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Pension surprise
Old 12-26-2006, 04:27 PM   #1
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Pension surprise

I discovered something the other day that may be common to many pension plans, but it was news to me...

My wife and I each have our own pension plans, from the same employer, and we're the same age. The earliest we can start taking distributions is 54, but we'll be leaving at 50.

I just discovered, that we can't select our pension benefit until reaching 54. The monthly benefit amount for each of our plans varies, depending on what level of survivor benefit we choose. The problem - should one of us get hit by a bus between 50-54, the survivor is hosed. All the surviving spouse would receive, is the lump sum + interest paid into the bus accident's pension plan. While things could be far worse, this is far inferior to receiving even the minimum survivor pension benefit we could opt for at 54 (50%).

Needless to say, all of my ER planning and number crunching is heavily dependent on the monthly pension payment amounts from both of us. An unexpected death after leaving our employer, but prior to pulling our pensions, would throw a huge monkey wrench into the survivor's monthly income. So, I'm thinking we might need to add some life insurance into the mix for years 50-54, to make up for the loss of a pension payment should the unexpected happen.

So...the questions. First, is life insurance a reasonable way to protect a surviving spouse during these 4 years from this risk? And second - just what type of policy would we look for, in this situation? I'm completely ignorant when it comes to life insurance...and given our lack of kids, lack of debt at ER, and decent income once our pensions kick in at 54, I can't see why we would need life insurance beyond that age.

Thanks for any suggestions,

Bill
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Re: Pension surprise
Old 12-26-2006, 04:53 PM   #2
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Re: Pension surprise

Bill,

This looks like a good use for life insurance to me. You are 50 or less, so term life should be relatively inexpensive still.

Remember the survivor will not have the same expenses as the couple.

LIfe insurance benefits are also not taxed.

Ed
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Re: Pension surprise
Old 12-26-2006, 05:03 PM   #3
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Re: Pension surprise

Quote:
Originally Posted by Gotta Go
The problem - should one of us get hit by a bus between 50-54, the survivor is hosed. All the surviving spouse would receive, is the lump sum + interest paid into the bus accident's pension plan. While things could be far worse, this is far inferior to receiving even the minimum survivor pension benefit we could opt for at 54 (50%).


So...the questions. First, is life insurance a reasonable way to protect a surviving spouse during these 4 years from this risk? And second - just what type of policy would we look for, in this situation? I'm completely ignorant when it comes to life insurance...and given our lack of kids, lack of debt at ER, and decent income once our pensions kick in at 54, I can't see why we would need life insurance beyond that age.
Term life would be good. Figure it as somewhere in the neighborhood of = 1/2 pension X 25.
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Re: Pension surprise
Old 12-26-2006, 05:19 PM   #4
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Re: Pension surprise

Quote:
Originally Posted by Gotta Go
So...the questions. First, is life insurance a reasonable way to protect a surviving spouse during these 4 years from this risk? And second - just what type of policy would we look for, in this situation? I'm completely ignorant when it comes to life insurance...and given our lack of kids, lack of debt at ER, and decent income once our pensions kick in at 54, I can't see why we would need life insurance beyond that age.
Term life is a good bridge for the 4 year time period. Which would have also been good at the current time (while working) for same reasons. There is no need for term insurance once you both have pensions (with survivor benefits) in place. The key to this is survivor benefits.

I dropped all insurance once I started to collect my pension this past May.
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Re: Pension surprise
Old 12-26-2006, 06:14 PM   #5
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Re: Pension surprise

Thanks for the quick feedback, everyone...I'll investigate the term life options.

Quote:
Originally Posted by AltaRed
Which would have also been good at the current time (while working) for same reasons.
Our employer provides term life while we're employed, but thanks for the reminder. I just looked up the details, and the payout is only 2 x salary. Might be worth looking into enhancing that for the remaining couple of years we're in chains...

Bill
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Re: Pension surprise
Old 12-26-2006, 07:30 PM   #6
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Re: Pension surprise

Also see if you can buy up on your employer's policy.

Someone here will probably give you that web site where you can shop for term as well.

Congrat's on having a pension.
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Re: Pension surprise
Old 12-26-2006, 08:58 PM   #7
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Re: Pension surprise

What about healthcare? Are you still eligible for coverage if you delay taking your pension?

With my pension, to have coverage as a retiree, I have to start the pension the day I leave the company. Any delay and I lose all the healthcare benefits.
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Re: Pension surprise
Old 12-27-2006, 10:08 AM   #8
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Re: Pension surprise

Quote:
Originally Posted by Charles
Also see if you can buy up on your employer's policy.

Someone here will probably give you that web site where you can shop for term as well.

Congrat's on having a pension.
FYI, when we crunched the numbers, it was WAY more expensive to get more term life insurance through our employer vs. a private plan. Research this carefully!

We used a broker to shop plans for us. I think it was Select Quote. Had a good experience with them.

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Re: Pension surprise
Old 12-27-2006, 10:10 AM   #9
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Re: Pension surprise

Quote:
Originally Posted by UncleHoney
What about healthcare? Are you still eligible for coverage if you delay taking your pension?
Fortunately, yes...our pension plan has a separate monthly healthcare benefit, which we can apply to whatever plan(s) we wish.

We're on our own for the first 4 years...which is a big chunk of our tight budget during that period.
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Re: Pension surprise
Old 12-27-2006, 10:20 AM   #10
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Re: Pension surprise

Quote:
Originally Posted by simple girl
FYI, when we crunched the numbers, it was WAY more expensive to get more term life insurance through our employer vs. a private plan. Research this carefully!
I looked into this briefly yesterday - I think it's the same for us.

I found out there is an option to pay out of pocket on my employer's plan to increase the coverage, but it doesn't look like a great deal. First, we can only increase to 5 x salary - not enough. Second, the cost is .24/$1K coverage per month for our age range (45-49). In looking at some of the resources mentioned here previously, that seems pretty high.
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