Pension single life + term life

[SilentWalker]

I know there has been several threads discussing similar topics in the past, but I have a bit different angle in my question.

I am 56 years old male planning on retiring early 2021. My megacorp pension payments will start after my 65th birthday.

I am contemplating the following options:
1. 3500 per month with 50% survivor benefit.
2. 4350 per month single life + 25 year term life starting now.
3. 4350 per month single life + 15 year term life starting when the pension starts 9 years from now.

The pension does not have any index or inflation protection so the dollar amounts will be fixed until the bitter end.

The purpose of term life would be to provide my wife 15 years of income that is comparable to the 50% survivor benefit. I have not requested for any personal insurance quotes yet, but the Quotacy calculator gave me a monthly price of $263 for 25 year term life insurance for $600,000, which seems to get us close to a matching life annuity per Immediate Annuity quotations.

For a person in perfect health it seems like a no-brainer to just take a 15 year term life insurance when the pension payments start. However, not being in perfect health (minor hereditary nerve issue in heart, high cholesterol, sleep apnea, overweight) seems to make the question a lot more complex.

- How much might this kind of health issues increase my life insurance cost?
- Should I actually try to get a 25 year term life insurance now instead of 15 year term insurance 9 years from now, presuming that the cost will get dramatically higher with added age and potentially worsening health issues?

I know I would get a partial answer by just applying for the insurance right now, but I would like to have some idea before going through the extensive health questionnaires and giving an insurance company free access to my medical records and/or going to in-person health screening during the current COVID mess.

 

[Big_Hitter]

ah misread the question. are you looking for half the js50 or the entire js50 as the term replacement?

 

[pb4uski]

Having worked in the industry (but not in underwriting), I think it is too complex a question to get an answer here.

And you may want to get more than 15 or 25 year term because you'll want money to substitute for your pension if you should die after you are 80 and your wife outlives you.

A common, affordable way to do this is to do a term insurance ladder, especially since a SPIA to make up you pension will be cheaper over time.

See https://obliviousinvestor.com/laddering-life-insurance-policies/

I looked into it when I had to make a decision on my pension, but the numbers didn't make sense in my case so I simply took the 100% survivor.

 

[finnski1]

I know there has been several threads discussing similar topics in the past, but I have a bit different angle in my question.

I am 56 years old male planning on retiring early 2021. My megacorp pension payments will start after my 65th birthday.

I am contemplating the following options:
1. 3500 per month with 50% survivor benefit.
2. 4350 per month single life + 25 year term life starting now.
3. 4350 per month single life + 15 year term life starting when the pension starts 9 years from now.

The pension does not have any index or inflation protection so the dollar amounts will be fixed until the bitter end.

The purpose of term life would be to provide my wife 15 years of income that is comparable to the 50% survivor benefit. I have not requested for any personal insurance quotes yet, but the Quotacy calculator gave me a monthly price of $263 for 25 year term life insurance for $600,000, which seems to get us close to a matching life annuity per Immediate Annuity quotations.

For a person in perfect health it seems like a no-brainer to just take a 15 year term life insurance when the pension payments start. However, not being in perfect health (minor hereditary nerve issue in heart, high cholesterol, sleep apnea, overweight) seems to make the question a lot more complex.

- How much might this kind of health issues increase my life insurance cost?
- Should I actually try to get a 25 year term life insurance now instead of 15 year term insurance 9 years from now, presuming that the cost will get dramatically higher with added age and potentially worsening health issues?

I know I would get a partial answer by just applying for the insurance right now, but I would like to have some idea before going through the extensive health questionnaires and giving an insurance company free access to my medical records and/or going to in-person health screening during the current COVID mess.

Is there a 100% and joint survivor option starting right now as well?
Just ran thru some numbers for my wife's pension and the 100% and joint was about 85% of the single life value although we are slightly older,.
If that were an option and it is near the $3500 I would seriously consider that.
Don't have to pay $3000 plus per year for term life premiums, no health questions etc. So I suppose if the 100% joint was($3500-263) $3237 you could consider that the same since you would not need to pay the premiums.

 

[SilentWalker]

are you looking for half the js50 or the entire js50 as the term replacement?

Yes. Just looking to replace the same amount my wife would get after my death if I selected the 50% survivor benefit.

And you may want to get more than 15 or 25 year term because you'll want money to substitute for your pension if you should die after you are 80 and your wife outlives you.

My wife is a lot younger than me so she will very likely outlive me by couple of decades, but I am just looking at this pension as one of many pieces of the FI puzzle. The pension plan is frozen so that today's dollar amounts will never change going forward. I figured that looking at this kind of pension beyond 25 years is of little significance since inflation will chew up some 50% of the purchase power in that time. Our after tax portfolio is intended to be the last bucket for spending as it will most likely keep up with inflation, so the plan for the pension is just to minimize the need to draw down the portfolio during the first 24 years of the retirement.

