HUGE retirement decision.

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moneytalksloud
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HUGE retirement decision.

Post by moneytalksloud »

My wife and I work in similar positions as "State" workers. We can retire at age 55 (which we will do) with a full retirement. We will each receive about $44,000 per year with a minimum cost of living increase of 2%. We have $360,000 dollars cash in a local bank. We each have about $250,000 in a 457b deferred compensation plan through work. We have 100% of that money in index mutual funds following the S&P 500. We also have an inherited IRA worth about $129,000 with 100% of that in an S&P index fund. We have always been savers. We each make about $64,000 per year right now. We are both 54 and will retire in one year. We have no mortgage. We saved money and bought the home we live in cash. It's a nice house and we are comfortable here. We have two nice new cars. Both bought cash. We have no mortgage or car payments. No other loan payments. Our job provides us with a Cadillac health insurance plan which upon retirement will be free. No monthly bills for that either. That's our financial situation as it stands right now.

Here's my question.
We can take our retirement payout in a few ways.
1) take full amount. $44,000 per year (each).
2) take a reduced amount (about $200 per month less per person) and if one person dies the other gets half of the deceased persons yearly salary. ($22,000 in this case).
3) take a more reduced amount (about $400 per month less per person) and if one person dies the other gets 100% of the deceased persons salary. ($44,000 per year in this case).

Which of the 1, 2 or 3 options is the best one to take under our circumstances?
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boglesmymind
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Re: HUGE retirement decision.

Post by boglesmymind »

Since you both are "savers", and living below your means, maybe taking the full pensions and investing the $800 would be prudent.
chaz
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Re: HUGE retirement decision.

Post by chaz »

It also depends on how healthy each of you are when you retire.
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Index Fan
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Re: HUGE retirement decision.

Post by Index Fan »

If you can live well on 1.5 of your 2 pension checks, I myself would take option 2.

And congratulations on having an excellent financial situation near your retirement!
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Re: HUGE retirement decision.

Post by Twins Fan »

You guys look to be in a great position and could probably go with either of the three. :beer

I would look at it as a "needs" kind of thing. Would either of you need part of the others pension when one passes on first? It doesn't sound like it. Since you guys are retiring young, both have healthcare covered on each side, both get a nice pension, and you're expenses are low, I say take each of your full pensions. The way you guys live and save one should be just fine after the other passes. Never know, right... but you guys should be around for a good while collecting both pensions and probably saving most of them.
ChrisC
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Re: HUGE retirement decision.

Post by ChrisC »

Tom K. wrote:My wife and I work in similar positions as "State" workers. We can retire at age 55 (which we will do) with a full retirement. We will each receive about $44,000 per year with a minimum cost of living increase of 2%. We have $360,000 dollars cash in a local bank. We each have about $250,000 in a 457b deferred compensation plan through work. We have 100% of that money in index mutual funds following the S&P 500. We also have an inherited IRA worth about $129,000 with 100% of that in an S&P index fund. We have always been savers. We each make about $64,000 per year right now. We are both 54 and will retire in one year. We have no mortgage. We saved money and bought the home we live in cash. It's a nice house and we are comfortable here. We have two nice new cars. Both bought cash. We have no mortgage or car payments. No other loan payments. Our job provides us with a Cadillac health insurance plan which upon retirement will be free. No monthly bills for that either. That's our financial situation as it stands right now.

Here's my question.
We can take our retirement payout in a few ways.
1) take full amount. $44,000 per year (each).
2) take a reduced amount (about $200 per month less per person) and if one person dies the other gets half of the deceased persons yearly salary. ($22,000 in this case).
3) take a more reduced amount (about $400 per month less per person) and if one person dies the other gets 100% of the deceased persons salary. ($44,000 per year in this case).

Which of the 1, 2 or 3 options is the best one to take under our circumstances?
I'd go with a combination of 1 and 3. Wife to take full amount in option 1 since, assuming all things being equal in health, wife will likely outlive husband. Husband to take reduced amount in option 3 since, assuming all things being equal in health, husband will not outlive wife. Of course, wife in these circumstances will get $88K upon husband's death. As a husband myself, I'd be more than happy with that result. On the other hand, if wife does not outlive husband, I'd imagine that option 3 for the husband results in full annuity/pension to husband. I could live with that amount, as well, going forward.
2cents2
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Re: HUGE retirement decision.

