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Pension Wuss. Need hand holding
Old 09-23-2014, 03:45 PM   #1
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Pension Wuss. Need hand holding

Hi… I’m wondering if some of you folks could comment with your personal thoughts regarding my pension options. I’m 60 and left the work force 5 months ago. I don’t consider myself retired as I am currently a ‘kept man’. DW is just turning 58 and plans on retiring in about 3 years. At that time, I (we) will be considered retired.
What’s mine is hers, and what’s hers is mine
Both professionals with the same earnings records
I’m thinking I want to ensure a steady, inflation protected income stream to cover our budgetary items. This would be done with SS (hers and mine) and taking our pensions. The rest will come from our 401k’s, investments, and some ROTH stuff. DW has a pension and I’m just now starting to learn the details of it (difficult getting specifics from her employer). My projection is that her pension (in three years’ time), will be about the same as what mine is currently...same, same. Attached is a shot of my pension options if I start taking it now. I’m thinking on doing the 3% cola with a five year certainty. I can bank my payments for the next three years to use in the early stages of retirement. My sister tells me the 3% yearly increase looks very good. But here is the wuss in me. With effectively no survivor benefits, if I die sooner than later, nothing goes to my wife or heirs….and I can’t stand the idea of my money going to the Mega Corp. DW would also take an option such as mine with her pension, so with SS1, SS2, pension1, and Pension2 we could (as a couple) have a protected income stream to cover our recurring costs. Health? Well, I always thought I was in decent shape, but I need to lose some lbs. I look at the obits and it seems everyone is doing a Jimmy Durante “Kicking the bucket” in their mid 70’s or earlier (I know…. quit looking at the obits). Wife is in great shape but is a Type 1 diabetic. Another option is to lump sum it and manage it ourselves. There is so much discussion about pensions and annuities on this board that the only thing I can distill from it all is that it's imperative that you know when you will die and if you are talking about a pension with COLA….grab it. So someone tell me, forget death, taxes, and inheritance issues and take the guaranteed $.
Projecting out, in three years’ time, DW’s pension along with mine should represent about 20% of our total portfolio. And thanks.


NOTE: edited to agree COLA was used inappropriately here. My pension would simply increase each year by 3%.
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Old 09-23-2014, 04:33 PM   #2
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Calling the 3% a COLA is misleading, in my opinion. It appears that the adjustment is just a fixed 3% adjustment to the payment each year, regardless of what inflation actually does.

You're still taking a risk that inflation exceeds the 3%.

Beyond that, I'm not so sure I agree with your sister that the 3% is a great value - I charted the cumulative nominal amount received comparing the 5 year guaranteed single life to the 5 year guaranteed single life with 3% adjustment.

As you can see, it's not until year 21 that the adjusted total amount exceeds the fixed total amount. (The payments cross over at approximately year 12 - see list below for the payments).

Considering that your spending is likely to decline with age, and the chances of not surviving to that age are significant, I feel the 3% is not a good deal. (A real inflation-indexed adjustment would have been different).

You didn't say what the lump sum option was, but in general, the pension payout options are significantly better than what is available in the market (as long as you trust that the pension will keep getting paid)

IMO main points are:
- The 3% is *not* a real COLA and not worth it unless you plan to live significantly in excess of 20 years past the pension payout.
- You need to decide how to protect yourselves against one of you predeceasing the other - this will mean trading off more current income against more future income for the surviving spouse - you need a clear view of your anticipated expenses to make this tradeoff
- The pension payout is likely better than the lump sum, as long as the payer is reliable - you didn't post the lump sum available to you, but at current rates, it would take at least $240000 in an SPIA to generate the same income (quote from immediateannuities.com for a 60 year old male)
- IMO what does or does not go to Megacorp should be irrelevant to your decision - make the tradeoffs purely on the benefits for your family.

