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Survivor benefit or Life Insurance?
01-02-2017, 01:45 PM
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#1
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Recycles dryer sheets
Join Date: Mar 2014
Posts: 313
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Survivor benefit or Life Insurance?
Hi, I am wondering what everyone's thoughts are regarding survivor benefits on pensions. For my pension, the difference between me only receiving the pension and having a100% survivor benefit is $500 per month. But for my husbands, the difference is $1500! It was suggested to us that instead of taking a survivor benefit, we consider an insurance policy. The idea is that the cost of the policy would be enough less than the difference in cost, so you'd get more of the pension and then use the insurance policy when the pension is gone (if dh dies before me).
I guess my biggest question is how you choose an amount if you do so? For example, I think I would have to assume (just in case) that dh dies young (he plans to retire at 60...in about 2 1/2 years). What else should we consider? Is this a good idea?
Thanks for any ideas.
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01-02-2017, 01:51 PM
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#2
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2014
Posts: 7,045
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I would take a 30 year policy because as you age you may develop physical problems that make both of you unable to get insurance.
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01-02-2017, 02:04 PM
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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: Aug 2004
Location: Laurel, MD
Posts: 8,327
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Some pensions offer an enhancement for survivor coverage rather than a straight actuarial cost. Age if spouse can factor in also. Maybe your pension is enhanced. When I took my benefit the survivor option relative value calculation was 105% of the single life annuity. Just run the numbers and decide what you are most comfortable with. I wouldn't hesitate to get an insurance product instead of the survivor benefit if it met my needs at a lower cost.
Is there an option to take a portion as a lump sum (to purchase an annuity)?
__________________
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01-02-2017, 02:11 PM
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#4
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2004
Location: SW Ohio
Posts: 14,404
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Be sure to account for any inflation protection that may be offered as part of the survivor's benefit on the pension. Inflation happens, and an insurance payout that looks big enough today may not be enough to buy an annuity to make up for the lost pension amount once inflation returns to regular historic levels.
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01-02-2017, 03:38 PM
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#5
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,358
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Since what you would need to buy a SPIA to cover the difference declines over time a good strategy is a ladder of term life insurance policies with declining total death benefits.
http://www.obliviousinvestor.com/lad...ance-policies/
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
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01-02-2017, 03:38 PM
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#6
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Thinks s/he gets paid by the post
Join Date: Apr 2016
Location: Dutchess County
Posts: 1,599
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My initial plan was to take 100% and buy life insurance but 3 yrs before retirement I got touched with the Big "C" and instantaneously became uninsurable. So if you are going that route the sooner you insure the better.
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01-02-2017, 08:21 PM
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#7
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Aug 2016
Location: Northern Virginia
Posts: 7,584
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If near retirement, getting term insurance may not be possible (companies have age limits) and certainly will not be cheap.
Our plan for my wife's is to not do joint/survivor, and let it function as her longevity insurance. But we are mainly relying on savings in retirement.
I would only do joint/survivor if the payments were pretty comparable. But I expect her to outlive me.
If pensions are a major portion of your retirement income, you may need to take the joint/survivor.
Or consider whole life. Question is, how much whole life can your husband buy for 1500 per month? Get that answer and then see what your 4% or your favorite SWR gets you from the proceeds.
Seems either way, you are going to be out some portion of the higher pension payout.
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