PENSION: LIFE ONLY vs 100% SURVIVOR

[ronocnikral]

if going the LI route, there is potential for passing something onto heirs. I haven't priced it all out so I don't know the possibility of this occurring.

 

[Brat]

As in all of life's choices you takes your pick & take your chances. What I would like to remind all is that the capacity of the survivor to manage insurance proceeds may not be as good as it is today. There are times to forgo the possibility of leaving an estate for heirs or maximize current income to assure that the survivor isn't eating dog food.

 

[misty57]

if going the LI route, there is potential for passing something onto heirs. I haven't priced it all out so I don't know the possibility of this occurring.

We are not "trying" to leave anything behind and we're not avoiding it either. It would not factor into our decision at all.

 

[sundance]

Give it plenty of thought. Talk about it & write it down. lMy husband is 12yrs older then me and we should have done a better job thinking it through. I would have made some better choices.

 

[misty57]

Give it plenty of thought. Talk about it & write it down. lMy husband is 12yrs older then me and we should have done a better job thinking it through. I would have made some better choices.

I have been reading like crazy hoping discover anything that we may not have already thought of.

 

[Walt34]

I took a survivor benefit option. There were about a dozen different options to choose from and we picked the one in which DW gets 70% of the benefit, and she keeps the medical/prescription benefits, no small thing itself.

My thought was that housing, utilities, etc. is going to remain a fixed expense whether it's one or two people. Also, it's a COLA'd pension, my crystal ball is just as cloudy as the next guy's, and who can forecast 30 or 40 years out anyway?

 

[jclarksnakes]

Age is an important issue to consider in these decisions. If the pensioner is much older than the spouse the more the decision leans towards taking the lesser amount but with coverage for the spouse. Health and genetics are also important to consider.

 

[ronocnikral]

We are not "trying" to leave anything behind and we're not avoiding it either. It would not factor into our decision at all.

Other people who read this thread, either now or in the future, might. I was simply pointing out that it is a consideration if that is important to whomever is fortunate enough to be facing this decision.

Another consideration with going the LI route is if there is any fear whatsoever the pension might go belly up. In a way, the LI route is diversifying a bit. This is especially important if one's benefit would be significantly slashed by PBGC limits.

If I was facing this decision, I would probably go with some type of survivor benefit. But, in the foreseeable future, I won't be facing this situation and I don't have the energy to crunch any numbers.

 

[misty57]

Other people who read this thread, either now or in the future, might. I was simply pointing out that it is a consideration if that is important to whomever is fortunate enough to be facing this decision.

Another consideration with going the LI route is if there is any fear whatsoever the pension might go belly up. In a way, the LI route is diversifying a bit. This is especially important if one's benefit would be significantly slashed by PBGC limits.

If I was facing this decision, I would probably go with some type of survivor benefit. But, in the foreseeable future, I won't be facing this situation and I don't have the energy to crunch any numbers.

Oh, I definitely understand. I was just speaking for myself.

 

[MariS]

What I find strange is that I have been reading a lot lately on retirement planning (focusing on those near retirement as opposed to those accumulating for retirement) and I have not seen it mentioned once. Perhaps it's because the math doesn't work out for the majority, so they just skip it? I don't know.

Hi Misty,

I'm currently reading "20 Retirement Decisions You Need to Make Right Now," and what you're considering is discussed in detail in the chapter for Decision #7, "Which Pension Payout Option Should I Choose" and more specifically under the subheading, "Pension Maximization Strategy."

The author states:

Believe it or not, there is a way to have your proverbial cake and eat it, too. You can obtain the highest annuity payment and still provide for your spouse upon your death by "maxing" your pension.

He goes into a lot of detail in the chapter about the whys and hows, but in short, recommends taking the Single Life Annuity and purchasing a life insurance policy IF the amount of life insurance needed can be purchased for for less than what it would cost you to take the survivor annuity payout. He acknowledges that most people nearing retirement don't find the idea of purchasing more life insurance too appealing, but points out that the Survivor Annuity option is, in effect, buying an expensive life insurance policy.

I'm about 50% done reading the book and have found it to be very helpful and worth the purchase, but you may be able to find it in your library too.

 

[pb4uski]

I haven't had to decide on this yet but I will sometime in the future. Fortunately, I have a small whole life insurance policy that I have had since I was 21 that I think I will likely make up the difference to DW if I do chose the life benefit option and I pass before her.

The way I am thinking of it is if the cost of insurance with a death benefit that can provide a SPIA for the difference in pension payments is less than the difference in the pension payments then I will go for it. If so, then DW could use the proceeds of the life insurance to buy a SPIA once I pass and the monthly income would be (roughly) unchanged. The devil will be in the details.

