Which pension option to choose

M

mikeL

Dryer sheet aficionado
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The day has finally come to claim my non-COLA, No lump sum available, megacorp pension.

I'm finding the choice difficult to decide on.

Single life annuity $2,868

50% survivor $2,330 a month beneficiary gets 1,165

66% survivor 2163 a month beneficiary gets 1442

75% survivor 2065 a month beneficiary gets 1548

100% survivor 1800 a month beneficiary gets 1800

I'm turning 60 and my non- working wife 43.
Two children 6 and 9

I'm planning on claiming social security at age 62 1800/month as well as claiming for children under 18 which I think is $800 but very difficult to get accurate information about this amount.

I have a $500,000 life insurance term policy until age 70.5

$2,000,000 securities and cash

Expenses $2000-$4000/mo

Planning to buy a house in 2-4 years in the southeast and expecting to pay $300-$400 K for it. Not sure if I'm going to get a mortgage or pay cash. Looking for some advice on that also.
 
$1800/yr * 52 years = $1.1M
$2868/yr * 35 years = $1.2M
Assumes you start taking pension today.
I refuse to do a fancier analysis.
Take the larger payout and don't spend all of it.
 
davebarnes said:
$1800/yr * 52 years = $1.1M
$2868/yr * 35 years = $1.2M
Assumes you start taking pension today.
I refuse to do a fancier analysis.
Take the larger payout and don't spend all of it.
Click to expand...

Thanks for your point of view Dave.
I see from your calculations that my wife and I would have collected 1.1 million up to age 95 with the 100% survivor option.
I would collect 1.2 million if I live until 95 with the single life annuity.

Non of us know of course how long we will live. My wife may make 95 but I seriously doubt if I do. But you of course have to plan for the possibility.

I hope I don't die early and end that single life annuity it would be unfortunate.
 
I took 100% survivor for DH and I, that way we knew a set budgeted amount we could count on for our lifetimes.
I ran FireCalc for all of our possibilities and felt most comfortable with that choice.
Have you run Firecalc?
SS for you and your kids adds a pretty stable leg to your 3 legged table (pension, SS, investments).
 
davebarnes said:
$1800/yr * 52 years = $1.1M
$2868/yr * 35 years = $1.2M
Assumes you start taking pension today.
I refuse to do a fancier analysis.
Take the larger payout and don't spend all of it.
Click to expand...


52 years in a non-cola pension - will it be worth anything towards the end ?


Also, a pension is a gamble. You think you will live a long life and get your money's worth. They have the facts (tables and the statistics).

IMO take whatever you can get, as soon as you can get it. Save if you can.
 
Since your wife is significantly younger than you, and you have two young kids, and you are financially in excellent shape even without the pension, I think it is extremely beneficial to take the 100% survivor benefit - that will take care of your wife for the rest of her life regardless of how long you live. Personally, I'd be comforted knowing that my wife would continue getting the payout even I unexpectedly pass sooner rather than later.

Also, don't forget that you are going to be taxed on the pension payouts. Receiving $2800/month vs. $1800/month could potentially tax a larger portion at a higher marginal tax rate.
 
Take the 100% survivor benefit and feel good you are doing the best to protect your wife. I was sure I would out live my wife, but took 100% when time came to make the decision. I was 56. Now 63 I'm diagnosed with cancer. Who knew?!

I would make it fine on less, but she'll need to hire out a lot more if I do out live her and that ain't cheap.


The other option is to take the full draw for yourself and use the difference to purchase a life insurance policy.
 
mikeL said:
Thanks for your point of view Dave.
I see from your calculations that my wife and I would have collected 1.1 million up to age 95 with the 100% survivor option.
I would collect 1.2 million if I live until 95 with the single life annuity.

Non of us know of course how long we will live. My wife may make 95 but I seriously doubt if I do. But you of course have to plan for the possibility.

I hope I don't die early and end that single life annuity it would be unfortunate.
Click to expand...
You can submit basic data to various sites and get an estimate of your shelf life. That is what we do to get another important factor for the equation.

I'd place importance on the age of spouse and children too. The total dollars that might be collected is outweighed IMO by the projected standard of living.
 
njhowie said:
Since your wife is significantly younger than you, and you have two young kids, and you are financially in excellent shape even without the pension, I think it is extremely beneficial to take the 100% survivor benefit - that will take care of your wife for the rest of her life regardless of how long you live. ...
Click to expand...
I agree both with the conclusion and the reasons. Granted inflation will eat away its value but a depreciated $1800 will always be worth more than no pension check at all.
 
stephenson said:
100% survivor - because she is so much younger.
Click to expand...
Financially, we’re in a similar situation but we don’t have children and we’re the same age, 63 within 3 months of each other. We collect at 65 and still aren’t sure of our plan.
 
SS strategy should be in the calculations, which makes is quite a bit more complex. Delaying SS is generally the cheapest, cola'ed annuity purchase you can make. How long will your kids draw before 18 ?

