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Is this an effective trade off with insurance/annuities
Old 10-13-2007, 02:15 AM   #1
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Is this an effective trade off with insurance/annuities

Tried search and didn't see this covered.
Here's the scenario. I have to make decision on pension payout, and only various forms of annuity streams are available. FP made suggesion of taking single payer annuity stream with COLA and use the differece from that versus the 100% option with COLA that I had planned on, to ensure DW had continuing income stream if I wasn't here. His suggestion was the normal Life Insurance Plan of sufficiently large value to provide that COLA income stream as an annuity that she would purchase at that time.
My question is, is there an offering that pays a COLA annuity upon my death to DW until her death, and if so where could I find the costs on that. I would think that the insurance company, instead of having to payout a fixed amount, would use their sharp pencils to figure out how much they actually would have to pay, using difference between life expectancy of men versus women, and only having to pay out in a stream of payments instead of lump sum, would allow them to price that at a very low rate (hopefully). FP claims he never heard of such a thing, but he didn't have the breadth of this forum's expertise and experience.
Does this make sense, and is this offered?:confused:
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Old 10-13-2007, 02:45 AM   #2
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Originally Posted by whitestick View Post
My question is, is there an offering that pays a COLA annuity upon my death to DW until her death, and if so where could I find the costs on that.

I am not sure if that type of feature exists on an annuity... But any feature of an annuity that would be like that would be a life insurance component of it.


If I understand you correctly, he is trying to sell you a life insurance policy to provide for your DW if you die. Is that correct?

I am not sure of your entire situation... But I am assuming the context of the plan is about you retiring and providing an income stream to support you and DW. Most insurance companies have the risk adjusted value of the annuity fairly well calculated. Unless you know something about your mortality or your wifes mortality that helps you to make a more accurate decision... I am not sure why you would need to buy another policy.

Either you have enough assets to retire or not!

Funny how an insurance policy always creeps into the plan.


IMHO - Life insurance can be used in several valid ways. Sometimes it can be used effectively for estate planning... but most times it is used to reduce the impact (risk) of a loss of earnings if a wage earner dies... mainly during the years they are working and earning an income.
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Old 10-13-2007, 04:59 AM   #3
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COLA'd annuities are available. As a federal employee, I have an option of using money from my TSP to buy an inflation protected lifetime annuity from MetLife when I retire. I am sure that MetLife (or other insurance companies selling annuities) would love to sell your wife an inflation protected lifetime annuity after you have passed away. Since lifetime annuity payments depend on the age of the beneficiary when they are purchased, I would think that would be the time for the annuity to be purchased. She could use your life insurance proceeds to purchase it. Since the payments will increase with inflation, they are less at the beginning than they would be without inflation protection.

Is that what the original post was referring to? Maybe I am talking about something different.
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Old 10-13-2007, 11:45 AM   #4
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I guess I wasn't clear. I know that the standard way of having a life insurance payout lump sum upon death, and then take that money and buy an annuity is the norm. That puts the risk on us to have enough insurance to purchase an annuity to make up for the pension loss after my death. I has hoping for one where the insurance company takes the risk, by using their predicted acturial tables, thus if I die earlier then norm, or she lives longer then norm, then the insurance company takes the hit. If I live longer then norm, or she dies sooner then norm, then the insurance company makes out as they don't pay as much. This plan would be paid for by the differential between my pension payout for single provider versus taking the one where If I die, then 100% of the pension continues on until she dies.
In addition to shifting the odds making to the insurance company, it also removes the hassle from DW of having to deal with it, while also dealing with my passing (I assume that would be upsetting for her). Is that clearer?
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Old 10-13-2007, 11:54 AM   #5
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I'm not sure why you are not going with the pension that has survivor benefits rather than this insurance plan ? Is it cost ?
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Old 10-13-2007, 12:07 PM   #6
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Whitestick...

I think I know what you are trying to do... let me put it in my words and you tell me if I am correct...

You qualify for an annuity (you being male).

The rate for just YOU is a lot higher than if you had the annuity for you and your wife.

You have thought "Why not take it only on MY life and then buy an annuity that will start paying my wife when I die from the 'extra' money we are getting since I am only doing a single annuity", but you want that annuity to be COLA..

Well, the people paying your annuity have already done that.. and it will cost you exactly what they have reduced your payment down if you take it as an annuity for both of you...

If yours is like my sisters (which is not COLAed...), when her husband dies first (we assume), her monthly payments will then go UP by the difference betweem the single annuity to the double annuity... they no longer have his life to worry about..

We had thought of buying life insurance and doing what you have said, with the life insurance proceeds enough to buy an annuity that would replace my sisters... but the cost was pretty close to the difference between payments... it was surprising how close it really was... the only difference between my sisters and you is you actually wanted to make sure your annuity was the right amount and COLAed... I did not see such a product when we did the looking.. you have to take on the risk that the policy you bought gave you enough money to buy the annuity that would replace the one you lost...
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Old 10-13-2007, 12:27 PM   #7
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Texas Proud, that is exactly what I am trying to say. The FP implied that there would be a difference in the two amounts (single versus my and DW), and that I could pocket the difference now. If you are saying that there is no difference, then, I guess it's another great idea, gone astray. I was hoping that by offering an annuity that only kicked in, when I died, till DW died, that there would be big difference in the premium cost, as the normal life insurance requires a fixed amount payout, and this annuity would be variable depending on how long we both live. Also, instead of a single large payout, their payout would be in the form of monthly stream of payments allowing them to continue to make time value on the money. The sharp penciled insurance guys, I thought, would have found a big difference in their payout amounts.
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Old 10-13-2007, 12:34 PM   #8
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This is confusing. But I think what you're trying to do is get the most out of your pension plan AND also have life insurance type protection for DW in form of a COLA's annunity. Is this correct?

