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10-31-2011, 10:58 AM
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#1
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Dryer sheet aficionado
Join Date: Aug 2011
Posts: 37
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Pension Electives
Hi, just seeing if anyone can help with a pension elective for payouts. The choices are from a single pay monthly where your spouse gets nothing upon your demise. The other choices run from 50% where your spouse gets half to 662/3, 75, or 100% where your spouse would recieve the same benefit with no loss of payment. The normal elective is the 50%,I am just wondering if that seems to be the norm. the dollar diference between the 50% & the 100% to the spouse is about $1000 a month,and the increase monthly while both are alive would be about $200 a month. thanks
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10-31-2011, 11:04 AM
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#2
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Thinks s/he gets paid by the post
Join Date: May 2011
Location: South Eastern USA
Posts: 1,068
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I took the 50% survivor's benefit option.
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10-31-2011, 11:15 AM
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#3
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2005
Posts: 17,241
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I think it makes a difference if the spouse can live on less money...
Also remember... if you are both collecting SS, then one of the SS income streams go away...
On the plus side... when my BIL died my sister's pension payment went up since he was no longer a beneficiary.... but, not as much as her SS payment was...
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10-31-2011, 11:39 AM
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#4
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Thinks s/he gets paid by the post
Join Date: Oct 2010
Location: Waimanalo, HI
Posts: 1,881
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Quote:
Originally Posted by lacawac
The normal elective is the 50%,I am just wondering if that seems to be the norm. the dollar diference between the 50% & the 100% to the spouse is about $1000 a month,and the increase monthly while both are alive would be about $200 a month. thanks
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Here, too, the monthly difference between 50% and 100% to spouse was around $1000/month, but also I get back that $1000/month if spouse dies first. They call that a "pop-up" provision. My wife and I have almost exactly the same pensions and made the same choices of 100% to spouse. Our reasoning was that after one of us dies, there is a good chance the other will run into extraordinary expenses for nursing care, and we wanted to keep the household income high to pay for that. (We've no LTC insurance.) When one dies, our household income goes down only $1000/month (loss of SS partially compensated by the extra $1000 from other pension).
__________________
Greg (retired in 2010 at age 68, state pension)
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10-31-2011, 01:23 PM
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#5
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Thinks s/he gets paid by the post
Join Date: Nov 2006
Location: Bossier City
Posts: 2,183
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I'll be going with the 50% on both my pensions. I figure if I croak, and leave her with half the pensions, a paid off house, no bills, and her own Social security....she should be ok. I eat 80% of the groceries...
__________________
“Change is the law of life. And those who look only to the past or present are certain to miss the future.”
-John F. Kennedy
“Hard work never killed anybody, but why take a chance?” - Edgar Bergen
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10-31-2011, 08:40 PM
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#6
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Recycles dryer sheets
Join Date: Oct 2007
Location: Rockwall,
Posts: 118
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Have you looked into a Life Insurance Policy ? Would it cost less than 12K per year to fund one for say 20 years term? By then you may have saved/ invested / or spent the difference?
__________________
Zacchaeus Come Down From That Tree
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11-01-2011, 08:29 PM
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#7
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Full time employment: Posting here.
Join Date: Aug 2006
Location: athens
Posts: 802
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I've also struggled with this one. I beat my head against the wall for weeks and ended up back where I started. I asked for recommendations from a Fidelity advisor and a USAA advisor. It was interesting that, even though they each had the same data about my financial situation, they came up with completely different recommendations. I'm older than my wife, so that figures in to the numbers. I finally decided to plot two functions, sorry but it's the engineer in me. One plots what I would received while living taking the different options. I then did the same assuming each option if I died immediately. It formed a sideways V with different slopes. The steeper slope being wife's line due to her younger age I assume. This helped me decide on a 100% option on one pension and 75% on the second smaller pension. I was willing to give up some income during my life in order to give DW a better income when I'm gone. I may keep my permanent life insurance too but haven't made the decision on that yet. Term life will go away in ten years or less anyway. One other wrinkle. I've decided to hold off applying for the pension for four months minimum to allow me to transfer additional money into my ROTH at a lower tax rate. Good luck on your decision.
__________________
Can't you see yourself in the nursing home saying, " Darn! Wish I'd spent more time at the office instead of wasting time with family and friends."
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11-01-2011, 09:24 PM
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#8
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Aug 2011
Location: West of the Mississippi
Posts: 17,263
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I have heard of different strategies. For example, skip the survivor benefits and instead use the extra income to buy a life insurance policy that protects the surviving spouse. Or some kind of old age annuity that kicks in if the spouse lives past certain age.
