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reversionary annuity
Old 03-22-2012, 05:28 PM   #21
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reversionary annuity

life insurance company from Nebraska offers an insurance policy that pays a defined benefit amount per month, might be worth looking into
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Old 03-22-2012, 05:36 PM   #22
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Originally Posted by ziggy29 View Post
I've said this before, but it's something that sometimes isn't factored in or considered. When one loses a spouse, that year is the last year they generally get MFJ filing status. The next year, most widowed folks will have to file single (unless they remarry or have "qualifying widower" status which usually means having minors in the household which they can claim an exemption for). The extra tax bite can be huge. Plus, if you are of age for Social Security, you'll likely lose some of that.

My dad died in 2005 and I've done my mom's taxes and investing for her since then, so I'm privy to pretty much all of her finances. At that time, my mom "inherited" my dad's higher SS benefit but she lost her own. So income dropped. AND, she had to file as "single" in 2006, so the household was kicked from the 15% marginal bracket into the 25% marginal bracket.... AND the 85% of the SS benefit became taxable instead of 50%.

The net result? The household income in 2006 was about 9K lower (the loss of Mom's SS check) and her federal income tax nearly doubled.

This isn't a direct factor in the decision as to whether to accept the loss of a pension by insuring for its value, but it is something that is *very* important to keep in mind when assessing how income and outgo will change with the loss of a spouse.
That is an EXCELLENT point.

I guess there are pros and cons to everything, but the tax changes after the death of a spouse is not something that I had even thought of in spite of the fact that it's obvious.

It's ironic how on the one hand, you are afraid that you might not have enough money if inflation/medical costs should skyrocket and on the other hand, you may have so much money that you are constantly looking for ways to keep it away from the tax man.

This is making my ass tired. LOL
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Old 03-22-2012, 05:41 PM   #23
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DW is the only one of us with a (smaller) pension. She's 5 years younger and in at least equal health. I'd feel pretty good taking it as single life. Especially since I handle the finances (for now) and could compensate for the reduced income without too much hassle. Could be a different story if I'm in a nursing home at the time though. So I'm still thinking.
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Old 03-22-2012, 09:30 PM   #24
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We took the 50% survivor option.
As did we.
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Old 03-22-2012, 09:32 PM   #25
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life insurance company from Nebraska offers an insurance policy that pays a defined benefit amount per month, might be worth looking into
Indexed to inflation
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Old 03-22-2012, 09:45 PM   #26
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if going the LI route, there is potential for passing something onto heirs. I haven't priced it all out so I don't know the possibility of this occurring.
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Old 03-22-2012, 10:01 PM   #27
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As in all of life's choices you takes your pick & take your chances. What I would like to remind all is that the capacity of the survivor to manage insurance proceeds may not be as good as it is today. There are times to forgo the possibility of leaving an estate for heirs or maximize current income to assure that the survivor isn't eating dog food.
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Old 03-22-2012, 10:33 PM   #28
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if going the LI route, there is potential for passing something onto heirs. I haven't priced it all out so I don't know the possibility of this occurring.
We are not "trying" to leave anything behind and we're not avoiding it either. It would not factor into our decision at all.
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Old 03-22-2012, 11:28 PM   #29
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Give it plenty of thought. Talk about it & write it down. lMy husband is 12yrs older then me and we should have done a better job thinking it through. I would have made some better choices.
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Old 03-23-2012, 12:51 AM   #30
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Give it plenty of thought. Talk about it & write it down. lMy husband is 12yrs older then me and we should have done a better job thinking it through. I would have made some better choices.
I have been reading like crazy hoping discover anything that we may not have already thought of.
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Old 03-23-2012, 05:34 AM   #31
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I took a survivor benefit option. There were about a dozen different options to choose from and we picked the one in which DW gets 70% of the benefit, and she keeps the medical/prescription benefits, no small thing itself.

My thought was that housing, utilities, etc. is going to remain a fixed expense whether it's one or two people. Also, it's a COLA'd pension, my crystal ball is just as cloudy as the next guy's, and who can forecast 30 or 40 years out anyway?
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Old 03-23-2012, 09:59 AM   #32
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Age is an important issue to consider in these decisions. If the pensioner is much older than the spouse the more the decision leans towards taking the lesser amount but with coverage for the spouse. Health and genetics are also important to consider.
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Old 03-23-2012, 10:27 AM   #33
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We are not "trying" to leave anything behind and we're not avoiding it either. It would not factor into our decision at all.
Other people who read this thread, either now or in the future, might. I was simply pointing out that it is a consideration if that is important to whomever is fortunate enough to be facing this decision.

Another consideration with going the LI route is if there is any fear whatsoever the pension might go belly up. In a way, the LI route is diversifying a bit. This is especially important if one's benefit would be significantly slashed by PBGC limits.

If I was facing this decision, I would probably go with some type of survivor benefit. But, in the foreseeable future, I won't be facing this situation and I don't have the energy to crunch any numbers.
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Old 03-23-2012, 10:54 AM   #34
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Other people who read this thread, either now or in the future, might. I was simply pointing out that it is a consideration if that is important to whomever is fortunate enough to be facing this decision.

Another consideration with going the LI route is if there is any fear whatsoever the pension might go belly up. In a way, the LI route is diversifying a bit. This is especially important if one's benefit would be significantly slashed by PBGC limits.

