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Alternatives to pension survivor benefit
Old 11-10-2008, 09:34 PM   #1
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Alternatives to pension survivor benefit

Pension max or reduced benifit
I am retiring this year (I am a healthy 44) and can select an option from my pension to provide for a beneficiary (my wife who is also a healthy 44), if I choose. Both of our parents are alive and we have no children. My annual pension is a defined benefit that can vary from $73,000 to $81,500 depending on which option I choose below:
$6,794 per month Max benefit (100% benefit for my life, no benificiary)
$6,661 per month 25% to surviving beneficiary for her life
$6,428 per month 50% to surviving beneficiary
$6,259 per month 75% to surviving beneficiary
$6,100 per month 100% to surviving beneficiary

Here is some more information to help decide on whether to take a decreased benefit and supplement with term life insurance (paid for with post tax dollars).

My monthly benefit has a 3% COLA which makes both the benefit and or the potential savings worth more.

The DROP (Deferred retirement option plan) allows me to continue working for up to 8 years while my pension benefit is deposited into an account monthly. This account has an 8% guaranteed return. Max benefit - (8 years X 81,500 = 652,000) X 8% annual compounded interest and the 3 % annual COLA applied to the benefit.

There is no relation to beneficiary health coverage tied in to the decision.

I had my physical and am pre qualified for up to 2 million dollars 30 year term @ an annual cost of $4,200 and up to a 1 million 10 year term @ an annual cost of $800 (to cover the DROP listed above). To be safe, I got approved for what I thought would be the absolute max needed. I got prices in 250,000 increments both policies..

Our life expectancy is 84, 10 years beyond the 30 year term policy.

My thinking is that a combination would be best. The life insurance is tax free, immediate and would cover the lost DROP if I passed sooner rather than later. By the time the 30 year policy expires, the DROP account and the savings should equate to a considerable amount. She would get a fixed amount with a COLA and not have to worry about investments

By reducing my benefit she gets a guaranteed monthly payment with a COLA, a larger DROP account with compounding interest of 8% and all that we save or accumulate for all the years receiving the larger benefit and the life insurance can be transferred or cancelled if she passes before I do.


My concerns are the Life ins. Companies stability. They are all A+ rated and I would split the coverage equally between them. Also my concern is the premium changing or some other small print loophole, or simply missing a payment.

Thanks in advance for any help
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Old 11-11-2008, 07:51 AM   #2
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How secure is the pension? Is it government backed? Private but covered by ERISA? I have a COLA'd Federal pension and would not trade the survivor benefit for an insurance policy. But that is largely because I trust the government to deliver. What I recommend you do is mentally reverse the situation. If this was your spouse's pension what would you choose to protect your own future in the event of his/her unexpected death?
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pension survivor bensfit
Old 11-11-2008, 08:01 AM   #3
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pension survivor bensfit

it is a city pension
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Old 11-11-2008, 09:00 AM   #4
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You seemed to have covered your income but does your wife provide any income and what would happen if she dies first ? Also does your wife want to handle investment decisions or would she rather have a stable income every month ? How would she react to a melt down like we just had ? I've seen to many women be widowed and trust their finances to unscrupulous investors .
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Old 11-11-2008, 09:07 AM   #5
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WOW! I thought I had good retirement benefits. The fact that you can retire at 44 with benefits like this is unbelievable.
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Old 11-11-2008, 09:26 AM   #6
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You seemed to have covered your income but does your wife provide any income and what would happen if she dies first ? Also does your wife want to handle investment decisions or would she rather have a stable income every month ? How would she react to a melt down like we just had ? I've seen to many women be widowed and trust their finances to unscrupulous investors .
I would rather her not have to worry about investing etc., thinking there should be enough either way to where very secure, non stressful type investing would provide enough income for her. Also why I am considering taking maybe 50% at a reduced benefit with insurance to supplement it. But I also do not want to have all of our eggs in one basket. Her income is less than 50k and should not be a concern. We currrently have a whole life policy to coner our 200k mortgage.
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Old 11-11-2008, 09:32 AM   #7
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I would keep it simple and go for the 100 percent survivors benefit and not deal with the life insurance
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Old 11-11-2008, 09:51 AM   #8
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Lots of options. Keep in mind the chance of your wife outliving you is nearly 100%. There's not that much monetary difference between a 50% survivor and a 100% survivor, so I would do that.
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Old 11-11-2008, 12:35 PM   #9
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WOW! I thought I had good retirement benefits. The fact that you can retire at 44 with benefits like this is unbelievable.
True. To think that citizens' tax dollars go to pay for a 44 yr old city worker to retire with this level of benefits is truly unbelievable.