A common, affordable way to do this is to do a term insurance ladder, especially since a SPIA to make up you pension will be cheaper over time.

See https://obliviousinvestor.com/laddering-life-insurance-policies/

Very interesting suggestion. Something I was not familiar. I will look into it.

Is there a 100% and joint survivor option starting right now as well?

No 100% option for me. I do have a 75% option, but for simplicity's sake did not include the numbers here. We have a nice 40/60 after tax portfolio for our main source of retirement income, so just trying to utilize the pension so that we could keep our portfolio mostly untouched until later. Reason for this is the fact that the pension is not indexed so it makes sense to maximize the pension income early on to minimize the inflation impact. I just don't want it to get cut off entirely in less than 15 years.

 

[njhowie]

- Should I actually try to get a 25 year term life insurance now instead of 15 year term insurance 9 years from now, presuming that the cost will get dramatically higher with added age and potentially worsening health issues?

Yes. Though your health may be excellent today, you don't know what may happen over the coming 9 years. Heaven forbid something happens and you pass unexpectedly without having it - then your wife wouldn't get the pension and would have nothing.

Additionally, you may develop something which prevents you from qualifying for the term policy in 9 years.

Lastly, if you're looking at 25 year, also get a quote for 30 year, the difference in price may not be much. You could always decide to stop paying and cancel at 25 years, but at 81, you may be happy to have locked in to that additional 5 years and having the option for it at (what will then be) a very low price.

 

[target2019]

SilentWalker,
Is there a survivor benefit now? Let's say you die tomorrow, 9 years before pension starts, and you haven't made any choices yet. Sorry for the blunt question.

 

[finnski1]

SilentWalker,
Is there a survivor benefit now? Let's say you die tomorrow, 9 years before pension starts, and you haven't made any choices yet. Sorry for the blunt question.

I was wondering the same myself. It is an important point and could change the decision process quite a bit.

 

[SilentWalker]

SilentWalker,
Is there a survivor benefit now? Let's say you die tomorrow, 9 years before pension starts, and you haven't made any choices yet. Sorry for the blunt question.

Yes. It has a 66.7% automatic spousal benefit that will start the month I would have turned 65, if I die before I get my first pension payment. I thought every pension has something like that.

 

[target2019]

Yes. It has a 66.7% automatic spousal benefit that will start the month I would have turned 65, if I die before I get my first pension payment. I thought every pension has something like that.

My question comes from this view. If my spouse dies before her retirement date (she's stillworking), I get a lump sum survivor benefit. It is an amount that has grown year by year. In this example there is no monthly benefit for me.

Now that you mention the automatic spousal benefit, that sounds like something that goes into effect when you terminate. It's different than what I was asking about.

Sorry to muddy these waters.

 

[SilentWalker]

My question comes from this view. If my spouse dies before her retirement date (she's stillworking), I get a lump sum survivor benefit. It is an amount that has grown year by year. In this example there is no monthly benefit for me.

Now that you mention the automatic spousal benefit, that sounds like something that goes into effect when you terminate. It's different than what I was asking about.

Sorry to muddy these waters.

No difference if I have terminated or not. The survivor pension benefit prior to me starting the pension is the same.

 

[SALTedOut]

Assuming your spouse gets the survivor benefits if you died prior to 65 does your plan allow you to change your election right before you turn 65, assuming you are still alive? I ask because mine does.

Therefore, I currently have my election set to 10 year certain + 100% survivor benefit. I'd start collecting in 6 years. That means that if I died prior to the start of benefits, my wife (or her estate if she passed away after me) automatically gets 10 years of payments for her heirs (our kids). If she does not pass away before the 10 years are up she continues to get 100% survivor benefits. Basically locking in a minimum of 10 years of pension for my wife or our kids.

I can change this election 30 days before payments begin assuming I'm still alive. There, I can reevaluate my health and her health and make a final decision on the percentage of survivor benefits and whether we want the 10 years certain or not.

 

[Big_Hitter]

I can change this election 30 days before payments begin assuming I'm still alive. There, I can reevaluate my health and her health and make a final decision on the percentage of survivor benefits and whether we want the 10 years certain or not.

corporate, multi or public sector plan?

 

[SALTedOut]

privately owned company, non-qualified plan. I had a qualified and non-qualified plan. I took the qualified piece as a lump sum and rolled to an IRA. The non-qualified I could not roll over.

 

[Big_Hitter]

privately owned company, non-qualified plan. I had a qualified and non-qualified plan. I took the qualified piece as a lump sum and rolled to an IRA. The non-qualified I could not roll over.

the 100% J&S election you took pre-commencement generally isn't available in qualified plans, those elections are only good for 90 days I believe