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Pension options and term life ladder
Old 12-03-2019, 05:51 PM   #1
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Pension options and term life ladder

DW's state pension will commence the middle of next year. It is a modest monthly sum but a leg on our stool nonetheless. It is COLA'd - averaging about 3% per annum.

The difference between the single life and joint and survivor monthly amounts is about $200/month. DW will be 60 when the pension starts and I will be 62. We are both in very good health (right now) and we both have good longevity genes.

I believe getting a term life insurance ladder is the best strategy - and take the higher single-life pension amount.

1) DW will likely outlive me.
2) Term life premiums for a 2 or 3 step ladder (based in internet quotes) are about 60% of the monthly pension difference. As the step(s) of the ladder fall off the front end, the premiums will be even less per year.
3) The extra $200/month gets COLA'd - the premiums stay the same.
4) Pensions aren't taxed in the state we live in (AL). IRA/401(K) withdrawals are. Rate is basically 5%.
5) If I take a dirt nap - drop the insurance. If the rest of our financials look safe - drop the insurance.

Caveats:

1) The term life benefits will disappear after 20 years (basically the max term).
2) While the premiums are fixed, so is the payout.
3) We'd need to get this rolling before DW gets any older and will check out well as they rate her.

The key question is: What is the total target payout for the ladder?

Nevermind all the far more important other reasons, an early passing by DW would be a big knock to our retirement plan. Losing the pension, kicking me up into a higher bracket, etc. After 10 years, the insurance payout could be a big meh.

Anyone doing this with any wisdom to add?

Any thoughts on total insurance ladder payout target? 10X-to-15X the annual pension being replaced seems to be internet wisdom. (Throwing it out there as a straw man: 3 policies of $150K each for a total of $450K. 10, 15 & 20 year terms.)

TIA for any insights anyone can offer.
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