I am trying to help my MIL choose the best option for her survivor benefits from my FIL's pension (he passed away a few months ago).
She is 62 and works full-time, and is happy to continue in her job until she can get her own pension at 65, or with SS when she is 66.
Her current expenses are about $1700 per month, house paid off. No debt, and her savings is about $60K. Her take-home is about $2500 per month, and she has medical coverage through work that she can continue when she retires as a supplement to MediCare. Her non-COLA pension will be about $850 per month, and $1000 per month SS.
Pension options (which also allow her to get health coverage if she lost hers):
#1: monthly lifetime (non-COLA) benefit of $684.
#2: reduced monthly payment plus a lump sum. Range from $3755 lump plus $604 per month up to $22535 lump plus $497 per month.
#3: lump sum only of $61k, but that would take away the health care option, which she doesn't want to do. So this one is pretty much off the table.
As far as we can tell right now based on her expenses, she will not need any of the monthly payment at least until she retires, if then. I am inclined to suggest a large partial lump sum, thinking that she could invest it and come out ahead.
However, I also just remembered about taxes and I assume that the pension money will be taxable as ordinary income? Which means the lump sum might not get her ahead after all. Her taxable income is $35K, but she will still file jointly this year because my FIL lived until the end of Feb so has income to report.
Thanks for any suggestions, my brain is a little fuzzy at the moment and I want to make sure I'm not overlooking anything.
She is 62 and works full-time, and is happy to continue in her job until she can get her own pension at 65, or with SS when she is 66.
Her current expenses are about $1700 per month, house paid off. No debt, and her savings is about $60K. Her take-home is about $2500 per month, and she has medical coverage through work that she can continue when she retires as a supplement to MediCare. Her non-COLA pension will be about $850 per month, and $1000 per month SS.
Pension options (which also allow her to get health coverage if she lost hers):
#1: monthly lifetime (non-COLA) benefit of $684.
#2: reduced monthly payment plus a lump sum. Range from $3755 lump plus $604 per month up to $22535 lump plus $497 per month.
#3: lump sum only of $61k, but that would take away the health care option, which she doesn't want to do. So this one is pretty much off the table.
As far as we can tell right now based on her expenses, she will not need any of the monthly payment at least until she retires, if then. I am inclined to suggest a large partial lump sum, thinking that she could invest it and come out ahead.
However, I also just remembered about taxes and I assume that the pension money will be taxable as ordinary income? Which means the lump sum might not get her ahead after all. Her taxable income is $35K, but she will still file jointly this year because my FIL lived until the end of Feb so has income to report.
Thanks for any suggestions, my brain is a little fuzzy at the moment and I want to make sure I'm not overlooking anything.