I don't recommend any of these. Just mentioning them. The devil, is in the numbers, and what works for one person may not work for others.
__________________
Comparison is the thief of joy
The worst decisions are usually made in times of anger and impatience.
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11-02-2011, 06:51 AM
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#9
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Recycles dryer sheets
Join Date: Sep 2011
Location: Easten Long Island
Posts: 414
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Since my wife's pension amounts to 1/2 of what mine is, we elected to have no survivor benefit on her pension and a 50% survivor benefit on my pension. Consequently, the survivor should have pension income amounting to the size of my pension.
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11-02-2011, 07:23 AM
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#10
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Dryer sheet wannabe
Join Date: May 2011
Posts: 23
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Quote:
Originally Posted by Raygun99
Have you looked into a Life Insurance Policy ? Would it cost less than 12K per year to fund one for say 20 years term? By then you may have saved/ invested / or spent the difference?
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My employer had an (optional) life insurance package after retirement which was 1/4 of the cost of private life insurance. Therefore for me made more sense to buy it than any survisor benefit which really is just another type of life insurance.
Also I believe life insurance benefits may be taxed at a different rate than pension survivor benefits depending on your location?
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11-02-2011, 07:30 AM
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#11
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Recycles dryer sheets
Join Date: Sep 2011
Location: Easten Long Island
Posts: 414
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Quote:
Originally Posted by Paddy
My employer had an (optional) life insurance package after retirement which was 1/4 of the cost of private life insurance. Therefore for me made more sense to buy it than any survisor benefit which really is just another type of life insurance.
Also I believe life insurance benefits may be taxed at a different rate than pension survivor benefits depending on your location?
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Some pension benefits have a cola feature; does life insurance?
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11-02-2011, 07:45 AM
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#12
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Administrator
Join Date: Jan 2008
Location: Chicagoland
Posts: 40,714
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Quote:
Originally Posted by Paddy
My employer had an (optional) life insurance package after retirement which was 1/4 of the cost of private life insurance. Therefore for me made more sense to buy it than any survisor benefit which really is just another type of life insurance.
Also I believe life insurance benefits may be taxed at a different rate than pension survivor benefits depending on your location?
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Not a tax expert, but IIRC life insurance is usually not taxed in the US.
Quote:
Originally Posted by justplainbll
Some pension benefits have a cola feature; does life insurance?
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Not usually. I would imagine a policy could be written that called for an increasing payout, though.
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11-02-2011, 07:59 AM
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#13
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gone traveling
Join Date: Apr 2009
Location: Eastern PA
Posts: 3,851
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FIL took no survivor benefit. His DW passed first, and he followed her a decade later. In that case, his decision was correct.
DW's best friend passed a few weeks ago. Her DH did the same thing as FIL, to maximize benfits. In their case, he also purchased life insurance with the chance that he would pass first. The annual preimums were a fraction of the increase in his retirement benefit, per his situation which was for term life at his age (60's).
In this case, it also worked out well, by not taking the 50% spousal benefit and of course, he does not have to maintain the insurance since her passing.
I don't have to make that decision (no pension), but DW has two small benefits that start in just over two years. She is taking the single life option to max out her benefit (I don't need the survivor benefit ).
Just another view, based upon our family/friend's experience.
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11-02-2011, 08:08 AM
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#14
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2005
Posts: 17,241
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Quote:
Originally Posted by MichaelB
Not a tax expert, but IIRC life insurance is usually not taxed in the US.
Not usually. I would imagine a policy could be written that called for an increasing payout, though.
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That is true, live insurance is not taxed as income.... but can be in the estate....
I have not heard of a life insurance policy that was adjusted for inflation...
Now, my mom's annuity that has a life insurance component attached to it does increase in payout value as the annuity increases... something to do with the tax laws....
Also, I am surprised that someone was able to get life insurance (that was not subsidized) to replace the income as cheap as some has said... it is a numbers thing... IOW, if you buy enough life insurance to replace the income you are giving up, that cost should be similar to the cost of an annuity... we did look at this for my sister, but could not get any insurance at a low enough cost to justify taking the higher amount...
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11-02-2011, 09:02 AM
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#15
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2005
Location: Chicago
Posts: 13,186
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Quote:
Originally Posted by Texas Proud
Also, I am surprised that someone was able to get life insurance (that was not subsidized) to replace the income as cheap as some has said... it is a numbers thing... IOW, if you buy enough life insurance to replace the income you are giving up, that cost should be similar to the cost of an annuity... we did look at this for my sister, but could not get any insurance at a low enough cost to justify taking the higher amount...
