Hey from Frances

[frances]

Hey everyone,
I just found this site - it looks really informative.

I've been reading quite a bit on the site but still have a question and look forward to any input.

I have two questions.
1) I have a pension at a large company.
I can start the pension now and receive 75% of the monthly pension amount or I can wait five (5) years and receive 100% of the monthly pension amount.
What is the easiest way to decide if 25% is too much to loose?

I don't really need the money at this time, but I have some concerns about the company and what they or the government might do with the pension fund. (it is a very large telecom company - can I name names here?)

2) I can elect to have or not have a 50% or 75% survivor benefit with a reduction in the monthly pension amount I would receive. Here's what that means: for the 50% survivor benefit I would have a 8% reduction in the payment I receive and upon my death m spouse would receive 50% of the payment I had been receiving for the duration of my spouse's life. If I chose the 75% survivor benefit the reduction in the pension payment I receive would be 11.5% and upon my death my spouse would receive 75% of the pension payment I was receiving for the duration of my spouse's life.

So is the additional 8% or 11.5% reduction in payments worth doing?

If this is all too vague I can add actual numbers, but I don't know if it would make a difference to know that? Please let me know.

Thanks in advance for any thoughts-
Frances

 

[ronocnikral]

Hey everyone,
I just found this site - it looks really informative.

I've been reading quite a bit on the site but still have a question and look forward to any input.

I have two questions.
1) I have a pension at a large company.
I can start the pension now and receive 75% of the monthly pension amount or I can wait five (5) years and receive 100% of the monthly pension amount.
What is the easiest way to decide if 25% is too much to loose?

I don't really need the money at this time, but I have some concerns about the company and what they or the government might do with the pension fund. (it is a very large telecom company - can I name names here?)

2) I can elect to have or not have a 50% or 75% survivor benefit with a reduction in the monthly pension amount I would receive. Here's what that means: for the 50% survivor benefit I would have a 8% reduction in the payment I receive and upon my death m spouse would receive 50% of the payment I had been receiving for the duration of my spouse's life. If I chose the 75% survivor benefit the reduction in the pension payment I receive would be 11.5% and upon my death my spouse would receive 75% of the pension payment I was receiving for the duration of my spouse's life.

So is the additional 8% or 11.5% reduction in payments worth doing?

If this is all too vague I can add actual numbers, but I don't know if it would make a difference to know that? Please let me know.

Thanks in advance for any thoughts-
Frances

welcome. to add a bit of complexity to the mix, do you have a lump sum option and compared what your LS could buy in the open SPIA market?

As far as survivor benefits, that is unique to your situation. Do you have life insurance? Does your spouse have an income if you kick the bucket? Can your spouse live on what they have if they loose your annuity?

 

[BigNick]

Hi Frances,

Let's suppose your full pension is 20K/year and the reduced one is 15K/year after tax. And let's say you're 55 now. So if you retire now, then in 5 years at age 60 you will have received 75K. Whether you retire now or at 60, then at age 75, you will have received 300K (20 x 15K or 15 x 20K). From then on, you're "ahead" with the full pension. However, at 75, you might not need as much money as you did at 60-65-70 to all the stuff you want to. So, in return for being slightly less well off at 75 than you otherwise would have been, you get five whole years of your life back - *NOW*.

That assumes that you can live on the 75% pension now, because of course if you stay at w*rk now, you will have received more money at 60 than if you take the 75% pension - perhaps twice as much (you haven't said what % of your salary the pension represents). So a better way to look at the next 5 years is to consider whether you want to stop work and have the free time but less money.

And of course, all of the above is only an approximation. If your pension is inflation-adjusted and your other retirement income streams aren't, you could decide to put a little more value on the full pension versus the 75%, because it will become proportionally bigger as a part of your income over time. If you expect to be able to invest some of the first five years' money, then you may be even further ahead of the full pension at age 60. Etc etc.

The error to avoid - but it's an easy one to make - is to see the question as some kind of "how can I make sure that I get the most money out of the deal" thing. Nobody is going to come round on your 85th birthday and laugh at you because you made the wrong choice now, unless it's you, feeling guilty at yourself. That's easy to say, of course: I'm currently trying to decide when to retire from my job which is very well-paid, and I will take a huge hit. On the one hand, I would probably have enough money if I went in 2 years time, but on the other, if at any point I found myself slightl short, I know that I would probably feel bad about walking away from 1 or 2 years' more full-time pay money.

Nick

PS: I never met anyone called Frances from the US. Are you in the UK?

 

[frances]

welcome. to add a bit of complexity to the mix, do you have a lump sum option and compared what your LS could buy in the open SPIA market?

