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Single Life Annuity or Joint Survivor Annuity
Old 09-25-2015, 10:29 AM   #1
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Single Life Annuity or Joint Survivor Annuity

I will retire next year and one planner told us for me to take the single life annuity and the other said take the Joint Survivor Annuity (JSA).

Background Wife 48 yrs old
makes $83,000 covered under state pension and will retire at age 55 pension will be around 66% she is a nurse so will have reemployment options.
She has a 403b that she contributes $9,000 per year. current balance $220,000

I am 54 and will retire sometime in 2016. July 1st my single life annuity pension will be $60,841. a 50% JSA will lower my pension by 6.63%. around $336 per month.

Current assets for me.
457 plan $408,000.00
Deferred retirement option plan balance. $446,000. $6777.00 added to account each month while working.

payout upon retirement $60,000.
cash assets $70,000.

our retirement budget isn't adversely affected by the 50% JSA. state law requires a 50% JSA unless the spouse signs off on a single Life annuity. thanks
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Old 09-25-2015, 10:42 AM   #2
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you have a (possibly COLAd) pension worth about $1M or so - would you risk giving that up for (a measly) $336 a month if you predecease your spouse shortly after you commence payment?

not that I'm recommending either option - what was the FAs reasoning for taking the straight life annuity?
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Old 09-25-2015, 11:12 AM   #3
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you have a (possibly COLAd) pension worth about $1M or so - would you risk giving that up for (a measly) $336 a month if you predecease your spouse shortly after you commence payment?

not that I'm recommending either option - what was the FAs reasoning for taking the straight life annuity?
As your wife has her own pension there's no real need to take the joint life pension if it's enough for her to be comfortable. However, if the reduced income on the joint life pension won't cause you hardship why not get joint life benefits to insure against early death.
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Old 09-25-2015, 11:20 AM   #4
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Current life expectancy estimates say that the average woman will live 5 years longer than a male of the same age. That, combined with the fact that she is 6 years younger, means that if you fit the averages she will outlive you by 11 years. I agree that if there isn't any hardship to take the joint, why not. That's a pretty nice guarantee for her.

Of course there may be facts that the FA knows that we don't, but that's the way I see it.
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Old 09-25-2015, 01:11 PM   #5
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I've decided to go with a 100% joint pension... to me the 6.63% haircut you mention is not much given the financial security that it provides to your DW.
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Old 09-25-2015, 02:56 PM   #6
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I've decided to go with a 100% joint pension... to me the 6.63% haircut you mention is not much given the financial security that it provides to your DW.
If you are married and both in good health IMHO the joint life benefit should be the default if only to avoid explaining why you aren't really bothered about what happens to your spouse after to die.
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Old 09-25-2015, 03:44 PM   #7
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You can build a spreadsheet using the payout options from both pensions and play around with different RIP dates for you and your wife to see what makes sense. Not the cheeriest of exercises, I must admit.

In our case, DW's pension is quite a bit larger than mine, and still growing since she's still working. Plus hers is COLA'd; mine is not. So I elected the SL option and she plans to do the same. We're both in good health, she's a bit older than me, the pension values are a relatively small percentage of net worth, and we both have SS, rentals, and other assets to adequately support the survivor. So we made the decision based on maximizing payout to baseline actuarial assumptions. Breakeven is around age 74, but the difference is not really significant unless one of us dies at 65 or younger. Basically, we really didn't need the "life insurance" element of a joint payout option, so the cost was not warranted.

Your case appears to be somewhat similar... two pensions, other assets. However, your pension appears to be a bit larger than your wife's. And your combined pension values seem to be a very significant portion of your net worth. Not sure about your SS situation, health, family longevity, whether you have other life insurance, etc. Those are all factors that would enter into the decision as well. But just based on what you've disclosed, and your statement that the lower payout would not affect your retirement budget, I would be leaning toward the joint option for you, and, given the age difference, probably SL for your wife when she retires.
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Old 09-25-2015, 04:02 PM   #8
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You can build a spreadsheet using the payout options from both pensions and play around with different RIP dates for you and your wife to see what makes sense. Not the cheeriest of exercises, I must admit.

In our case, DW's pension is quite a bit larger than mine, and still growing since she's still working. Plus hers is COLA'd; mine is not. So I elected the SL option and she plans to do the same. We're both in good health, she's a bit older than me, the pension values are a relatively small percentage of net worth, and we both have SS, rentals, and other assets to adequately support the survivor. So we made the decision based on maximizing payout to baseline actuarial assumptions. Breakeven is around age 74, but the difference is not really significant unless one of us dies at 65 or younger. Basically, we really didn't need the "life insurance" element of a joint payout option, so the cost was not warranted.

