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Spousal Pension Benefit
Old 06-08-2008, 09:36 PM   #1
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Spousal Pension Benefit

Hi all,

My DH will be joining me in early retirement in about 9 months. His pension will represent about 50% of our retirement income until we receive social security in about 8 years. We both qualify for decent social security benefits and plan to start taking them at age 62. Until then, the rest of our retirement income will come from my much smaller pension and income from our investments. I did much more job changing than my DH, so most of my retirement assets are in IRAs and the TSP. I considered purchasing an annuity some time ago with my retirement funds which would approach the value of his pension, but decided it's is best not to turn my hard earned money over to an insurance company.

Here's the question - how much of a spousal benefit makes sense? I'm thinking an 80% benefit would work for us. This would reduce his pension (which does get cola increases) to about 86% of the amount with no spousal benefit at all and provide me with about 69% of the unreduced pension in the event something happens to him. I've run the numbers and these options would provide us with financial security. Even so, I sure don't want us to give up more in pension benefits than necessary. I've heard folks talk about the option of taking no spousal benefits and using a life insurance policy to provide security for the surviving spouse. I haven't checked the rates, but we are not crazy about insurance policies or insurance companies in general and think it might be expensive due to some medical issues and family history.

In any event, I would be interested in hearing how others analyzed this issue and derived the optimum amount of the spousal benefit on a pension.
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Old 06-08-2008, 09:45 PM   #2
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In any event, I would be interested in hearing how others analyzed this issue and derived the optimum amount of the spousal benefit on a pension.
My brother and his wife retired about 8 months ago. Her pension was much larger. However they decided that since she was younger, female and in better health they would go with no survivor benefits on her pension. This was mainly to give her more income after his eventual death, to help replace his SS.

So 6 months later she was dead.

It sounds like you plan on a survivor's benefit, it is just the amount you are unsure about. I have no real suggestion, other than it is likely best to make conservative assumptions.

Ha
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Old 06-08-2008, 09:54 PM   #3
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My Mom took her full pension with no survivor benefits (same rationale as Ha's sister in law) but uses part of the extra money she receives to buy a substantial term life policy for my Dad every year. That way he is covered if she does die first. (He has retirement funds, but no pension)
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Old 06-08-2008, 10:29 PM   #4
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My Mom took her full pension with no survivor benefits (same rationale as Ha's sister in law) but uses part of the extra money she receives to buy a substantial term life policy for my Dad every year. That way he is covered if she does die first. (He has retirement funds, but no pension)
This is what I did when I retired. DH is 5 years older, owns a business so he too has retirement funds but no pension. To provide a survivor benefit for him in case I "pre-decease" him would have meant a sizeable cut in my pension benefits now, so I bought term life ins. on myself. I figure that if I die first, he'll get my IRA plus the tax free insurance benefits which should be more than enough for his lifestyle...but not enough for the next Mrs. Achiever.
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Old 06-09-2008, 02:57 AM   #5
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We decided to take 100% spousal benefit for my DW. 50% was the default starting point. You had to have your spouse 'sign away' his/her 50% bennie.

It was not really a financial decision, but one of 'taking care of each other'. DW did not work for the majority of our life together, so has no personal pension, savings, investments, ... etc. The pension alone takes care of about 1/2 of our wants (not needs).
Doing the calculations, the 'hit' we take by taking the 100% spousal bennie is what we are comfortable with and fits into our planning and takes care of her from day 1 and beyond.

We looked at insurance, but you cannot guarentee coverage (at an economical price) when you get older. So that was not a viable option(to us).

IMO, the answer for each of us is ... it depends. Everyones situation will be slightly different. It will all be highly dependent upon confort levels desired.

Hope this helps.
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Old 06-09-2008, 06:16 AM   #6
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Originally Posted by haha View Post
My brother and his wife retired about 8 months ago. Her pension was much larger. However they decided that since she was younger, female and in better health they would go with no survivor benefits on her pension. This was mainly to give her more income after his eventual death, to help replace his SS.

So 6 months later she was dead.

It sounds like you plan on a survivor's benefit, it is just the amount you are unsure about. I have no real suggestion, other than it is likely best to make conservative assumptions.

Ha
My DW's parents (both passed) had the opposite situation. My FIL (steelworker - pension) did not take the survivorship option. This was back in the day that the spouse did not have to "sign-off" on the option.

Anyway, MIL passed first (age 71). He passed at age 88, eleven years after she went.

Just shows, there is no way you can get the "correct answer". For me, the answer would be am I concerned that my DW will have "enough" (or more than enough ) after I pass. That's what's driving me to the decision to hold off on SS till age 70.

For other folks, the "requirement" is to have current/ early retirement income at the "maximum" (at the time).

It all depends on the situation, and your "end desires".

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Old 06-09-2008, 07:11 AM   #7
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My MIL made the same assumption - that she would outlive FIL. Six months after retirement she died and the insurance went to four kids. DW and one sister gave all of it to him. Not a catastrophic mistake but he is financially hurting and it would have helped.

When I retired there were options for no bennies for her, 30%, 50%, 70% and 100%, meaning no change if either died. Each higher percentage decreased the overall amount in retirement so we picked 70% given that we have no bills. So if I go first she can sell this house (which she says she wouldn't want/can't keep up anyway), write a check for a smaller place, do with one vehicle instead of two, and one less person to think about for food, medical, activities, etc. So 70% seemed to fit the bill.

She could have stayed at her high-stress job for another ten years and received her own retirement but a stress-free spouse is well worth the hit I took on the income.
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Old 06-09-2008, 07:46 AM   #8
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My husband had only been retired 18 months when he died . His family had incredible longevity so it was a real shock . Luckily ,he had the survivor benefits because the medical was also tied to it . We both had quite a bit in savings but the monthly check kept me sane .
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Old 06-09-2008, 09:13 AM   #9
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My plan, when I finally start my puny pension, is to take the 100% option. I have an insurance policy to cover the loss of the pension for DW. Frankly, I trust the insurance company staying solvent more than I trust the pension fund. And if DW goes first, not likely since she's 7 years younger, the payout from the policy should cover the loss of the pension. But every situation is different.
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