Post by 2cents2 »

I am trying to make the same type of decision with my DH's pension. I'm not sure I'm looking at it in the right way, but here is what I have been looking at:

1. Is the reduced pension going to provide enough income to meet expenses?

2. Whichever option selected, will the survivor have enough income to meet expenses? I have done some spreadsheets on income stream vs expenses modeling for each of us as a survivor (with different level of survivor benefits). On the expense side: the expenses go down, but they are not 50% less.

3. Will the reduced pension be restored to the full amount if your spouse predeceases you or is it a permanent reduction?

4. Is there another commercially available product that costs less and will provide the same level of protection? By this I mean, if you take the 100% survivor benefit--it looks like you would pay 10% or about $4800 per year for the 100% survivor benefit. On one hand it seems expensive, on the other hand you are covered and there could be some gaps in coverage from other types of products.
dekecarver
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Re: HUGE retirement decision.

Post by dekecarver »

May I ask what state gov you work for?

Those are very good benefits specifically the health care benefit.
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Re: HUGE retirement decision.

Post by dekecarver »

If you are both the same age, good health and savers with the same retirement plan I'd consider taking the 100% option and enjoy.

Additionally I can not remember exactly what a finance rep once told me about the survivorship option in a case like yours but it was different than I had expected so you may want to check on that to make sure you understand the full effect of that decision. It may be a nothing but..
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sometimesinvestor
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Re: HUGE retirement decision.

Post by sometimesinvestor »

Another possibility is to look at on of the options that pay you more (like no pension to the survivor)and see what value/coverage of 15 or 20 year term you can buy with the monthly difference between that and options that pay less.However make sure you are medically eligible before picking a full pension option. And if the insurance company rejects or provides at a high cost that may suggest an option that gives benefits to the survivor is best. Really we don't know the future but this may be a case where your physician can give you better advice than a financial guru.
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BL
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Re: HUGE retirement decision.

Post by BL »

Yes, do check on whether full pension is restored at death of spouse. It is a good thing to know, no matter what you decide. These pensions often have a better deal than insurance can provide. COLAs can be changed by the state in the future as can health insurance. Do you have long term care insurance or a plan for covering that? Health insurance doesn't cover that usually. Do you have heirs?
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Kenkat
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Re: HUGE retirement decision.

Post by Kenkat »

From an actuarial standpoint, these choices are all likely financially the same to the pension fund - i.e., all three will, on average, result in the pension fund paying out the same amount over time.

I think it comes down to this simple question - if one of you were to pass away, how much money does the other need to support the lifestyle they want? If the answer is $44,000, choice #1 is probably best. $66,000 (or so)? Choice #2. Etc.

I would probably lean towards choice #2 myself. To lose your spouse and see your income cut in half is a huge jolt. There are certain fixed expenses that cannot be split just because the other person is no longer with you. I think the joint/50% survivor option probably best takes this into account.
J295
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Re: HUGE retirement decision.

Post by J295 »

Without running various scenarios with assumed dates of death for each of you I can't determine which option might be optimal from a financial perspective. If it were me I'd run these scenarios to have hard numbers to evaluate. I'd be curious for example, what the numbers show if party 1 dies in five years and party 2 dies in 40 years? What about if the deaths occur at years 30 and 35? etc.

Having said that, my off the cuff thought process for you would focus on the needs of the survivor (with little focus on the present impact assuming a decrease in present joint income of $200 or $400 per month is easily managed). When the first of you dies I suspicion the expenses of the survivor will NOT be cut in half, so are you comfortable that the surviving spouse will be sufficiently provided for with just the survivor pension? Of course, the choice always impacts the level of inheritance available on the second death, if that is a consideration for your family.

Best of luck!
Louis Winthorpe III
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Re: HUGE retirement decision.