 

[misty57]

Hi Misty,

I'm currently reading "20 Retirement Decisions You Need to Make Right Now," and what you're considering is discussed in detail in the chapter for Decision #7, "Which Pension Payout Option Should I Choose" and more specifically under the subheading, "Pension Maximization Strategy."

The author states:

Believe it or not, there is a way to have your proverbial cake and eat it, too. You can obtain the highest annuity payment and still provide for your spouse upon your death by "maxing" your pension.

He goes into a lot of detail in the chapter about the whys and hows, but in short, recommends taking the Single Life Annuity and purchasing a life insurance policy IF the amount of life insurance needed can be purchased for for less than what it would cost you to take the survivor annuity payout. He acknowledges that most people nearing retirement don't find the idea of purchasing more life insurance too appealing, but points out that the Survivor Annuity option is, in effect, buying an expensive life insurance policy.

I'm about 50% done reading the book and have found it to be very helpful and worth the purchase, but you may be able to find it in your library too.

Thanks. I will definitely check for it in my library. I had already googled Pension Maximization to get a bit more info on the subject.

 

[ER Fireball]

I have the option of pulling no survivor benefit, 50% or 75%. We will go the 75% route.

Our rationale: I have no (unreasonable) concerns about making the money last. My wife, on the other hand, is nervous about what would happen if I were to croak and she were left to handle the finances for a significant amount of time. Thus, part of the plan is to structure things such that if she outlives me, she gets the 75% of pension rather than something less. I will probably delay SS until 66 or so for a similar reason. (SS will depend on what options are available then.)

When I could show her that retirement income approaches pre-retirement income, her anxiety about me retiring early dissipated.

 

[Tree-dweller]

I have the option of pulling no survivor benefit, 50% or 75%. We will go the 75% route.

Our rationale: I have no (unreasonable) concerns about making the money last. My wife, on the other hand, is nervous about what would happen if I were to croak and she were left to handle the finances for a significant amount of time. Thus, part of the plan is to structure things such that if she outlives me, she gets the 75% of pension rather than something less. I will probably delay SS until 66 or so for a similar reason. (SS will depend on what options are available then.)

When I could show her that retirement income approaches pre-retirement income, her anxiety about me retiring early dissipated.

+1, and for all the same reasons. 75% COLA'ed for self-acknowledged financially unsophisticated DW means when I take the dirtnap she continues to get a decent deposit in the credit union with very few hoops to jump through. (If she goes first, my monthly payment reverts to single-payee.) Is it wringing every last potential drop out of the financial sponge? I honestly don't know. Though not major, I know I have enough in the way of red-flag health issues that life insurance companies don't consider me the lowest risk, so this works for us. And that business about lessening "her anxiety about me retiring early" is a factor not to be snickered at.

 

[rescueme]

Being in our mid-60's, I/DW have seen this played out in two actual scenerios.

FIL (DW's father) opted for single-life only on his pension, with no benefits to my MIL.

Result? FIL passed on more than a decade after MIL. For that situation, it was the correct choice.

DW's BFF (well, until she passed) had the same situation, but with the insurance on her DH, assuming he would pass first. He kept his 100% pension, plus opting for the life insurance coverage option, assuming he would pass first.

He didn't, she did about a year ago. In both cases, taking the 100% with no survivor benefit was the correct decision.

In our case (DW has two small pensions, starting in just over a year), she has opted for no survivor benefit. Assuming I pass first, it's the correct thing to do. And if she passes first? I don't need the money (she spends more so I would have a great reduction in expenses )...

 

[Buckeye]

I would vote for a survivor benefit close to the 100% . The issue of managing a payout at an advanced age is not a small one. Seniors ARE being cheated in large numbers and it's sickening to see.

I have been doing volunteer tax preparation with AARP this year at our local library and I am appalled at the churning of brokerage accounts and the inappropriate investments I see on clients' brokerage statements. The most egregious seem to be from Wells Fargo.

These folks are typically in their mid-80's with a several hundred thousand dollar portfolio and they have no idea what is being done to their accounts. I probe the situation with a couple questions to see if it's worth suggesting they do more research about other options or whether they have a savy family member that might be able to help them straighten things out. Mostly I just get a deer in the headlights look.

I have to be careful about suggesting specific solutions to people but I sent a retired accountant (86, very sharp) and his wife off in the direction of Vanguard yesterday. He was fuming when I started pointing out what was going on in his account let alone the nearly $4,000 in fees they were paying. For 2011, they had a $20,000 gain due to some stock sales which could have wreaked havoc on their taxes but luckily did not. The account owner had no idea why the sales had been made which created the gain.