If I was facing this decision, I would probably go with some type of survivor benefit. But, in the foreseeable future, I won't be facing this situation and I don't have the energy to crunch any numbers.
Oh, I definitely understand. I was just speaking for myself.
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Old 03-23-2012, 02:29 PM   #35
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What I find strange is that I have been reading a lot lately on retirement planning (focusing on those near retirement as opposed to those accumulating for retirement) and I have not seen it mentioned once. Perhaps it's because the math doesn't work out for the majority, so they just skip it? I don't know.
Hi Misty,

I'm currently reading "20 Retirement Decisions You Need to Make Right Now," and what you're considering is discussed in detail in the chapter for Decision #7, "Which Pension Payout Option Should I Choose" and more specifically under the subheading, "Pension Maximization Strategy."

The author states:

Believe it or not, there is a way to have your proverbial cake and eat it, too. You can obtain the highest annuity payment and still provide for your spouse upon your death by "maxing" your pension.

He goes into a lot of detail in the chapter about the whys and hows, but in short, recommends taking the Single Life Annuity and purchasing a life insurance policy IF the amount of life insurance needed can be purchased for for less than what it would cost you to take the survivor annuity payout. He acknowledges that most people nearing retirement don't find the idea of purchasing more life insurance too appealing, but points out that the Survivor Annuity option is, in effect, buying an expensive life insurance policy.

I'm about 50% done reading the book and have found it to be very helpful and worth the purchase, but you may be able to find it in your library too.
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Old 03-23-2012, 02:48 PM   #36
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I haven't had to decide on this yet but I will sometime in the future. Fortunately, I have a small whole life insurance policy that I have had since I was 21 that I think I will likely make up the difference to DW if I do chose the life benefit option and I pass before her.

The way I am thinking of it is if the cost of insurance with a death benefit that can provide a SPIA for the difference in pension payments is less than the difference in the pension payments then I will go for it. If so, then DW could use the proceeds of the life insurance to buy a SPIA once I pass and the monthly income would be (roughly) unchanged. The devil will be in the details.
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Old 03-23-2012, 05:05 PM   #37
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Hi Misty,

I'm currently reading "20 Retirement Decisions You Need to Make Right Now," and what you're considering is discussed in detail in the chapter for Decision #7, "Which Pension Payout Option Should I Choose" and more specifically under the subheading, "Pension Maximization Strategy."

The author states:

Believe it or not, there is a way to have your proverbial cake and eat it, too. You can obtain the highest annuity payment and still provide for your spouse upon your death by "maxing" your pension.

He goes into a lot of detail in the chapter about the whys and hows, but in short, recommends taking the Single Life Annuity and purchasing a life insurance policy IF the amount of life insurance needed can be purchased for for less than what it would cost you to take the survivor annuity payout. He acknowledges that most people nearing retirement don't find the idea of purchasing more life insurance too appealing, but points out that the Survivor Annuity option is, in effect, buying an expensive life insurance policy.

I'm about 50% done reading the book and have found it to be very helpful and worth the purchase, but you may be able to find it in your library too.
Thanks. I will definitely check for it in my library. I had already googled Pension Maximization to get a bit more info on the subject.
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Old 03-23-2012, 08:14 PM   #38
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I have the option of pulling no survivor benefit, 50% or 75%. We will go the 75% route.

Our rationale: I have no (unreasonable) concerns about making the money last. My wife, on the other hand, is nervous about what would happen if I were to croak and she were left to handle the finances for a significant amount of time. Thus, part of the plan is to structure things such that if she outlives me, she gets the 75% of pension rather than something less. I will probably delay SS until 66 or so for a similar reason. (SS will depend on what options are available then.)

When I could show her that retirement income approaches pre-retirement income, her anxiety about me retiring early dissipated.
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Old 03-24-2012, 11:33 AM   #39
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I have the option of pulling no survivor benefit, 50% or 75%. We will go the 75% route.

Our rationale: I have no (unreasonable) concerns about making the money last. My wife, on the other hand, is nervous about what would happen if I were to croak and she were left to handle the finances for a significant amount of time. Thus, part of the plan is to structure things such that if she outlives me, she gets the 75% of pension rather than something less. I will probably delay SS until 66 or so for a similar reason. (SS will depend on what options are available then.)

When I could show her that retirement income approaches pre-retirement income, her anxiety about me retiring early dissipated.
+1, and for all the same reasons. 75% COLA'ed for self-acknowledged financially unsophisticated DW means when I take the dirtnap she continues to get a decent deposit in the credit union with very few hoops to jump through. (If she goes first, my monthly payment reverts to single-payee.) Is it wringing every last potential drop out of the financial sponge? I honestly don't know. Though not major, I know I have enough in the way of red-flag health issues that life insurance companies don't consider me the lowest risk, so this works for us. And that business about lessening "her anxiety about me retiring early" is a factor not to be snickered at.
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Old 03-24-2012, 12:16 PM   #40
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Being in our mid-60's, I/DW have seen this played out in two actual scenerios.

FIL (DW's father) opted for single-life only on his pension, with no benefits to my MIL.

Result? FIL passed on more than a decade after MIL. For that situation, it was the correct choice.

DW's BFF (well, until she passed) had the same situation, but with the insurance on her DH, assuming he would pass first. He kept his 100% pension, plus opting for the life insurance coverage option, assuming he would pass first.

He didn't, she did about a year ago. In both cases, taking the 100% with no survivor benefit was the correct decision.

In our case (DW has two small pensions, starting in just over a year), she has opted for no survivor benefit. Assuming I pass first, it's the correct thing to do. And if she passes first? I don't need the money (she spends more so I would have a great reduction in expenses )...
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