Post by Louis Winthorpe III »

One cautionary note: Not all government workers will get all of the benefits they've been promised in retirement. In effect, there's counterparty risk involved. If your state is in good shape financially, you can probably expect to get all or most of what you've been promised. But if you retire at 54, the question is whether your state will be in good shape financially for 3 decades or more. You guys sound like you're very careful with your money, so I would build a cushion in against some reduction in benefits, particularly health care benefits. [Edit: You've already got a great cushion, so that's not really a concern. I guess just make a mental note that your future cash flow stream isn't 100% guaranteed.]

To answer your question, I would probably go with either option 2 or 3. I agree with the comment above that the choices are probably actuarially neutral, so for me it would be about piece of mind of knowing that less of the household income would disappear in the event of your death or your spouse's death. But taking the full amount and investing the difference isn't a bad option either. I guess I'd go with option 2 since it's the middle of the road approach.
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Traveler
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Re: HUGE retirement decision.

Post by Traveler »

It probably doesn't matter either way and as one poster said, actuarily, all options are probably the same. You also have almost $1M to use to supplement decreased income for the surviving spouse. If you can live now off of the full pensions (~$88K), then let the investments continue to grow and use that as a backup.
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Boglenaut
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Re: HUGE retirement decision.

Post by Boglenaut »

Do you have kids or a cause you wish to leave money to?

You may make a different decision if you are saving for your life only vs. wanting to leave something behind.

(PS - it sounds like you have done a great job saving.) :beer
Last edited by Boglenaut on Sun Mar 09, 2014 10:21 am, edited 1 time in total.
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Re: HUGE retirement decision.

Post by JW-Retired »

Tom K. wrote: We will each receive about $44,000 per year with a minimum cost of living increase of 2%.
Can you clarify what is meant by "minimum" here? Does this mean you get 2% even if there is no inflation at all, and higher than 2% if inflation is greater than 2%? Or you just always get 2% and that's it. or what?
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Re: HUGE retirement decision.

Post by JW-Retired »

Tom K. wrote: My wife and I work in similar positions as "State" workers. We can retire at age 55 (which we will do) with a full retirement.
2nd question: When you say "full retirement" does that mean if you work longer your pension would never increase any more? I know this happens to some state workers and basically forces them to retire.
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moneytalksloud
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Re: HUGE retirement decision.

Post by moneytalksloud »

JW Nearly Retired wrote:
Tom K. wrote: We will each receive about $44,000 per year with a minimum cost of living increase of 2%.
Can you clarify what is meant by "minimum" here? Does this mean you get 2% even if there is no inflation at all, and higher than 2% if inflation is greater than 2%? Or you just always get 2% and that's it. or what?
JW
Cost of Living Adjustment


Your pension is subject to an annual Cost of Living Adjustment (COLA).

These cumulative raises will be paid each year on either January 1st or July 1st depending on your date of retirement (DOR).

You must be retired at least 9 full months in order to qualify for your first raise.

Thereafter, your annual cost of living adjustment will be paid on the COLA anniversary date, which corresponds with your DOR.

Your COLA will range from a minimum of 2% to a maximum of 7.5% based on the following formula which takes into account a portion of the increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for the 12 months immediately preceding your COLA anniversary date:
60% of the annual CPI-W increase up to 6%

PLUS

75% of the annual CPI-W above 6%


Answer to your 2nd question is if I work longer my pension gets better. But, I'm not going to work longer so the initial post I made stands true.
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englishgirl
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Re: HUGE retirement decision.

Post by englishgirl »

You haven't really mentioned anything about expenses. You are going from $128k per year to $88k per year. Is the $88k per year enough to cover all your projected expenses or will you be withdrawing from your portfolio as well? To me, this would factor in to what pension option I took - if you don't need to withdraw from your portfolio at all on $88k, then that can be left to grow to provide income to the surviving spouse. If you do need to withdraw from your portfolio, then you are leaving less of a cushion for the surviving spouse, and I would then want to consider the survivorship option in the pension more closely.

My gut would be to go for option 2, to hedge my bets. But whether it would be the better option is hard to say.
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sscritic
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Re: HUGE retirement decision.

