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Which Pension Selection To Choose?????
Old 12-07-2022, 10:34 AM   #1
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Which Pension Selection To Choose?????

I am required to return the attached pension selection form ASAP. I'm seeking direction as to which option makes the most sense for me to choose.

From the 8 options I feel the bottom 4 can be eliminated without much consideration. I believe there are probably better ways for me to leave something behind for my chosen beneficiary. As it is, she will be receiving her own modest pension benefit along with Social Security when she reaches the age to take both. I hope I am not being selfish by thinking this way.

Of the 4 options at the top, I'm leaning toward option 2, Social Security Option to Age 64. It seems that will put the most money in my pocket month after month. A caveat to keep in mind for that option is that on 8/1/2032 when the benefit gets reduced, the COLA also gets reduced. The 3% COLA starts at year 6 based upon the monthly benefit at year 6 and is applied every year thereafter. On 8/1/2032 when the monthly benefit gets reduced, if I select that option, the actuary goes back to reduce the COLA as if the lower monthly benefit had been in place all along.

I welcome your thoughts as to what I should choose and why. This is a choice which will have impact for the rest of my life.
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Old 12-07-2022, 10:58 AM   #2
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Iím confused about the options.
On the top it says monthly benefit $7003.57 but then the 4 options show lower than that.
If the options regarding social security are for you to receive a higher pension amount until age 67 or 64- depending on option selected, why is your monthly amount less than the $7000? I would think it would be more.

I had to make this decision when retiring not 10 years ahead of retirement.
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Old 12-07-2022, 11:06 AM   #3
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I had similar options to my very small pension except my pension has no COLA. I choose one of the bottom four options-for retiree lifetime with100% continued to Joint Annuitant. I choose this option because I love my wife and do not want to see her income level drop should I pass before her, which I expect to do. I can deal with having a little less income than the top four options should she die first, so choosing the 100% annuitant option is not a problem for me. This is the simplest option and I admit it may not be optimal. Buying life insurance to cover the difference may be better.

My FIL passed about a year ago. I handled the more complicated financial aspects as my wife and her sibling were emotionally unable to handle them within a reasonable timeframe. I don't want additional stressors placed on my wife during an emotionally traumatic time.

If you choose one of the top four options, you need to explain, in detail, why it's a better option for her if you die first and what you have done to make it better because it will not be obvious to her that leaving her without any of your pension money is best for her.
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Old 12-07-2022, 11:16 AM   #4
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Quote:
Originally Posted by Irishgirlyc58 View Post
Iím confused about the options.
On the top it says monthly benefit $7003.57 but then the 4 options show lower than that.
If the options regarding social security are for you to receive a higher pension amount until age 67 or 64- depending on option selected, why is your monthly amount less than the $7000? I would think it would be more.

I had to make this decision when retiring not 10 years ahead of retirement.
The number I think you are looking at of $7,003.57 is Average Final Compensation. To the left of that you will see Benefit Rate. For my years of credited service, I get 85% of the $7,003.57.
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Old 12-07-2022, 11:21 AM   #5
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The young wife and I both chose the 100% survivor benefit option when we retired. It was about 9% less per month than we would have gotten if we had chosen no survivor benefit (we didn't have the options tied to social security). Our decision was aided by the fact that, even taking a haircut of 9%, it is still enough to support us now and in the future. We made that choice so that the survivor would not have the pain of seriously downsizing their life in addition to the pain of losing their spouse.

In all cases a survivor will lose a large chunk of social security when one of the couple dies. Assume, for example, that you get social security and your spouse gets a 50% spousal benefit. When you die, your spouse will get only your social security as a survivor benefit and she will lose the spousal benefit. If she dies first, you will get only your benefit and the spousal benefit stops. Either way, you are losing at least 33% of the total social security income coming into the house (it could be more if her social security falls between 50% and 100% of yours, all the way up to a loss of 50% of income). It has been estimated that living costs vary by the square of the number of people in a household, so going from 2 people to 1 does not halve the living costs, it cuts them to ~71% (1/2^-2 = 0.707). Add to that a total loss of your pension income inherent in your choosing Option 2 and your wife could be in serious straits if you die first.

