Pension Survivorship Options?

[mountainsoft]

Are you sure your payout numbers are correct? Upon death of the pension holder, the survivor receives the discounted amount. In case of 100% the benefit stays the same. In case of 67%, the original benefit is increased because the survivor receives less. I would think the original benefit would be more under the 50% option because the survivor's benefit would be 17% less than the 67% option and half the original benefit.

The state pension plan has an online calculator that estimates the payout for each option. Yes, the more we elect for the survivor, the less we receive for the combined payout.

 

[Ragna]

survivorship and LTCI

I've been thinking a bit about this also, especially as it pertains to LTCI. My main consideration whether increased dollars (e.g., at 75 or 100%)to my surviving spouse from the pension might allow me to greatly reduce LTCI coverage since the pension + SS would about cover living expenses.

 

[brett]

We may opt for an annuity in a few years if my health remains excellent. We would buy a life insured annuity.

Doing this in our tax regime could mean a much better after tax return vs the same money in a term deposit or lower interest vehicle.

 

[Winemaker]

The state pension plan has an online calculator that estimates the payout for each option. Yes, the more we elect for the survivor, the less we receive for the combined payout.

I read in your OP that your combined would get $200 more with 67% option and only $100 more with the 50%. Seems it would be the other way around.

Never mind I reread it again and add ANOTHER $100.

 

[mountainsoft]

I read in your OP that your combined would get $200 more with 67% option and only $100 more with the 50%. Seems it would be the other way around.

If she retires at 58, it's approximately:

0% survivor = full payout
50% survivor = $100 less than full payout
67% survivor = $200 less than full payout
100% survivor = $300 less than full payout

The differences between options increase slightly if she retires later.

 

[Alan]

We went the life insurance route and opted for 50% survivor. The difference between the payout between 50% and 100% was greater than the insurance premium. I took out the insurance policy on my life ~14 years ago at age 48, and as it was before I was a member of this site I opted for a VUL policy which members don't recommend.

However, it has worked out well because after 11 years it had grown to an amount that is self sustaining and I cancelled the payments 3 years ago. The cost of this $500k policy is $128/month and the policy currently stands at $58k invested in a Fidelity Freedom fund so is a 2.6% WR. If the fund gets too depleted I can always put money into it.

 

[Teacher Terry]

We each chose the 100% survivor option. He is 5 years younger then me. We could not go the life insurance route because both of us had health issues that would not have made that the best option. I lost 150/month and he lost 300. Because our SS will be super tiny we knew whoever survived would need the $.

 

[Hillbilly]

I just signed my retirement papers this month with 100% to spouse. This was about $200/mo. less than 0% option. Another consideration for us with no children was to have the pension and SS to fund "help" for the one possibly left behind. The 401k/savings/life insurance is considered backup and/or left for those that step in to "help".

 

[pb4uski]

I checked into something like this when I made our decision. In our case, the cost of the life insurance ladder was too high, so we ended up going with the 100% joint survivor option.

Creating a Life Insurance Ladder — Oblivious Investor

 

[Sunset]

OP - if you are 10 years from retirement, then Full Retirement Age for SS would probably be higher than age 65. More like 66.5 ??

Remember in your planning, especially for the high earner, that SS benefits increase ~8% (plus inflation) each year you delay past full retirement age probably better than your IRA investment.

 

[mystang52]

OP - I realize you stated you currently have limited income. Nevertheless, with 10 year horizon you should look to increasing your savings now. No matter how small the amount, it can accumulate significantly over 10 years. And, as pretty much everyone knows, once you get used to not seeing that small extra savings, you might find you can increase that amount, thus creating an even larger nest egg.

 

[Danmar]

This thread got me thinking again about the choice I made re pension survivorship. So I set up a NPV calculation for the two alternatives 100% and 67%. Using longevity tables. Turns out the NPV's equate with an interest rate of 2.5%. Sounds about right so I guess they were actuarially equivalent. Makes sense.

 

[Sunset]

OP - if you are 10 years from retirement, then Full Retirement Age for SS would probably be higher than age 65. More like 66.5 ??

Remember in your planning, especially for the high earner, that SS benefits increase ~8% (plus inflation) each year you delay past full retirement age probably better than your IRA investment.

And of course they decrease by nearly the same amount when taking them before Full Retirement Age.

 

[CRLLS]

Even if you can live on 50% by yourself, have you considered the effect on income taxes? In our situation, I am expecting the surviving spouse will be hit with higher taxes, She or I will have the same investment income and the higher of our SS (assuming we survive until we start collecting) but will not qualify for "married" deductions. This will raise the taxes significantly and that could possibly change Medicare costs. Make sure that whatever your numbers you are targeting are "after tax" dollars.