It's the old puzzle where with life insurance you pay as you go and hope you lose the bet, and with the annuity you pay up front and hope you live forever.


There are annuities that you can use the difference from the joint pension vs. single payout options to pay into while you are alive. I'm betting that the company you're paying could set it up so that when you're gone, and the single payer income stops, the annuity turns around and starts paying your wife. Just call a reliable company you feel sure will be around another fifty years at least. She would probably have to ask for the change when she wants to get paid instead of paying into the annuity. Of course there would be no way to know how much her payments would be since you don't know when you'll die, and I don't believe the insurance/annuity company will take that bet.

Here's what I may do. I have a whole life policy that I will probably keep and use the single life option on my pension (none COLA). From the difference of single vs joint pension payout I'll keep paying the premium on the life insurance. The cash value and the death benefit continue to go higher every year beyond what I'm paying in now. If I ever need the cash to live on, I'll cash it in. If not, the death benefit to my wife, or daughter if wife dies before me, will continue to grow.

There is one thing you can take to the bank though: insurance companies, on average, will win this game in the end. Whether they win with you or me just depends. In the words of Dirty Harry, "Do you feel lucky?"
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Old 10-13-2007, 01:16 PM   #9
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How about health benefits ? Are they tied to your pension ? So if you die she'll lose all access to health benefits which will probably negate what money you are trying to save .
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Old 10-13-2007, 01:49 PM   #10
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Quote:
Originally Posted by whitestick View Post
I guess I wasn't clear. I know that the standard way of having a life insurance payout lump sum upon death, and then take that money and buy an annuity is the norm. That puts the risk on us to have enough insurance to purchase an annuity to make up for the pension loss after my death. I has hoping for one where the insurance company takes the risk, by using their predicted acturial tables, thus if I die earlier then norm, or she lives longer then norm, then the insurance company takes the hit. Is that clearer?
Others have addressed this, but as the thread persists there must be something more you are after. The joint and survivor annuity is the perfect vehicle to do what you want to do, which is protect both and each of two, as long as you shall live.

Have you priced single life annuities for your wife? I suppose it should be about the same net, but why not find out?

Ha
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Old 10-13-2007, 02:05 PM   #11
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Thanks ha, and no I haven't. Guess that' what I'll do. The FP had indicated that he thought there might be a difference, and that is what I was looking to see. As I think further about it, the joint and survivor is what I'm trying to do, I guess I was trying to rip the two components apart, and see if there was some savings that I could get, rather then the insurance company. Probably a fools errand.
Also Moemg, I hadn't thought about that at all. I'll have to call the Mega Corp and see if they are tied together. The only thing that I remember is that they both must start at the same time, if I delay taking the pension. Something else to check on. That's why this board is so great.
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Old 10-14-2007, 02:20 AM   #12
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Whitestick...

You might have misunderstood what I had put down.. there IS a difference in payout between single and joint payments... however, that difference is about the cost of doing what you are trying to do... ie, get your wife an annuity if you die first.. you might be able to find someone who is pricing it a bit different, but I bet not much.. and if it is a few dollars or even a few hundred, do you want to go through the hassle of doing it

And BTW, is there anything medically wrong with you? You have to pass a physical for any kind of life insurance.. even if it will be in an annuity as they want to know what THEY are risking.. and then one for you wife because you want them to pay an annuity for HER life also...
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Old 10-14-2007, 06:57 AM   #13
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The FP's goal is probably a commission. If the whole retirement financing swings on your wife getting an insurance payout when you die, you aren't financially ready.

My annuity pensions are set up where DW will get 50% of amount and that only lowers the initial amount by about 10%. I'm not sure what would happen if it was a 100% continuation or if I even have that as an option. Mine aren't COLA'd.

I suspect you have a similar reduction that probably doesn't deserve a second insurance policy or plans for a later annuity.
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Old 10-14-2007, 10:26 AM   #14
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Texas Proud, I forgot about the physicals, I had carried life insurance through MegaCorp for so, long, that I totally forgot about all of that.
2B, the whole retirement doesn't hinge on that,, as I said in a different thread on additinal savings while retired, we are just feeling the nervousness of the transition into RE. When the FP reviewed our spreadsheets and status, that bit about buying the life insurance, and of course Nurseing Home Care, were the only two suggestions that he could make I extrapolated from his insurance one into the annuity question of this thread. I do have those other choices, but taking the ultra conservative plan, we selected the 100% COLA, to make DW feel safe(er). Wish there was a chance to revisit this after being retired a few years, when she would feel more comfortable about the whole thing, but that is apparently not an option. If it were strictly up to me, I would pick the highest pension I could right now, and try and find a way to shelter my non-IRA investments (thinking Cayman Islands), but when I talk like that she goes into a complete tizzy. She is just too close to it right now for jokes. Oh well.
Thanks for the suggestions.
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