One final twist in our situation is that, although I get social security, the young wife is not eligible on her own and, due to the GPO, will never get a spousal benefit or a survivor benefit. So when I go, all of the social security income will disappear. To compensate for that, I have a fully paid up whole life insurance policy. If annuitized, the death benefit will more than make up for the lost social security amount. You could perhaps buy life insurance to account similarly for the loss of your pension upon your death. Note, however, that I got the policy when I was 43 years old and it was fully paid up by the time we retired. If you wait too long, it becomes cost prohibitive.
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Old 12-07-2022, 11:21 AM   #6
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Originally Posted by Bultacoman View Post
I had similar options to my very small pension except my pension has no COLA. I choose one of the bottom four options-for retiree lifetime with100% continued to Joint Annuitant. I choose this option because I love my wife and do not want to see her income level drop should I pass before her, which I expect to do. I can deal with having a little less income than the top four options should she die first, so choosing the 100% annuitant option is not a problem for me. This is the simplest option and I admit it may not be optimal. Buying life insurance to cover the difference may be better.

My FIL passed about a year ago. I handled the more complicated financial aspects as my wife and her sibling were emotionally unable to handle them within a reasonable timeframe. I don't want additional stressors placed on my wife during an emotionally traumatic time.

If you choose one of the top four options, you need to explain, in detail, why it's a better option for her if you die first and what you have done to make it better because it will not be obvious to her that leaving her without any of your pension money is best for her.
Thank you for relaying your firsthand experience and decision making. All valid points.
I'm being told by sharper financial minds than myself as well a past retirees of this plan that there are life insurance products and other investments which are better options than the offered Joint Annuitant Benefits. That is going a long way into my ruling out those bottom 4 options.
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Old 12-07-2022, 11:33 AM   #7
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I completely agree with Bultacoman. I don't understand why you are dismissing the survivor Joint Annuitant options out of hand? If you are otherwise confident that your assets will be sufficient to cover all of your joint living expenses until your "expected" dates of death, then that may make sense. In that case, how important is the extra money per month to you while you are living anyway?
Although I'm not retired yet, we looked into these options for my pension (when I do retire) with our FA several years ago. Their recommendation was to take the 100% full amount IF we could purchase a reasonably priced life insurance policy of sufficient value on my life using the difference in monthly benefits. Due to my age and past health issues, this option was quickly eliminated.
I would reconsider one of the Joint annuitant options, even if not the 100% (does the surviving spouse need the SAME level of income as two people).
Good luck and congratulations on your pending retirement.
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Old 12-07-2022, 11:36 AM   #8
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Originally Posted by firemediceric View Post
Thank you for relaying your firsthand experience and decision making. All valid points.

I'm being told by sharper financial minds than myself as well a past retirees of this plan that there are life insurance products and other investments which are better options than the offered Joint Annuitant Benefits. That is going a long way into my ruling out those bottom 4 options.

Then you should research those options to make sure theyíre a good fit before you make your decision.
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Old 12-07-2022, 11:47 AM   #9
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Originally Posted by firemediceric View Post
The number I think you are looking at of $7,003.57 is Average Final Compensation. To the left of that you will see Benefit Rate. For my years of credited service, I get 85% of the $7,003.57.

Makes much more sense now!
I personally looked at the option to receive an increased amount to bridge the gap if I retired before social security age and then at social security age the pension amount would drop. I decided it wasnít worth the decrease in pension long term.
I opted to work until 63 which maximized my pension and then collect SS.

It looks like this is an estimate for 2032 so you have 10 more years?
If so, could you increase your deferred comp account to help bridge the amount needed until you get social security?
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Old 12-07-2022, 11:47 AM   #10
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The choices you have seem rather confusing to me. But, I am not an money and accounting guy.

If I was in your shoes I think I would take those pension choice numbers to an accountant along with a personal estimate of my lifespan ( and the spouse's) and pay him for an hour or two of his time and see if the accountant can boil the choices down the the best present value.

Your talking real money here, and it would be worth the expense
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Old 12-07-2022, 11:55 AM   #11
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Options 1 & 2 appear to be what my MegaCorp referred to as "Level Benefit" options that allowed for a constant total compensation including Social Security (higher initial payment that drops down when SS begins so total is constant). For my colleagues and I this rarely seemed to be the best option, but it's easy enough to calculate payouts vs. expected lifespan and see for yourself.

The real choice is between the standard lifetime annuity and one of the choices guaranteeing continuing income for your wife. In my case my wife will receive a significantly larger pension than I and there didn't seem to be much point in going for one of the surviving spouse options, but depending on your circumstances your choice could be different.