As far as survivor benefits, that is unique to your situation. Do you have life insurance? Does your spouse have an income if you kick the bucket? Can your spouse live on what they have if they loose your annuity?

Hey ronocnikral,

Thanks for responding.

To answer your questions:

No, I do not have a lump sum available to me.

Yes, I have life insurance (term of $150k now but am planning to increase the amount, but that's another question: term vs. whole life vs. ??)

Yes, my spouse can live on what they have without the annuity. Spouse is suggesting I decline the survivor option (they are willing to sign papers to make that so).

Frances

 

[frances]

Hi Frances,

Let's suppose your full pension is 20K/year and the reduced one is 15K/year after tax. And let's say you're 55 now. So if you retire now, then in 5 years at age 60 you will have received 75K. Whether you retire now or at 60, then at age 75, you will have received 300K (20 x 15K or 15 x 20K). From then on, you're "ahead" with the full pension. However, at 75, you might not need as much money as you did at 60-65-70 to all the stuff you want to. So, in return for being slightly less well off at 75 than you otherwise would have been, you get five whole years of your life back - *NOW*.

That assumes that you can live on the 75% pension now, because of course if you stay at w*rk now, you will have received more money at 60 than if you take the 75% pension - perhaps twice as much (you haven't said what % of your salary the pension represents). So a better way to look at the next 5 years is to consider whether you want to stop work and have the free time but less money.

And of course, all of the above is only an approximation. If your pension is inflation-adjusted and your other retirement income streams aren't, you could decide to put a little more value on the full pension versus the 75%, because it will become proportionally bigger as a part of your income over time. If you expect to be able to invest some of the first five years' money, then you may be even further ahead of the full pension at age 60. Etc etc.

The error to avoid - but it's an easy one to make - is to see the question as some kind of "how can I make sure that I get the most money out of the deal" thing. Nobody is going to come round on your 85th birthday and laugh at you because you made the wrong choice now, unless it's you, feeling guilty at yourself. That's easy to say, of course: I'm currently trying to decide when to retire from my job which is very well-paid, and I will take a huge hit. On the one hand, I would probably have enough money if I went in 2 years time, but on the other, if at any point I found myself slightl short, I know that I would probably feel bad about walking away from 1 or 2 years' more full-time pay money.

Nick

PS: I never met anyone called Frances from the US. Are you in the UK?

Hey BigNick,

Thanks for your reply also.

To clear up some things you pointed out:
-the pension is a fixed amount and will not change; it is available because I worked at "monster telecom" for double-digit years but left for another company in 1997. Pension has been calculated on my salary at the time of employment and the monthly payout numbers they gave me in 1997 are the same ones they gave me last week.
-I am 'sort of' retired now; when the telecom industry went in the toilet in 2002 I was let go from my last job. I searched and searched and searched to no avail; the job market was flooded with my peers. Generous and kind Spouse allowed me to retire. In the years since '02 I have dabbled in free-lance consulting in IT, gone back to school and subsequently quit (I already have a BBA), and received training/certification for a very low-paying/low-rung job in the medical field along with being a caregiver/handyman/yardman for my elderly parents. If I were to get a job using my "medical certification" I would have to work 65 hours a month at the market rate to match the amount of the 75% pension (before taxes).
-The 75% pension is not a "gotta have it"; it would be nice because I have two children in college (one in-state and one out-of-state - ouch).

I've heard many people say these days "get it while you can".
I'm just trying to figure out if that's really the thing to do in my case.
I just get a little concerned for large corporations and pension funds these days - who is it that 'owns' GM these days?

 

[Bestwifeever]

Welcome to the boards, Frances. I agree with the above suggestions that your decision is probably more personal than anything--you don't need to take the pension early, it doesn't sound like, so luckily that's not in the equation. But once you decide to take it early and to apply or not a survivor benefit, you probably can't change that decision. So if I were in that situation I would just wait five years rather than take it early,l and at that time revisit the survivorship issue in case your lives have changed. (I wouldn't worry about the pension not being available at that time; if it's fully funded now, the chances that it won't be in five years would seem to be slight.)

 

[BigNick]

I just get a little concerned for large corporations and pension funds these days - who is it that 'owns' GM these days?

That's an interesting thought. Maybe a lawyer here knows: if a corporate pension fund runs into trouble, are all payouts reduced pro rata, or do people who are actually drawing money at the time have a higher claim than future retirees?

 

[donheff]

On the issue of spousal benefit I would recommend that you look at it from your spouse's point of view. If you were in precisely her position (income, assets, years with you, etc) what would you prefer?

 

[haha]

PS: I never met anyone called Frances from the US.

Glad to help, though I suppose all of these except the fictional Frances Houseman would have to be visited in a graveyard.

