Pension Decision Pending

[freedomatlast]

I RE'd June 2019. On 1/1/20, I will be eligible for a small MegaCorp Pension. I will be 60 at that time and DW will be 58.

The pension amount for the single life annuity is $1264/month. I receive $1264/month and after I die DW gets nothing with this option. There is no penalty for starting the pension at 60 years old vs 65; the amount would be the same if I started it at 65 years old, so no advantage to waiting.

The 100% Joint and Survivor Annuity option is $1032. As long as either one of is alive we would receive $1032/month and if DW dies within two years of the start of the pension I would receive the single life annuity amount of $1264.

DW will have her own pension starting in 2023. The single life annuity amount would be $2124/month and the 100% Joint and Survivor Annuity would be $1887.

It's interesting that there's much more of a penalty in taking the joint and survivor annuity for my pension and not near as much of a reduction in taking that option for DW's pension. I assume that's because women tend to live longer than men.

Neither pension has COLA. My SS at 70 would be about $45,000/yr and DW's at least half of that. We also have substantial invested assets to draw upon.

We're thinking that we should take the Single Life Annuity option for my pension starting on 1/2020 because of the substantial reduction if the 100% Joint and Survivor Annuity option is taken, because it starts when we are relatively young, and because we're more likely to want to use the extra bucks while we are still young. DW is fully on-board with this decision.

This pension represents a really small part of our retirement income, but would still welcome any comments or analysis from anyone here on which way to go.

 

[jazz4cash]

When I had to make this decision, Megacorp provided some info that included a relative value calculation. That made it easy. There were several choices of survivor benefit level but Mega subsidized the 65% survivor benefit so it had the highest relative value. Is there a lump sum option? If so you could check to see how the annuity compares.

 

[CardsFan]

I would look at the lump sum options (if available). Beyond that, I can't imagine not having at least some amount of survivor benefits, in both directions.

Barring an accident of some sort, one of you WILL die before the other.

But that is just me. I am sure someone can make a statistical argument for something different.

 

[freedomatlast]

No lump sum option is available.

Relative Values are as follows:

Single Life Annuity 100%
100%Joint Survivor Annuity 94%
75% Joint Survivor Annuity 91%
50% Joint Survivor Annuity 95%
25% Joint Survivor Annuity 96%

 

[FlaGator]

I RE'd June 2019. On 1/1/20, I will be eligible for a small MegaCorp Pension. I will be 60 at that time and DW will be 58.

The pension amount for the single life annuity is $1264/month. I receive $1264/month and after I die DW gets nothing with this option. There is no penalty for starting the pension at 60 years old vs 65; the amount would be the same if I started it at 65 years old, so no advantage to waiting.

The 100% Joint and Survivor Annuity option is $1032. As long as either one of is alive we would receive $1032/month and if DW dies within two years of the start of the pension I would receive the single life annuity amount of $1264.

DW will have her own pension starting in 2023. The single life annuity amount would be $2124/month and the 100% Joint and Survivor Annuity would be $1887.

It's interesting that there's much more of a penalty in taking the joint and survivor annuity for my pension and not near as much of a reduction in taking that option for DW's pension. I assume that's because women tend to live longer than men.

Neither pension has COLA. My SS at 70 would be about $45,000/yr and DW's at least half of that. We also have substantial invested assets to draw upon.

We're thinking that we should take the Single Life Annuity option for my pension starting on 1/2020 because of the substantial reduction if the 100% Joint and Survivor Annuity option is taken, because it starts when we are relatively young, and because we're more likely to want to use the extra bucks while we are still young. DW is fully on-board with this decision.

This pension represents a really small part of our retirement income, but would still welcome any comments or analysis from anyone here on which way to go.

So, for an additional $3,000/yr now, she's willing to give up $12,000/yr if a bus takes you out next spring?

 

[PandaBear]

Dh and I both have pensions and both have the option of 100% survivor. It was a no brainer for us....we both took the 100% survivor benefit.

 

[DrRoy]

We made a similar decision.

 

[joeea]

The 100% Joint and Survivor Annuity option is $1032. As long as either one of is alive we would receive $1032/month and if DW dies within two years of the start of the pension I would receive the single life annuity amount of $1264.

This is the option I would take, starting at 60.

DW will have her own pension starting in 2023. The single life annuity amount would be $2124/month and the 100% Joint and Survivor Annuity would be $1887.

The latter is what I would take.

 

[capjak]

Isn’t this similar to life insurance questions (i.e. If the survivor benefit is not needed (I.e. you or your spouse will be just fine without the pension). Than I might consider a lower joint benefit for example 50% as you would not need the extra cost of insurance.

 

[freedomatlast]

Isn’t this similar to life insurance questions (i.e. If the survivor benefit is not needed (I.e. you or your spouse will be just fine without the pension). Then I might consider a lower joint benefit for example 50% as you would not need the extra cost of insurance.

Here are the numbers on the lower joint benefits:

Single Life Annuity - $1263.59 / $0
100% Joint - $1032.25 / $1032.25
75% Joint - $1037.41 / $778.06
50% Joint - $1123.33 / $561.67
25% Joint - $1175.14 / $293.79

 

[pb4uski]

One possible strategy if you select the higher single life benefit is to use a portion of the higher benefit to buy a term life insurance policy on yourself.... with the death benefit designed to fund the purchase of a SPIA that pays your widow $1,032.25/month. Based on current SPIA pricing for a 58 yo female you would have to pay $227k to get $1,032.35 monthly.

Also, the cost of a SPIA providing a $1,032.35 benefit will decline over time.... if she was 68 then the premium for a $1,032.35 monthly benefit would only be $186k.... and only $130k if she is age 78.

So you could look into the cost of a term life insurance ladder:

$130k of 30 year term
$56K of 20 year term
$186k
$41k of 10 year term
$227k

The ladder would pay $227k of benefits if OP dies in first 10 years, $186k if OP dies in second ten years and $130k if OP dies in third 10 years.

I have no idea what such a ladder would cost for a 60yo male, but if it is $231/month or less then it is a possible alternative.

Also see https://obliviousinvestor.com/laddering-life-insurance-policies/

 

[capjak]

If this is a small amount of your retirement income and as you say you have significant assets to draw from than it does not matter what choice you make with the pension. 100% joint would be important if you did the analysis if you or your spouse passes first and the lost pension would result in a hardship for either of you (look at Social Security as well to see the impact).

 

[freedomatlast]

Thanks to all who replied to this thread.

After thinking about this some more, we decided on the 100% Joint and Survivor Annuity option.