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Decision trees re pensions
Old 11-21-2011, 11:01 AM   #1
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Decision trees re pensions

In 2012 dh & I will start drawing our pensions. There are lots of decisions to be made in conjunction with this.

I have one DB pension that will pay roughly $1100/month. I don't know the particulars of the available options (guessing it will be between Lifetime vs Joint & Survivor, no lump sum option). I will be pursuing this after the first of the year as my birthday is in April.

Dh has 2 DB pensions, one being about $180/month & the other about $950/month. Both have a monthly benefit of Lifetime vs Joint & Survivor (50% vs 75%).

In addition, dh has a DC plan (~$175k) in "life stage funds" that allows a lump sum distribution of various contortions (rollover IRA, lump minus 20% tax, or rollover to another DC plan) vs periodic monthly pay'ts over 5, 10, 15, 20 years (recalculated annually to adjust for earnings or losses).

So our DB pensions are roughly equal. Neither is COLA'd. How does one make a decision between Lifetime vs J&S? I think part of the consideration as to whether Lifetime vs J & S is related to each individual's current health status & projected life expectancy. We're both quite healthy & have genes for long lives. What are other factors to consider?

Are there any "decision trees" available or what kind of counsel should one seek to help in making these decisions?

Advice appreciated.


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Old 11-21-2011, 11:15 AM   #2
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I am in a similar situation and actually never considered anything other then joint life payouts but i won't be starting to take my pension for another 4 years so I'm in no hurry to make a decision.

My BIL (who is an insurance agent) was pitching taking the higher single life payout and using the excess of the single life payout over the joint life payout to buy life insurance that would then provide the surviving spouse with a lump sum that could be used to by a SPIA to replace the lost pension income.

While that seemed overly complicated to me and I'm not sure if the numbers work, it may be worth looking at when the time comes to make those decisions.

Is anyone doing something like this? or looked at it and see if it makes any sense?

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Old 11-21-2011, 12:32 PM   #3
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This subject was discussed on another thread a few weeks ago. I had the same, and immediately pressing, decision to make. The smart folks in this group did not agree. But I feel it breaks down to how your spouse will be fixed for monthly income when the other spouse passes away.

I talked to two different financial advisers, actual three counting the one I discussed it with five years ago. Each one had a decidedly different take on what pension election options I should choose.

1. Take the single life option and cover the spouse with whole life insurance.
2. Take the lump sum and invest it somewhere else, like maybe his company...
3. Take the 100% survivor benefit

Needless to say, these experts were not much help in making my decision.

Here is what I decided to do, but haven't executed it yet.

I plotted the function for both me and my DW, Y-axis monthly payout;X-axis 100% survivor to single life. Since she is seven years younger, her line was much steeper than mine. That suggested to me that I should favor 100% survivor. I liked the idea also that this option would of course provide more income for DW if I died first. Since I have two different pensions, I'll set the larger one to 100% survivor, the smaller one to 75% survivor. Don't ask me why I decided on 75% on the smaller one, I just wanted a few more dollars up front that would not make much difference to survivor benefits.

For two healthy people about the same age with long-lived genes the answer might be different. The answer though is not in the math in my opinion. You have to look at all your other income sources and decide how well you can live with the different pension options. If you'll struggle with the 100% survivor option, then it may not be your plan. The actuaries have it all worked out so they don't favor one option over the another statistically anyway. Good luck.
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Old 11-21-2011, 12:42 PM   #4
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Make certain the surviving spouse is financially secure. For you that seems like it could still be any of the options, since you have roughly equal pensions.

Check taxes when SS and IRA RMD's kick in if applicable.

Otherwise I'd just spreadsheet the options with an assumed interest rate and see what looks most valuable to you.
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