Just as a different scenario - what about taking the single life annuity and using the "extra" money to delay your SS ? That also benefits your wife, how much depends on her own SS record. Complex problem for sure, but it is solvable. The important consideration is to not treat the pension without consideration of SS (or vice versa). They have to be considered together to find the optimal solution.
 
My husband took 100% so I would be fully covered if he dies before me. He was seriously ill for several years in his late forties so we had already experienced how your health can go south in an instant.
 
Typically one could take the difference in pension amounts and compare with the premium of a term life policy providing a similar benefit. In this case, however, the 17 year difference in age makes that option less interesting. The most statistically likely outcome here is OP’s DW outlives OP by 20-25 years, which points to the maximum survival benefit option as the one offering the greatest risk adjusted reward.
 
bada bing said:
SS strategy should be in the calculations, which makes is quite a bit more complex. Delaying SS is generally the cheapest, cola'ed annuity purchase you can make. How long will your kids draw before 18 ?

Just as a different scenario - what about taking the single life annuity and using the "extra" money to delay your SS ? That also benefits your wife, how much depends on her own SS record. Complex problem for sure, but it is solvable. The important consideration is to not treat the pension without consideration of SS (or vice versa). They have to be considered together to find the optimal solution.
Click to expand...

Should also consider the 25% SS haircut we may be facing. Our pension seems secure as the mega-Corp is solid. At least it is today.
 
For our pensions, we both took 100% survivor benefit. It was about a 9-10% haircut off of the single life annuity. I also have a paid up whole life policy on myself, since the young wife will not get a survivor benefit from social security (GPO). That way, neither one of us will have to make any financially based lifestyle adjustments when the other one dies.
 
MichaelB said:
................. The most statistically likely outcome here is OP’s DW outlives OP by 20-25 years, which points to the maximum survival benefit option as the one offering the greatest risk adjusted reward.
Click to expand...
A good point and this makes me think that delaying SS until 70 might be prudent. Yes, you lose the kiddy cash, but the higher benefit would be inflation adjusted, where as the $1800 / month pension will be severely eroded by inflation after a few decades.
 
I would normally agree with taking the 100pct survivor but in this case I don't bc its non colad. If you take it all and invest the diff, it will grow. But 1800 a month 40 years certainly will not "take care" of the survivor
njhowie said:
Since your wife is significantly younger than you, and you have two young kids, and you are financially in excellent shape even without the pension, I think it is extremely beneficial to take the 100% survivor benefit - that will take care of your wife for the rest of her life regardless of how long you live. Personally, I'd be comforted knowing that my wife would continue getting the payout even I unexpectedly pass sooner rather than later.

Also, don't forget that you are going to be taxed on the pension payouts. Receiving $2800/month vs. $1800/month could potentially tax a larger portion at a higher marginal tax rate.
Click to expand...
 
100% survivor was my initial inclination as well because of the young wife and kids.

Not sure what state you are in but using TX annuity pricing per immediateannuities.com, the premium needed to provide the $2,868 single life benefit would be ~$675k and the premium needed to provide the $1,800 joint life benefit would be $625k... so the single life benefit is a better value.

A premium to provide a $1,800/month benefit for a 43 yo woman would be $561k and a 53 yo woman would be $500k... so if you take the single life benefit and keep the $500k of life insurance that you don't really need given your assets, then the life insurance death benefit will be close to what would be needed to buy a SPIA to replace the $1,800/month joint life benefit if you pass away before the term life runs out.

So I think taking the single life benefit and keeping the term life insurance vs taking the 100% joint benefit and dropping the term life insurance is probably pretty close to a wash depending on what your term life is costing you.

For SS, visit opensocialsecurity.com and click on the little box near the top of the page and clisk on the mortality, children and discount rate boxes and follow the prompts.
 
Last edited:
And you also need to do an Income Tax analysis.
2868*12= 34,416 (your first option above)
1800*12= 21,600 (your social security at age 62)
Pension +SS = 56,016 per year.
Other Income= :confused:? No taxable interest, dividends, or capital gains from investments?
Expenses 24,000-48000

BUT: up to 50% of your social security will be taxable because your pension is more than the base amount of $25,000 (head of household). So you need to account for it in your expenses. Then, when you turn 65, Medicare kicks in, and your income tax will drive the amount of premium you pay. Currently anything below $87000 modified adjusted gross income gets the base premium, more than that and there is a surcharge.

Sources: IRS website. Medicare website. Search for how much of social security is taxable. On the medicare site: what is the part B premium and what is IRMAA.
 
I took the 100% survivor for my pension choice. Wife also has a pension but it’s tiny and if I pass first don’t want to put her in a financial crunch.
 
MrsHaloFIRE said:
I would normally agree with taking the 100pct survivor but in this case I don't bc its non colad. If you take it all and invest the diff, it will grow. But 1800 a month 40 years certainly will not "take care" of the survivor
Click to expand...

The survivor benefit is guaranteed. Your investment is not.

You also have no idea how long he will live. (Heaven forbid) He drops dead one year in - then what? No survivor benefit, no investments. SOL!
 
My Husband took the 75% survivor benefit when He retired . He died two years later so in his case it was a very good idea .
 
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