Year Fixed 3% increase
1 1207.24 889.74
2 1207.24 916.4322
3 1207.24 943.925166
4 1207.24 972.242921
5 1207.24 1001.410209
6 1207.24 1031.452515
7 1207.24 1062.39609
8 1207.24 1094.267973
9 1207.24 1127.096012
10 1207.24 1160.908893
11 1207.24 1195.736159
12 1207.24 1231.608244
13 1207.24 1268.556491
14 1207.24 1306.613186
15 1207.24 1345.811582
16 1207.24 1386.185929
17 1207.24 1427.771507
18 1207.24 1470.604652
19 1207.24 1514.722792
20 1207.24 1560.164476
21 1207.24 1606.96941
22 1207.24 1655.178492
23 1207.24 1704.833847
24 1207.24 1755.978862
25 1207.24 1808.658228
26 1207.24 1862.917975
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Old 09-23-2014, 04:35 PM   #3
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Good Stuff. Thanks. Type of feedback I was hoping to see.

Yes, agreed...the use of the word COLA is inaccurate here. Lump sum is 184k. I should also say that from my personality standpoint, it has not been just about the math. I do like the secure knowledge that it is a secure stream of increasing income. The backing of the plan is, I believe, very secure also covered by the Pension Plan Guaranty Corp
(Fed Insurance Agency)
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Old 09-23-2014, 05:15 PM   #4
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Think ulrichw nailed it.

I wouldn't take the 3% raise scenario either. It's arbitrary and goes against the normal trend that you'll need less money as time goes on.

If you want COLA assurance invest some money in TIPS from other sources.
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Old 09-23-2014, 05:22 PM   #5
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This is where it gets really tricky because you are trying to bet whether your spouse will out live you and, if so, by how much? The 5 yr with 3% option if collected from 2015 through 2030 would pay out about $215,000. The 5 yr with no 3% rider would pay out about $231,800. The 100% contingent plan would pay out about $202,000 through 2030. But if you die in 2025, and your spouse lives through 2030, the 100% contingent option is way ahead of the game by $50,000 or more. For me, given the difference is only about 14,000 out to 2030 for the 100% contingent, I would probably take that. If you just assume the usual greater longevity of a wife, that may well dictate that the husband take a different option than the wife - but again, you have to take into account differences in heath.
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Old 09-23-2014, 05:28 PM   #6
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Again, thanks for all the input thus far. I'm going to sit by the sidelines here for a bit and if more comments come forth, I'll absorb all the data,
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Old 09-23-2014, 05:32 PM   #7
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I also can't argue with ulrichw's math and chart. Also the logic of better to get it now than later.

I believe what you are kind of mixed up on about COLA'd pensions is when people here refer to COLA vs non-COLA. Of course being COLA'd is better. But your case is not really a COLA vs non-COLA.

Taking the contingent annuitant (means surviving spouse for example) benefit on your pension would continue to have money coming in for your wife if you should die sooner. It will cost you approx $200/mo, depending on what level (50%, 75% or 100%) you select for your wife to get.
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Old 09-23-2014, 06:17 PM   #8
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The backing of the plan is, I believe, very secure also covered by the Pension Plan Guaranty Corp
(Fed Insurance Agency)
Pension Plan Guaranty Corp is not necessarily a "secure" backstop. The PBGC has lots of restrictions and rules regarding the continuance of payments for pensions that "go broke", and/or the company managing the pension suddenly goes through bankruptcy. The PBGC uses the words "up to the legal limits" very often in their literature. That is usually code-word-talk for "an amount far less than you think"....

Pay specific attention to the words "legal limits" and then the "Maximum guaranteeable benefit" phrase. In the end, they are basically telling you that your "guaranteed benefit" is not as guaranteed as you think.

Here is a link to a description of "Maximum guaranteeable benefit" which is in "Title 29 Subtitle B Chapter XL Subchapter D Part 4022 Subpart B Section 4022.22" of the PBGC laws.
29 CFR 4022.22 - Maximum guaranteeable benefit. | LII / Legal Information Institute

And here is a link to the FAQ on the PBGC website.
Your Guaranteed Pension

At least with the FDIC, they tell you the "legal limit" they guarantee. (currently 250,000 dollars). But, the PBGC can only give you some vague phraseology such as "maximum guaranteeable benefit" and then they give you a "formula"?!?

Although having a PBGC guarantee is "better than nothing", it is not as "guaranteed" as we would like it to be!?!
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Old 09-23-2014, 06:56 PM   #9
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The PBGC "legal limits" are in excess of what OP has shared in terms of his pension amount at age 60. Should not be a problem as long as the laws (and funding) that govern PBGC are not changed in the future.

