Pension options

[skipro3]

I'm soon needing to make a decision on selecting an option for a pension. The two basic options I'm considering are;
1. provides the same monthly allowance continues to be paid to DW for life. ($6,000 month) +COLA

2. provides a larger allowance as long as I'm alive ($6,300 month) +COLA but drops by a third of option 1 I die first. ($4,000 month). +COLA

This pension represents about 75% of the retirement funding, the other 25% won't be affected by my early demise. Also, my numbers show I won't need to even touch this 25% unless something major hits us.)

DW most likely would not keep the home we have now since it is quite large both in size and in land to maintain. (A 3,000+ sq.Ft. log home on several acres, landscaping, animals, etc.) She would most likely downsize considerably and have an additional $400,000 to $500,000 from the sale.

What would you folks here recommend, option 1 or 2?

Thanks!

 

[Midpack]

It depends mostly on how long she outlasts you. Looks like option 1 is to your advantage as long as she outlives you by about 3 years or more. Option 2 only appears to be the better option if she outlives you by only a few years. A 5% larger pension while you're both alive isn't worth the risk IMHO unless you know something about your relative longevity (ie, if she's much older than you are and you expect to be the survivor).

What does your wife think? That's more important...

 

[arky]

Option 1 seems to be the best option to me. A $300 bonus does not seem to be enough to warrant option 2.

 

[Alan]

Option 1 seems to be the best option to me. A $300 bonus does not seem to be enough to warrant option 2.

+1

Consider it as $300/month insurance to ensure your wife is very well set if you should die before her. The last thing she would need when you die is to have a big drop in income, and all the hassle of selling the house to get that lost income.

However, as Midpack suggests, you really do need to talk it over with her.

 

[skipro3]

I will retire within by the end of this year at age 56 and DW at 55. We both are in very good health. I get a little heartburn once in a while and DW gets a hot flash now and again, but beyond that we rarely even get colds. I've not taken a day of sick leave from work in over 20 years. Neither of us have history of health issues in our families. My dad is 80 and remarried after my mom died in an accident at 78. DW has both parents still living independently together in Idaho at age 82. They are all very active with volunteer work.

What does DW think? She says if I go first, she's probably going to sell everything major and move to a community where everything outside is taken care of, then travel to visit family.

***EDIT***
I started to look into what $300 could buy me in the way of an insurance policy in lieu of option 1. Any thoughts on that?
Could I fund a life insurance policy that would make up the $2,000 hit in pension if I die for less than $300 a month?

 

[Midpack]

What does DW think? She says if I go first, she's probably going to sell everything major and move to a community where everything outside is taken care of, then travel to visit family.

That's probably not going to be inexpensive, which also suggests option 1 would be better. I revised my first post after playing with Excel a little on your behalf - and I'd encourage you to do the same.

 

[pb4uski]

No idea on the cost, but I think you are on the right track. If you assume a 4% SWR then a $600,000 policy should be able to provide the $2,000 a month difference. I would think that you could get that amount of coverage for less than $300 a month, but you would need to shop around.

 

[Lazarus]

I would go with option one. I am doing a similar thing. But my pension is not as nice as yours.

 

[skipro3]

Thanks Midpack. That helps a lot. I was sitting here this morning filling out the pension election application and I had an alarm going off in my head about this option/choice.

I just need(ed) to be sure I wasn't missing something here that another viewpoint might bring into the equation. I'm feeling much more comfortable about this now.

If I can't fund the difference with a policy that can make it worth my time and effort I'll go with option 1.
***EDIT***
A quick search quotes at least $300 a month for $600,000 in coverage.

Lazarus; I got lucky on the pension thing; 30 years of working + 4 years of Military time buy-back, + 5 years of 'air-time' purchase + 1 year of sick leave accrual that counts towards service credit for a total of 40 years and 2%@55. When I leave at age 56 that 2% goes to 2.052% WooHoo!!

 

[donheff]

I vote for option 1 also. What if you dies right away. Another way to look at these choices is by considering what you would want for yourself if the show was on the other foot.