Your case appears to be somewhat similar... two pensions, other assets. However, your pension appears to be a bit larger than your wife's. And your combined pension values seem to be a very significant portion of your net worth. Not sure about your SS situation, health, family longevity, whether you have other life insurance, etc. Those are all factors that would enter into the decision as well. But just based on what you've disclosed, and your statement that the lower payout would not affect your retirement budget, I would be leaning toward the joint option for you, and, given the age difference, probably SL for your wife when she retires.
Nice analysis. The SL fro your wife's pension might be a good bet as she's younger than you and women(an average) live longer than men.
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Old 09-25-2015, 04:37 PM   #9
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Thank you everyone. Looks like the JSA. I want her to realize her dream of living by the beach even if I am not there.
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Old 09-25-2015, 05:36 PM   #10
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Thank you everyone. Looks like the JSA. I want her to realize her dream of living by the beach even if I am not there.
Good choice!
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Old 09-26-2015, 01:38 AM   #11
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I hope you live a very long life and this turns out to not be a good financial choice, but I think the added financial security for your wife is a good investment in peace of mind.
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Old 09-26-2015, 06:35 AM   #12
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Agreed. DD recently passed away. He lived longer than expected (he was a heavy smoker) so they occasionally complained that they made the wrong choice in taking the survivor option on his pension. When I spoke DM a few weeks ago I asked her if she's now happy with the choice. She called it a blessing.

Financially they likely would have been better off with just a single life option since DD far exceeded the plan. The piece of mind she now has is priceless.


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Old 09-26-2015, 08:04 AM   #13
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I face this decision in 3 years when I have to elect a pension option. I will probably make a gut decision -- SLA vs. several survivor annuity options but mentally this is the way I picture the problem. A survivor annuity has a market value at my death (essentially the cost of a SPIA at that time) -- call that X. The difference between the SLA and the JLA is the cost of a life insurance policy that would pay out X when I die (adjusted for the chance that she pre-deceases me). So, assuming I could buy a policy and forgetting tax differences for a minute, the question is, do I like the price of the life insurance or do I think I could buy it significantly cheaper somewhere else. If the actuaries and underwriters do their work correctly, I should be roughly indifferent and the convenience factor would point toward a survivor annuity.

In the end I will probably punt and let my spouse select one of the survivor annuity options.
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Old 09-26-2015, 08:10 AM   #14
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Thank you everyone. Looks like the JSA. I want her to realize her dream of living by the beach even if I am not there.
Happy wife, happy life. (For at least one of you)
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Old 09-26-2015, 08:13 AM   #15
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I made the same decision. I was 62 she was 55. Both in excellent health. 8 % discount to take it to 100% from 66.7%. Pension is very generous and represents maybe 1/4 to 1/3 of our net worth. . Just seemed like the right thing to do from fairness and relationship perspective.
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Old 09-26-2015, 10:58 AM   #16
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Originally Posted by Big_Hitter View Post
you have a (possibly COLAd) pension worth about $1M or so - would you risk giving that up for (a measly) $336 a month if you predecease your spouse shortly after you commence payment?

not that I'm recommending either option - what was the FAs reasoning for taking the straight life annuity?

Whenever evaluating joint vs survivor, I would always also look at another option: compare the survivor option against what it would cost to buy a few term life policies coupled with your single annuity option:

price out buying a few different term policies with same face value amounts and different term lengths.
1- 5 year term life at 33% of equiv portfolio*
1- 10 year term life at 33% of equiv portfolio*
1- 15 year term life at 33% of equiv portfolio*

*where "equiv portfolio" = fave value of portfolio needed to pay out 1/3 of your life insurance benefit. Assuming, say, perhaps a 6%-7% withdrawal rate, which would be approximately what an annuity would pay out based on your age at that time.

It's not a perfect substitution, but at least it gives you an idea of what an alternative 'annuity insurance' would cost you if you didn't go with the survivor's option. Some pension plans offer very cheap survivor options, while others may not be so generous.
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Old 09-26-2015, 11:03 AM   #17
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Financial peace of mind often brings with it the willingness to spend more for one's own enjoyment and to help others. IMHO, a big pile of money usually brings with it the desire to preserve or even grow the big pile of money.
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Old 09-26-2015, 02:05 PM   #18
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Whenever evaluating joint vs survivor, I would always also look at another option: compare the survivor option against what it would cost to buy a few term life policies coupled with your single annuity option
Assuming you're still insurable. Apparently, at the ripe old age of 30, I'm already uninsurable.
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Old 09-26-2015, 04:53 PM   #19
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Assuming you're still insurable. Apparently, at the ripe old age of 30, I'm already uninsurable.
Just be aware if other than a retirement annunity if uninsurable for life insurance you might get the other side of the coin and higher annunity proceeds if you health is bad enough.
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Old 09-27-2015, 06:45 AM   #20
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I would take the SLA over the JLA. Or even better, I would probably take a lump sum over either (if available and would have to run numbers just to make sure).

My reasoning is this: you are self insured. Assuming your wife is the sole beneficiary of all of your assets, between the two of your savings and her pension it sounds like she'll be fine.

.... As long as you don't go crazy spending down your retirement savings. While she is working can you two live off what she is making and your pension?

Just to be clear since you quoted your pension annually and cost of 50% joint survivor monthly, you will be paying $4,032 a year to insure an annual income stream of $30,4020 for your wife after you die.

When I look at your numbers, to me the biggest risk to her financial health is not if you die and your pension goes away. The biggest risk would be if your health failed and you had to use significant portions of your savings to pay for nursing home and/or home health care.

Of course it isn't an either or decision, but I would buy long term care insurance over life insurance (term or JLA).
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