Need advice regarding non-COLA pension payout options. At age 60, what's the better option to provide for my wife (her age would be 55)....
At first, I liked option #2, because of the 20-year beneficiary guarantee, plus it continues to pay as long as I live. But the more I thought about it, it seems like I could buy a lot of insurance for my wife with the additional $4K/year from option #1. Plus, since we'll have additional income from IRA at Vanguard, I wouldn't have to necessarily insure to replace the entire pension amount.
Thoughts or other considerations?
I hear the stampede of insurance agents right now!
Not enough information provided... but here are a few random thoughts to consider as make your decision.
BTW - Take your time studying, modeling, and analyzing your options. Compare and contrast the pros and cons of each and discuss them with your DW so she is involved in the decision and understands what it means and how it will work.
The random thoughts...
It depends. You are likely to find that there is no "free lunch" to exploit. But if you are careful and know all of your goals you might be able to optimize your solution.
For your DW... it might turn out that a Joint survivor option on the pension is the best alternative.... but it will reduce the payout. Matter of fact in many states some sort of joint option is probably the default. To change it she might have to sign-off on it.
One thing to consider on life insurance is "good intentions gone bad"! If some unforseen situation arises and the policy lapses or you cannot pay the premium the thing falls apart and your DW is scr3wed!
IMO - Don't try to get too smart... the only lesson you are likely to learn is that you are not smart (no offense). choose a solution that will not fail (very low chance of failure).
In the life insurance world that could mean buying permanent insurance (highly rated company) and seeding it with money (probably alot) and putting her in control of it (owner) so he has control of her situation. Term may not cut it because of longevity and limits on the term.
But you need to get some quotes and run the numbers. You need to factor in your health and longevity. The problem is likely to be that cheap term insurance (assuming you are healthy and insurable) only tend to be sold for 20 or 25 years... sometimes longer (but without a cap/level premium).
If you and your DW decide to take the SL 20 year option... one option might be to buy a longevity annuity for your DW (deferred single premium) for your DW with the start date at the end of 20 years.
You are likely to find out that you are not going to beat the insurance companies at their game.
I am in a similar situation. I intend to choose the joint survivor payout option.