From where I stand a $6K/mo COLA'd pension looks like a pretty attractive option, but again, you and your wife's health, history and specific needs might dictate another choice.
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Old 12-07-2022, 11:56 AM   #12
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Makes much more sense now!
I personally looked at the option to receive an increased amount to bridge the gap if I retired before social security age and then at social security age the pension amount would drop. I decided it wasnít worth the decrease in pension long term.
I opted to work until 63 which maximized my pension and then collect SS.

It looks like this is an estimate for 2032 so you have 10 more years?
If so, could you increase your deferred comp account to help bridge the amount needed until you get social security?
I think the benefit starts now or within a few weeks according to the OP, not years way.
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Old 12-07-2022, 12:05 PM   #13
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I think the benefit starts now or within a few weeks according to the OP, not years way.

Yeah- Iím on my phone and keep forgetting what Iíve read.
I still think taking the annuity for a short period of time to then get a reduction in pension isnít worth it. But I think thatís an individual decision.
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Old 12-07-2022, 01:32 PM   #14
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I think the benefit starts now or within a few weeks according to the OP, not years way.
Correct. Actually, it started on Nov. 1, 2022. It took the 30+days from October 30 when my final contribution was made for the actuary to put these figures together to be presented to me. My selection will be retro-active to Nov. 1. 2022 with the monthly benefit going into a DROP account until I separate from my employer. The clock started counting towards my COLA at 6 years on Nov. 1, 2022 despite me still drawing my paycheck while in DROP.
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Old 12-07-2022, 01:36 PM   #15
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I completely agree with Bultacoman. I don't understand why you are dismissing the survivor Joint Annuitant options out of hand? I would reconsider one of the Joint annuitant options
I'll certainly examine closer. Due to numerous retirees before me as well as a FA I inquired to telling me the Joint Annuitant options are not the wisest choice, I dismissed them without much more thought. I'll step back and try to see it from a different perspective.
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Old 12-07-2022, 01:44 PM   #16
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Our pension had 13 options! I choose the 100% joint life. DH and I wanted to count on the same pension income for life, as SS will drop, no matter who dies first.

We investigated life insurance, however, the costs go up considerably as you age.
We also looked at various annuities (our pension also offered guaranteed annuity options), none of those were better than our pension.
Our pensions have a 2% or less COLA yearly.

If you think any insurance options might work better, investigate those prior to choosing your pension option.
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Old 12-07-2022, 02:40 PM   #17
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I also had many options, including the of the "leveling" with SS scenario, but I chose not to take it. I just did not want to deal with my pension dropping when SS came onboard, particularly since at my retirement I had not decided in stone when I would take SS. For DW and I the best option was the 75% Joint Annuity. My pension is large enough, and I will get the max SS payout, so that 75% plus survivors benefits still puts DW in "saving" mode (expenses all covered by SS + pension, lifestyle covered by investment income).
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Old 12-07-2022, 03:08 PM   #18
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OP:

Unless you have substantial other assets, I cannot even imagine not choosing a joint life annuity. And, even then, I would probably still choose 100% Joint Life since then it would not matter a great deal in the scheme of things.

I had a friend that took a Retiree lifetime option. At the age of 60 he fell off a ladder and broke his neck. His 54 year old widow was left with no income but his SS.

You really need to discuss this with your spouse and make sure she really understands the risk you are taking.

Just my 2cents.
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Old 12-07-2022, 03:42 PM   #19
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I find it almost impossible to believe you can cover what your pension will pay long term with insurance over the course of your remaining life. Your pension should have an inflation protection of paying an additional 3% per year starting after 6 years of being on the pension. The pensions if valued as annuities have the same value at Schwabb for both options. However the likelihood of your wife living a long time and benefitting from the 3% raises is high.
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Old 12-07-2022, 04:43 PM   #20
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Originally Posted by firemediceric View Post
I'm being told by sharper financial minds than myself as well a past retirees of this plan that there are life insurance products and other investments which are better options than the offered Joint Annuitant Benefits.
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Originally Posted by firemediceric View Post
I'll certainly examine closer. Due to numerous retirees before me as well as a FA I inquired to telling me the Joint Annuitant options are not the wisest choice, I dismissed them without much more thought. I'll step back and try to see it from a different perspective.
No offense, but will the FA benefit from high commission products being offered as these options? If so, just beware.
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