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I agree. We looked at the life insurance vs survivor's benefit trade off and found that life insurance was expensive. Starting a substantial policy in your 60's with guaranteed renewal in your 70's, 80's and 90's cost more annually than taking the 50% survivors option on the pension. At least for the LI quotes we got vs the cost of the 50% survivor's benefit on my pension.
__________________
"I wasn't born blue blood. I was born blue-collar." John Wort Hannam
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11-02-2011, 09:51 AM
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#16
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Thinks s/he gets paid by the post
Join Date: Feb 2007
Posts: 3,681
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When DH retired we took the 100% to survivor option. That option reduced his pension to 88.9% of the single option, a difference of about $300/month. If I die first, his pension payment will increase to the single pension amount.
I'll get a little SS, maybe at 62, maybe hold off until later. DH won't get anything as my spouse or widower due to GPO.
We have term life insurance, 20 year policies (age 45-65) with 9 years left to go. It's cheap now but when it ends at age 65 it will probably be too expensive to continue.
__________________
Married, both 69. DH retired June, 2010. I have a pleasant little part time job.
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11-02-2011, 12:07 PM
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#17
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Dryer sheet wannabe
Join Date: May 2011
Posts: 23
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Quote:
Originally Posted by justplainbll
Some pension benefits have a cola feature; does life insurance?
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Actually the amount of the benefit decreases over time (as does the premium).
As I thought about it, that makes sense. The older my spouse is the less dollars she will need to replace my pension income, just based on life expectancy.
Heaven forbid she dies first, I can cancel the life insurance, or keep it in place for my children.
There is a lot of having to compare apples & oranges in this issue which drove me fruity!
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11-08-2011, 10:04 AM
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#18
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Full time employment: Posting here.
Join Date: Aug 2011
Location: Atlanta
Posts: 507
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Quote:
Originally Posted by lacawac
Hi, just seeing if anyone can help with a pension elective for payouts. The choices are from a single pay monthly where your spouse gets nothing upon your demise. The other choices run from 50% where your spouse gets half to 662/3, 75, or 100% where your spouse would recieve the same benefit with no loss of payment. The normal elective is the 50%,I am just wondering if that seems to be the norm. the dollar diference between the 50% & the 100% to the spouse is about $1000 a month,and the increase monthly while both are alive would be about $200 a month. thanks
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I will be taking the option where if I die she will get 100% with no loss of
payment. She took a lumb sum from her last employer and put it in a 401k
so if she dies first I get 100% of that.
I checked the reduced amount with life insurance for the diference and it was more expensive than giving her the 100%.
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11-08-2011, 10:19 AM
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#19
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Thinks s/he gets paid by the post
Join Date: Nov 2006
Location: Bossier City
Posts: 2,183
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Quote:
Originally Posted by martyb
I'll be going with the 50% on both my pensions. I figure if I croak, and leave her with half the pensions, a paid off house, no bills, and her own Social security....she should be ok. I eat 80% of the groceries...
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Actually, I think it will be 55% instead of 50%.
__________________
“Change is the law of life. And those who look only to the past or present are certain to miss the future.”
-John F. Kennedy
“Hard work never killed anybody, but why take a chance?” - Edgar Bergen
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11-12-2011, 12:31 AM
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#20
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Thinks s/he gets paid by the post
Join Date: Mar 2007
Posts: 1,860
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Quote:
Originally Posted by lacawac
Hi, just seeing if anyone can help with a pension elective for payouts. The choices are from a single pay monthly where your spouse gets nothing upon your demise. The other choices run from 50% where your spouse gets half to 662/3, 75, or 100% where your spouse would recieve the same benefit with no loss of payment. The normal elective is the 50%,I am just wondering if that seems to be the norm. the dollar diference between the 50% & the 100% to the spouse is about $1000 a month,and the increase monthly while both are alive would be about $200 a month. thanks
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The way I think about this is matching the cash flow to the situation. If you think about it, your expenses will not be as high once one person passes, but at the same time they will not be cut in half. Heating costs will stay the same, as will property taxes....but food and clothing expenses will drop by about 50%. As such, I've decided on the 75% option after one passes...I think this most closely matches how the expenses will act.
__________________
"Live every day as if it were your last, and one day you'll be right" - unknown
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