10K yearly contribution (it was upped in recent years). But it irked me when I saw that people who work independently or for mom-and-pop businesses could only contribute $2K/year (until recently) in an IRA. But professional workers (lawyers, doctors, etc...) could have Keogh plans with even higher limits than 401k.

Why such disparity for different workers? Is it because privileged groups have lobbyists working for them, while the average Joe/Jane is left with no advocates? In fact, the common 401k was originally intended for the executives to defer taxes on their bonuses, not for the lowly employees like myself to participate. It was the work of Ted Benna who brought the 401k participation to every worker.

So, you see, perhaps it was not intended for Joe/Jane Blow to have anything other than SS as the vehicle for retirement savings. But people want to have ownership of their own retirement funds, and they have found ways. Sadly, many people still think of SS as their sole source of retirement income.