 

[skipro3]

Thanks for all the feedback. DW says if I go first, she'll need to hire Raoul the pool boy and Carlos the gardener to fill in for my duties. Not sure I much care for that!! Ha!! No mention of who will massage her bunions though. And someone will need to administer the liquid medications.

 

[ohyes]

We had the same options with our pensions....though at about half your amount. I merrily planned on the higher amount- never gave it a second thought.

Then....DH retired last July and chose the lower option....because he wanted me to have that income if he goes first. It made me gulp and think about the whole thing much differently. I felt ashamed, even. So, when I retire, this year, I am going with the lower amount and spousal benefit. Feel very happy with that route.

 

[ziggy29]

Then....DH retired last July and chose the lower option....because he wanted me to have that income if he goes first. It made me gulp and think about the whole thing much differently. I felt ashamed, even.

Obviously it could have been the other way around, but my dad chose the 100% survivor income option when he retired, which turned out to be a good move as he passed away in 2005 and my mom is still going relatively strong at age 76. She would be tapping into a lot more of her retirement savings and investments if she only received half of his pension.

There's also some strategy to it. If someone's spouse is healthy and has a family history of longevity, the 100% survivor option probably makes more sense than if their spouse isn't very healthy and has a family history of relatively short life spans, or history of cancer and heart disease. No guarantees, but one can play the odds if the numbers work.

 

[Dreamer]

We went with option 1 also, but at much lower pension amounts.

 

[retiredncolorado]

I took option 1. Also, in Colorado my DW dies first the amount reverts to the option 2 amount. I would imagine California has some similar provisions.

 

[dm]

We also went with option 1. And if the beneficiary dies first it reverts to the larger number.

 

[jclarksnakes]

One can live cheaper than two but probably not 33% cheaper. OTOH your wife's seeming intent to downsize if you were to die makes me think she probably could do okay with that much less income. If it was me I would go with option 2 and then buy enough life insurance to cover some of the difference. The trick is in figuring out how much that would need to be.

 

[misty57]

DH will be taking early retirement soon. He is taking Option 1.

Note: I will have no other pension for myself.

 

[TeeRuh]

We also went with option 1. And if the beneficiary dies first it reverts to the larger number.

+1

 

[sn2792]

We also went with option 1. And if the beneficiary dies first it reverts to the larger number.

+1

 

[tightasadrum]

I went through this a few months ago. I'm glad I'm not an actuary. I had always thought I'd use a single life option, but after much pulling of hair and gnashing of teeth, I settled on the two-life option as have many on this thread. My pension is a fraction of yours and non-COLA's, but hey, every little bit helps. I decided that if I die first, and I'm 7 years older than DW, I would want her to get the maximum amount. It's hard and expensive to find a younger man to run around with at her age. Bottom line is to go with the decision you can sleep with the best.

 

[skipro3]

I took option 1. Also, in Colorado my DW dies first the amount reverts to the option 2 amount. I would imagine California has some similar provisions.

Yes, that is a sub option of both choices I listed. I just didn't want to confuse things past the primary concern of the basic issue.

But, now that that's out of the way and I'm going to select the dual life option, option 1, I now need to decide if it makes sense to go with 1 or 1W

1. Pension covers both our lifetimes.

1W. Pension covers both our lifetimes just like option 1 but if I outlive DW, then it defaults up to the single man's amount.

For option 1W there is a cost of course. It's $50 a month less pension that option 1 and provides an additional $300 in pension to me as the survivor. (5%)

Option 1 is about $6,000 a month and so option 1W is $5,950 a month, with a bump to $6,600 (single man's option) if DW goes first. (a 10% bump up from the dual life option.) It's a coin toss who will outlive who. (Although I do take more risks; ride dirt bikes, street bikes, ski, hunt, lots of power tools, etc)

 

[geerman]

Option 2

I E/R'd 2 yrs ago at 52 with a very similar situation as you, although numbers close, not quite at yours. The difference though in option 1 and 2 in my case, was $650. I chose option 2 and was able to buy a 1 mil term insurance policy for $250 a month, for a net $400 a month, "freebie." In your case, I wouldn't think twice selecting option 1 for the $300 and peace of mind....good luck and well done!!....now go out there and enjoy!!!!