Baby in Dirty Dancing was actually named Frances Houseman. Another Frances was Fran, of Kukla, Fran, and Ollie, pioneer Tot TV show from the 40s. I cannot fail to mention Frances Farmer, a US screen actress and pride of Seattle, who sadly became a poster girl for psychiatric mistreatment.

Ha

 

[73ss454]

Stay away from whole life!

 

[Milton]

The error to avoid - but it's an easy one to make - is to see the question as some kind of "how can I make sure that I get the most money out of the deal" thing.

I agree. Maximizing the potential return is not unimportant, but it is only a (relatively small) part of the equation.

 

[ronocnikral]

i have a naive question, what if one were to die between retirement and starting their annuity payment? my guess is there is some benefit to a survivor? i'm sure all plans are unique, but ones backed by the feds have to have some standard rules.

 

[frances]

Bestwifeever -
that's correct - if I elect a survivor benefit I cannot change it.
HOWEVER, with this plan if my spouse dies before I do my pension amount would go up to the monthly payout before the spouse benefit reduction (8% or 11.5% depending on my election)

 

[frances]

On the issue of spousal benefit I would recommend that you look at it from your spouse's point of view. If you were in precisely her position (income, assets, years with you, etc) what would you prefer?

I have discussed it with spouse and his take is DON'T elect the spousal benefit. He makes lots more that I have in YEARS (part-time just don't get it!) and will probably work until he's ready for the dirt nap (loves what he does)

 

[frances]

i have a naive question, what if one were to die between retirement and starting their annuity payment? my guess is there is some benefit to a survivor? i'm sure all plans are unique, but ones backed by the feds have to have some standard rules.

I looked through the paperwork I received and it doesn't say anything about that. I'll ask the question to the pension service center and post what I find out.

 

[frances]

Glad to help, though I suppose all of these except the fictional Frances Houseman would have to be visited in a graveyard.

Baby in Dirty Dancing was actually named Frances Houseman. Another Frances was Fran, of Kukla, Fran, and Ollie, pioneer Tot TV show from the 40s. I cannot fail to mention Frances Farmer, a US screen actress and pride of Seattle, who sadly became a poster girl for psychiatric mistreatment.

YouTube - Kukla, Fran and Ollie - EP 1 - (2/3)

Ha

Very good.
And don't forget the movie director Francis Ford Coppola.

Mine is a family name (my mother) and I worked with I guy who was "Francis".

Just a quick way to remember: "I's are guys" for the spelling of Frances/Francis in most cases. Although with any spelling it really depends on the parents....

 

[GoodSense]

Given the new information, IMHO, there is no reason to take the survivorship. I view it as a form of insurance. If you can afford to go without it, why pay a premium?

P.S. I do have anothe friend (female) named Frances (Fran).

 

[TooFrugal]

What is the easiest way to decide if 25% is too much to loose?

If it were me I would pay an actuary at a pension plan company to go over the numbers with you and make some recommendations.

 

[frances]

Follow-up

i have a naive question, what if one were to die between retirement and starting their annuity payment? my guess is there is some benefit to a survivor? i'm sure all plans are unique, but ones backed by the feds have to have some standard rules.

Here's the answer I got from the pension center:
(the grammar is not mine....)

"In response to your email, you don't make you elect until you start
collecting your pension. If you pass way before you start your spouse
would be entitled to the 50% joint and survivor option."

 

[Milton]

Here's the answer I got from the pension center:
(the grammar is not mine....)

"In response to your email, you don't make you elect until you start
collecting your pension. If you pass way before you start your spouse
would be entitled to the 50% joint and survivor option."

These people have control of your retirement income?! May bee that's knot so great.

 

[Emeritus]

Hi Frances,



PS: I never met anyone called Frances from the US. Are you in the UK?

Frances is actually a quite common (and very nice )name in the USA

"Frances is a very common first name for women (#47 out of 4276)"(1990 U.S. Census

 

[frances]

These people have control of your retirement income?! May bee that's knot so great.

Yeah, that's what has me a little worried and wondering if I should start it up now rather than in five years....

 

[GregLee]

My retirement plan offers a large number of options, including "maximum benefit" and full survivor benefit. The former gives no survivor benefit but the highest monthly payout. The latter continues the exact same pension benefit as I was receiving to be paid to my wife when I die, but of course the monthly payout is decreased. There is also a "pop-up" feature, according to which if my wife dies before me, my retirement pay-out goes back up to the maximum benefit.

I feel guilty that I made my choice among the options without analysis, just intuitively imagining what it would be like for my wife if I die first to face a large reduction in household income. Not good. So I chose the full survivor benefit.