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PENSION: LIFE ONLY vs 100% SURVIVOR
Old 03-22-2012, 11:21 AM   #1
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PENSION: LIFE ONLY vs 100% SURVIVOR

DH will have to select a pension option soon. The difference in monthly income between Life Only (where I would get nothing if he should pass) or 100% Survivor (where my income would not change should he pass) is $$611/mo.

I remember attending a retirement seminar years and years ago (provided by the company DH works for) where the speaker suggested taking the higher life only pension option and buying life insurance with some of the "extra" income. If a policy that would provide me a $2M payout would be less than $611/mo., it might be a decent strategy. He is 55, but he does have high cholesterol and takes meds for it.

I'm just wondering how many people have done this or whether it's a hair-brained idea. I admit I know almost nothing about life insurance, but I'm thinking a term-life insurance policy.

The company paying the pension is a Fortune 500 aerospace company.
I have no clue where I'd buy the insurance - any suggestions?
The risk might be greater with an insurer going belly-up rather than the aerospace company, but I really have no clue.

We're just trying to explore all options before he makes a decision that is permanent.
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Old 03-22-2012, 11:27 AM   #2
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I don't think it's "hair-brained" at all if the numbers work.

I think you're on the right track and it's something worth looking at before making a commitment. At the very least I'd try to figure out what amount of life insurance you'd need to replace the pension income, and see if it's considerably "cheaper" than the reduction of pension benefits for the 100% survivor option. There's probably no harm in getting life insurance quotes to see if these seems feasible and, if so, you can pursue it further.

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We're just trying to explore all options before he makes a decision that is permanent.
As well you should!
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Old 03-22-2012, 11:36 AM   #3
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This has been discussed a few times.... do a search and you might find a thread...

But a quick reply.... we looked into that with my sister's pension... and determined that the cost of insurance was about the same as the reduction in benefits... after her DH died, her benefits went up to the original amount... just like if she had cancelled the life insurance on herself...
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Old 03-22-2012, 11:39 AM   #4
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When I retired from the army DW and I decided to take all my pension and bought life insurance instead of selecting the survivor benefit option. That was 19 years ago and if faced with the same decision today we would probably do the same thing.
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Old 03-22-2012, 11:47 AM   #5
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Try googling PenMax. It is a fairly common strategy.
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Old 03-22-2012, 12:08 PM   #6
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Try googling PenMax. It is a fairly common strategy.
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.
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Old 03-22-2012, 12:14 PM   #7
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you can use term4sale.com to see if the numbers make sense. it is an excellent website which gives you instant costs without having to put in personal information.
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Old 03-22-2012, 12:18 PM   #8
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Went through same decision last year. Wife said take the full payout, I was skeptical. However, we have enough other assets that she'd be fine if she lost my pension. I'm 60 and healthy, figure it's an incentive to try to stay that way!
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Old 03-22-2012, 03:15 PM   #9
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I am going to throw out a counter argument... each of you has discussed looking at this from a $ standpoint but I also think the couple should look at it another way: what is the difference in age (likely length of survivor life) and the protection of the survivor from loss of principal. My husband has an aunt who was "May" in a May/September marriage where neither party had children. Her husband did not leave her a survivor benefit in his indexed pension. He may well have had a large life insurance policy with her as beneficiary BUT it is fast dwindling and she has no investment expertise. She is very vulnerable to 'affinity' investment managers, she is a person of great faith and maybe has another 15 years to live.

If she had been left a survivor pension no one could scam her out of a nest egg.
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Old 03-22-2012, 03:29 PM   #10
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I am going to throw out a counter argument... each of you has discussed looking at this from a $ standpoint but I also think the couple should look at it another way: what is the difference in age (likely length of survivor life) and the protection of the survivor from loss of principal. My husband has an aunt who was "May" in a May/September marriage where neither party had children. Her husband did not leave her a survivor benefit in his indexed pension. He may well have had a large life insurance policy with her as beneficiary BUT it is fast dwindling and she has no investment expertise. She is very vulnerable to 'affinity' investment managers, she is a person of great faith and maybe has another 15 years to live.

If she had been left a survivor pension no one could scam her out of a nest egg.
I have to admit that going for the 100% survivor pension is appealing just from a simplicity standpoint. DH and I are only 8 months apart in age, but my life expectancy based on genes alone is much longer than his.
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Old 03-22-2012, 03:30 PM   #11
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One other thing to be aware of is if the pension is tied to any other benefits. My pension has a tie to medical benefits. If I were to take the full amount, my wife would be covered for medical for only as long as I'm alive. With a survivor option, she'll have medical after I die.
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Old 03-22-2012, 03:32 PM   #12
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I think it is peace of mind really. If she is not good with investments etc., it may be worth it just for one less worry to take the Survivor's benefit. If she pre-deceases you, usually you can eliminate the deduction, if not she will appreciate knowing she has the steady income. Enough changes for her at that point, IMHO. Not everything is about the absolute $ bottom line...
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Old 03-22-2012, 04:02 PM   #13
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There generally is an option for a 50% survivor benefit which always strikes me as a reasonable compromise.
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Old 03-22-2012, 04:18 PM   #14
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Originally Posted by misty57 View Post
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.
From what I've read, most are retiring with 401K/IRA rather than pensions. Maybe why not a lot of posts?
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Old 03-22-2012, 04:27 PM   #15
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When my husband retired he had to make the same decision. 100% survivor option, 50% survivor option or full pension. The difference between full pension and the 100% survivor option was about $200. Had we opted for life insurance, that would be one more bill that would need to be kept up. I asked him to take the 100% survivor option. If he dies first, I don't want to be in the position of having to make critical decisions about a lot of money. Simply having his pension continue seemed to me to be the simplest way to go.
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Old 03-22-2012, 05:03 PM   #16
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From what I've read, most are retiring with 401K/IRA rather than pensions. Maybe why not a lot of posts?
I should have been more specific. The reading that I was referring to has been retirement planning books.
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Old 03-22-2012, 05:05 PM   #17
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One other thing to be aware of is if the pension is tied to any other benefits. My pension has a tie to medical benefits. If I were to take the full amount, my wife would be covered for medical for only as long as I'm alive. With a survivor option, she'll have medical after I die.
Good point and something that I hadn't thought of. I'll have to check into that.
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Old 03-22-2012, 05:06 PM   #18
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I'd never leave my wife to have to deal with the collection on the life insurance policy if it weren't REALLY financially a better choice. I ran the numbers and it would get us an extra $50 or so a month to go 100% as opposed to dual life. We don't need $50 THAT badly. It sure will be easier for her to just know the check will keep on coming.

Also, the retirement is COLA adjusted. Isn't tied to the stock market. A payout from a life insurance policy is going to REQUIRE her to learn how to invest and how to recognize when someone is trying to cheat her. Who know's? Maybe at that future date you have a grand kid that tries to get to that lump of payout on the life policy. I think it's going to bring out some long lost relatives....

Pensions are almost untouchable for litigation or lawsuits. A big lump sum and someone's lible to try and sue you for some dumb reason.
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Old 03-22-2012, 05:07 PM   #19
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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.
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Old 03-22-2012, 05:12 PM   #20
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We took the 50% survivor option. If they had offered a 2/3 to either survivor, I would have preferred that.
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