Since we were in the library, I suggested he go check out one of John Bogle's books to understand more about Vanguard, etc. and gave him the website address. He was going to call his broker to ask him why he had made the sales, but I advised him to not waste his time. All he was going to hear was "waa, waa, waa, waa, waa." Instead, I suggested, he put the question in a letter and refuse to accept anything other than a written response.

Very, very frustrating to see so many folks being ripped off.

 

[Moemg]

I also vote for a survivor benefit of at least 50% . My husband died after two years in retirement . He luckily for me had opted for a survivor benefit of 60% which was tied to health care . It allowed me to just grieve without immediately worrying about financial issues . I had invested for years and handled most of the bills but you would be surprised at how extreme grief fogs your mind . After a month I returned to my part time job and continued working part time until I retired . My salary plus the survivor benefit covered all my expenses including tuition for a college age daughter .

 

[kcowan]

We had to make this decision 20 years ago. We took our respective life expectancies and calculated the amount of term insurance that would be needed to cover the pension loss for only those years. The premium turned out to be very close to the difference in the pension so we took the 100% joint survivorship because it also included benefits.

One little wrinkle is that if you split up after retirement, you cannot change the benficiary of the pension. It is struck actuarially at the time of retirement. This is probably good.

 

[sn2792]

+1 I took 75% option for DH. Mine reverts back to single if he passes before me as well. We could have looked at a term life insurance policy, but prices would most likely keep going up at the end of each term as we got older.

 

[SJ1_]

This has been discussed a few times.... do a search and you might find a thread...

But a quick reply.... we looked into that with my sister's pension... and determined that the cost of insurance was about the same as the reduction in benefits... .

that is what I found almost identical so we decided to let my wife get full benefit
if I die.

 

[Linda1652]

My husband is retiring in a few weeks. I do not need his pension, as mine is $38,000/year, going up $1000 annually. We have 1.1 m in 401k/savings. If he chooses 50% survivor, his pension would be only 129/ less per month. I would get $833 per month, which I really don't need. We have no children, so everything will go to charity. He does have some health issues, but his Dad lived to 86. I just don't want to be foolish and give up half his pension, which would be essentially costing us around $1500/year.

My gut tells me if I don't need it (he will be getting half my retirement for health ins reasons.), we should just forget about it and get more now, even though it's not much.

 

[kcowan]

Linda
Since this decision is not based on need, you need to make the best financial decision. Take the number of months from retirement until his life expectancy times $129. That is the total cost of the policy. Then the difference between his life expectancy and yours in months times $833. If the latter total is higher, take the survivor pension.

There is some discounting to be applied to the $833 but with current interest rates being so low, you can ignore it.

 

[Linda1652]

Linda
Since this decision is not based on need, you need to make the best financial decision. Take the number of months from retirement until his life expectancy times $129. That is the total cost of the policy. Then the difference between his life expectancy and yours in months times $833. If the latter total is higher, take the survivor pension.

There is some discounting to be applied to the $833 but with current interest rates being so low, you can ignore it.

Thank you so much. It was very simple and easy to do---I should have thought of it. Since I do expect to outlive him by at least 8 years, it was pretty much a no brainer. I have had 3 curable cancers, but don't expect it to kill me. He has an aortic root aneurysm, that hasn't changed in 20 years, but you never know. I had decided yesterday it would be foolish to not take a pension that he worked almost 43 years for!! My next dilemma is choosing the 75% option, which is $58/mo more!

 

[Buckeye]

I had decided yesterday it would be foolish to not take a pension that he worked almost 43 years for!! My next dilemma is choosing the 75% option, which is $58/mo more!

I agree to not let the pension die with him for the reason you state! My mom is single and that's what will happen to her pension. She needs to live to a ripe old age to get a good return on her contributions.

 

[Linda1652]

I agree to not let the pension die with him for the reason you state! My mom is single and that's what will happen to her pension. She needs to live to a ripe old age to get a good return on her contributions.

I told him this will guarantee that he lives longer than me!! Thank goodness for message boards. Sometimes my brain just can't think clearly, and needs a little help! In the scheme of things, we probably won't even notice the difference per month. He gets 50% of my teacher pension, which is $190/mo less than if he got nothing. We don't even notice. And, I would rather the extra money go to charity instead of his company keeping it. Or, I may lease a Lexus instead of driving my old Honda!Seriously, I do hope he lives a very long life!