Mmmm, Numbers

[pb4uski]

Let's say that you select the single life option that pays $5,296/month and die the next day and your DW is then 60yo female living in VA. According to immediateannuities.com a SPIA that pays a 60yo female in VA $4,813/month would cost $886,000.

Can you buy life insurance with a $886,000 death benefit for the extra $483/month that you will be collecting with the single life benefit? Probably not.

But the amount that is needed to buy a SPIA providing $4,813/month will decline as you both get older.

So then you can refine it by saying that the SPIA to provide $4,813/month will only cost $731k when she is 70 and would only cost $527k when she is 80... so you could use a ladder of a 30 year policy for $527k, a 20 year term life policy for $204k and a 10 year life term policy for $155k... can you buy that package of policies for $483/mo (or less)? Perhaps.

When I went through it it seemed that at best it might be close but it would be unnecessarily complicated compared to the 100% joint option. If the using the excess of the single life option over the joint life option to buy life insurance on me to fund the benefit once I pass had been compelling then I probably would have considered it, but it wasn't and that made the decision for us.

Not to mention even if it did have a little benefit explaining the strategy and its complexity to DW to get her buy in to sign off on the single life pension... not worth the trip!

 

[38Chevy454]

We also chose J&S 100% option for both of our pensions. I ran calculators backwards and forwards with our pension payout choices (over 10!).
100% just seemed easier, more strait forward for planning. Same income plus small cola for both our lives--easier on the budget planning.

I think this is a bigger factor than some realize. Beside the fact that it is hard to do financially better than the simplified 100% survivor pension option in most cases. Think about how much less stress on the surviving spouse will be when the monthly income stays the same and from the same source with only some small paperwork documentation. As opposed to receiving a life insurance lump sum and then needing to figure out what to do with it.

 

[Chuckanut]

Heh, heh, if you feel comfortable presenting the numbers here, one of our math majors (definitely, not me) will probably show you how.

I picked the lowest level of survivorship (25% in my case) BUT waited until 70 to take SS so the DW would have MY SS upon my death. We did not do any number crunching - just eye-balled it, so to speak. YMMV

There is a time to KISS - keep it simple stupid. I am not sure that getting one's 70+ year old spouse to understand how various life insurance policies work together is going to work well unless you are married to an accountant or other financial professional and he/she still has most of their marbles.

A complicated insurance/investment process may be opening the door to allowing a shark attack by a FA who does not have the surviving spouse's best interests as a priority.

 

[TheWizard]

I always thought that life insurance for older folks with no dependants was best used for situations where there's a large family business which will be subject to estate taxes upon the demise of the patriarch, and or matriarch.
Talking about $10-20 million or more family business or large ranch like Street has.

In order for younger generation to continue on, taxes will need to be paid.
If no cash available, that main asset will need to be SOLD to raise cash for taxes...

 

[street]

That’s a great analysis from Gumby. My process was a lot simpler. Why would the surging spouse need any less money? Our differential was small, so it was easy to just look at it and choose the 100% option. But the point is that the surviving spouse is not going to see a 50% drop in expenses, as was pointed out by Gumby. Option 2.

X2 Nicely done.

 

[Koolau]

That’s a great analysis from Gumby. My process was a lot simpler. Why would the surging spouse need any less money? Our differential was small, so it was easy to just look at it and choose the 100% option. But the point is that the surviving spouse is not going to see a 50% drop in expenses, as was pointed out by Gumby. Option 2.

In theory, I think this is correct. The surviving spouse under the same conditions would need just about as much to cover expenses. In our case, DW made it clear that once I'm gone, she's moving back to a low cost of living area (not for the costs but for the family and friends network.) YMMV