Great career choice, rbat. Would it be OK to ask what your specific occupation has been?
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Old 11-11-2008, 12:39 PM   #10
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True. To think that citizens' tax dollars go to pay for a 44 yr old city worker to retire with this level of benefits is truly unbelievable.
And you wonder why cities are going broke...
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Old 11-11-2008, 01:05 PM   #11
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And you wonder why cities are going broke...
So is GM, and Circuit City and Linens and Things.....and......should I go on?
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Old 11-11-2008, 01:17 PM   #12
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So is GM, and Circuit City and Linens and Things.....and......should I go on?
The difference is, ill-advised corporate welfare notwithstanding, I have a choice about whether to do business with these companies. People don't have a choice about having their services cut and taxes raised for enormously generous retirement benefits they don't get themselves -- and which makes it even harder for them to save for their own retirements.
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"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)

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Old 11-11-2008, 01:33 PM   #13
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Sure you have a choice. You can move out of the cities that have "enormously generous" retirement benefits. I bet you do business with or buy products from companies that have ridiculous compensation packages for some of their employees.

I guess you could always live in a city with low taxes from not having fair compensation packages for their employees as long as you dont mind having an incompetant police force and fire department. Thats not a problem until you need them. I could make more money standing on an assembly line all day putting screws into door panels for a Chevy Monte Carlo than I do now. Sorry, I dont feel guilty about my pension.
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Old 11-11-2008, 01:37 PM   #14
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I guess you could always live in a city with low taxes from not having fair compensation packages for their employees as long as you dont mind having an incompetant police force and fire department. Thats not a problem until you need them. I could make more money standing on an assembly line all day putting screws into door panels for a Chevy Monte Carlo than I do now. Sorry, I dont feel guilty about my pension.
Translation: I got mine, now screw the rest of you.
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"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)

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Old 11-11-2008, 02:01 PM   #15
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We've had this discussion a million times here. As a city employee I put up with subpar salaries for 25 years. I get a pension in the end. I'd say thats about on par with a much higher salary and no pension. Its total compensation package that counts...not just what my pension is. I dont see a bunch of citizens in an uproar that their police officers and fireman are paid too little when they are getting paid much more to manage a Chili's or sell insurance. Its only when they see how good the cops pension is (and they dont have one) that they get upset.

PS..you should come take a look at how bad my insurance plan is or how bad my work hours are....not too mention working conditions. I wonder if you would advise your son or daughter to become a police officer because its such a gravy train? I doubt it. Most people would rather they go to college and get a better job.
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Old 11-11-2008, 03:08 PM   #16
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We've had this discussion a million times here. As a city employee I put up with subpar salaries for 25 years. I get a pension in the end. I'd say thats about on par with a much higher salary and no pension. Its total compensation package that counts...not just what my pension is. I dont see a bunch of citizens in an uproar that their police officers and fireman are paid too little when they are getting paid much more to manage a Chili's or sell insurance. Its only when they see how good the cops pension is (and they dont have one) that they get upset.

PS..you should come take a look at how bad my insurance plan is or how bad my work hours are....not too mention working conditions. I wonder if you would advise your son or daughter to become a police officer because its such a gravy train? I doubt it. Most people would rather they go to college and get a better job.
It IS all about personal choice. You CHOSE to take a lower paying job instead of taking a different career path. My dad's favorite phrase is: "Underpaid for 30 years, overpaid for the rest of my life"...............
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Old 11-11-2008, 03:17 PM   #17
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EXACTLY !!!!

Im happy with my choice. Apparently he isnt happy with his.

The point is if Im "underpaid for 30 years, overpaid for the rest of my life"....you cant let me be underpaid for 30 years and then suddenly start complaining that Im overpaid when "the rest of my life" finally arrives.
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Old 11-11-2008, 03:28 PM   #18
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My thinking is that a combination would be best....
I spent a lot of time agonizing over this decision when I retired from the military. I finally decided to take enough SBP to give my wife enough guaranteed baseline income which, when added to what she could conservatively draw from our portfolio, would leave her in fairly good shape. I did not consider buying an more insurance.

Now that 10+ years have passed and SS is now in the picture, she will be in fine shape if I predecease her. I'm satisfied that I struck the right balance between leaving her in good shape and not reducing my pension more than I had to.
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Old 11-11-2008, 03:34 PM   #19
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Do any of the people who complain about government pensions know how they work and are funded?
I believe that the worker pays 10% of his salary into the pension fund. The City pays 20% into the pension fund, but pay nothing into SS which I believe is currently about 8%. So the city is paying 12% more than a private employer, but wait don't most private employers pay another 6 to 8% into a 401K plan of some kind for their employees, so now the city is only paying 4 to 6% more for pensions than private employers.

The pension funds take this money and invests it and hopefully make more money.

When a government worker retires, the city does not contribute any more money to his pension. The pension is paid from the pension fund.

My point is that sometimes government pensions do not cost the taxpayer as much as some people think.
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Old 11-11-2008, 03:40 PM   #20
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EXACTLY !!!!

Im happy with my choice. Apparently he isnt happy with his.

The point is if Im "underpaid for 30 years, overpaid for the rest of my life"....you cant let me be underpaid for 30 years and then suddenly start complaining that Im overpaid when "the rest of my life" finally arrives.
He says it in a mirthful way, I don't think for one minute he is upset about how things worked out......
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