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Old 09-23-2014, 09:40 PM   #10
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Is the 5 year/3% a joint life pension as well? If so, then I would lean towards that because the benefit grows to exceed the joint life pension in only 6 years.

While the 3% isn't a true COLA the long term rate of inflation has been 3% and inflation has been less than 3% in recent years. Contrary to the consensus, I think it is a good deal, particularly if it is joint life.

If the 5 year/3% isn't joint life, then I would lean towards the joint life options.
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Old 09-24-2014, 01:35 PM   #11
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Is the 5 year/3% a joint life pension as well? [...]
I went back to the original table and noticed what looks like a discrepancy - the table implies that there are survivor benefits for the options I compared (and called single life options), but looking at the payout when compared to the single life with 3% increase (no guarantee) that doesn't seem possible.

(single life 3% increase is 893.63 monthly, vs. 5 year guarantee 3% at 889.74) - there's no way that a joint annuity would be that close to a single annuity.

So I'm guessing they got the table wrong and the two options are both single life (as I originally assumed).
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Old 09-24-2014, 02:02 PM   #12
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(single life 3% increase is 893.63 monthly, vs. 5 year guarantee 3% at 889.74) - there's no way that a joint annuity would be that close to a single annuity.

So I'm guessing they got the table wrong and the two options are both single life (as I originally assumed).
I agree with you. That's about the right amount of a hit for a 60 yr old male to take for a 5 yr guarantee. The vast majority of 60 yr olds make it to 65.

My pension with a wife 2 yrs younger reduces the single life payment by about 15% to make it a 100% for the survivor.

For the OP, this smaller reduction in benefits should be evaluated against how significant of a life style reduction will be needed if they were both on 100% and bringing in an extra amount now.
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Old 09-24-2014, 02:14 PM   #13
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What isn't clear to me is whether the survivorship amounts for the 5 year certain and life options are survivor benefits for joint life (for the life of the survivor if the primary beneficiary dies) or for just for the survivor during the 5 year certain period (if the primary beneficiary dies in the first 5 years benefits are being paid). I suspect it is the latter, but it is unclear.
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Old 09-25-2014, 11:02 PM   #14
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Hi... ok, just got back from Yosemite. Saw a bobcat..sweet.

Anything that states 'Contingent' goes to wife for her lifetime when I pass.
Five years certain goes to me. If I die in year 4, wife gets the money for 1year.

Alz I know is... it's a pension for a major bank (rhymes with Bank of America). Managed by Fidelity. It's their calc engine and I would be very surprised if it is wrong. They know everything about me..age, pension amount, etc. I key in two things: when I want to start my draw and what is my wife age


The single life annuity does not imply survivor benefits... its states Na
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Old 09-26-2014, 09:19 AM   #15
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I think I would take the joint life option (perhaps 75% joint life) for both you and her and rely on your retirement investments to provide inflation protection for you.

If you were willing to take the single life option, the 3% increasing option seems attractively priced in relation to the fixed benefit option. If you are adventurous, one possibility might be the single life option accompanied by term life insurance to provide survivorship benefits. See Creating a Life Insurance Ladder
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Old 09-26-2014, 10:08 AM   #16
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I think I would take the joint life option (perhaps 75% joint life) for both you and her and rely on your retirement investments to provide inflation protection for you.

If you were willing to take the single life option, the 3% increasing option seems attractively priced in relation to the fixed benefit option. If you are adventurous, one possibility might be the single life option accompanied by term life insurance to provide survivorship benefits. See Creating a Life Insurance Ladder
Thanks for the input
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Old 09-26-2014, 10:32 AM   #17
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I'm going to sit by the sidelines here for a bit and if more comments come forth, I'll absorb all the data,
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Hi... ok, just got back from Yosemite. Saw a bobcat..sweet.
Nice sidelines!

I know this is not a SS discussion nor consideration of the lump sum option, but since you indicate that you both will be eligible for SS... one AHA moment I recently received was that if you can delay SS a year(COLA and 5%+ increased benefit) using other resources to live off of will in-effect be buying yourself annuity $$. Peace of mind for me to at least consider a lump sum option.
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