Post by sscritic »

Tom K. wrote: Cost of Living Adjustment

[stuff]
60% of the annual CPI-W increase up to 6%

PLUS

75% of the annual CPI-W above 6%
Sounds like Connecticut. The capital PLUS is a giveaway.

Did you start at age 21? 34 years x 0.02 x 64000 = $43,520.
1. Option D - Straight Life Annuity. This option provides you with the highest monthly benefit for your lifetime. However, all payments stop at your death.

2. Option A - 50% Spouse. This option first provides a reduced monthly benefit to you for life. Then, 50% of that benefit will continue after your death for the lifetime of your surviving spouse (contingent annuitant).

3. Option B - 50% or 100% Survivor. This option arranges to continue payments after your death to the contingent annuitant you choose. This contingent annuitant can be any person, including your spouse. The option provides a reduced monthly benefit to you for life. After your death, a percentage of that benefit, either 50% or 100%, whichever you choose, will continue for the lifetime of your contingent annuitant.
That should answer this or question:
3. Will the reduced pension be restored to the full amount if your spouse predeceases you or is it a permanent reduction?
P.S. I never understand why people expect better answers if they withhold the facts.

P.P.S. My state offers the bump-up option, but that only comes with a greater reduction to start.
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moneytalksloud
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Re: HUGE retirement decision.

Post by moneytalksloud »

englishgirl wrote:You haven't really mentioned anything about expenses. You are going from $128k per year to $88k per year. Is the $88k per year enough to cover all your projected expenses or will you be withdrawing from your portfolio as well? To me, this would factor in to what pension option I took - if you don't need to withdraw from your portfolio at all on $88k, then that can be left to grow to provide income to the surviving spouse. If you do need to withdraw from your portfolio, then you are leaving less of a cushion for the surviving spouse, and I would then want to consider the survivorship option in the pension more closely.

My gut would be to go for option 2, to hedge my bets. But whether it would be the better option is hard to say.
We could easily live the rest of our lives without ever withdrawing a penny from our portfolio.
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iceport
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Re: HUGE retirement decision.

Post by iceport »

sscritic wrote:
1. Option D - Straight Life Annuity. This option provides you with the highest monthly benefit for your lifetime. However, all payments stop at your death.

2. Option A - 50% Spouse. This option first provides a reduced monthly benefit to you for life. Then, 50% of that benefit will continue after your death for the lifetime of your surviving spouse (contingent annuitant).

3. Option B - 50% or 100% Survivor. This option arranges to continue payments after your death to the contingent annuitant you choose. This contingent annuitant can be any person, including your spouse. The option provides a reduced monthly benefit to you for life. After your death, a percentage of that benefit, either 50% or 100%, whichever you choose, will continue for the lifetime of your contingent annuitant.
That should answer this or question:
3. Will the reduced pension be restored to the full amount if your spouse predeceases you or is it a permanent reduction?
Right, so this is wrong:
Tom K. wrote:3) take a more reduced amount (about $400 per month less per person) and if one person dies the other gets 100% of the deceased persons salary. ($44,000 per year in this case).
It would be 100% of the reduced amount, not the full $44k.

sscritic wrote:
Tom K. wrote: Cost of Living Adjustment

[stuff]
60% of the annual CPI-W increase up to 6%

PLUS

75% of the annual CPI-W above 6%
Sounds like Connecticut. The capital PLUS is a giveaway.
sscritic, I'm not sure what you mean by "giveaway." It looks to me like that formula would have only produced a COLA above the 2% minimum in two or three years out of the last twenty. Are you saying that any COLA is a giveaway?

To the OP: It looks to me like you're in good enough shape to choose any of the options, but I'd probably lean towards Option 3. You're very fortunate to be in Tier I, assuming sscritic is correct and you're in the CT SERS (I'm also in the CT SERS, but Tier II), but you have also been very careful with your finances and are in fantastic shape. Congratulations!

--Peter
"Discipline matters more than allocation.” |—| "In finance, if you’re certain of anything, you’re out of your mind." ─William Bernstein
sscritic
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Re: HUGE retirement decision.

Post by sscritic »

petrico wrote: sscritic, I'm not sure what you mean by "giveaway."
The mystery state that the OP didn't want to reveal. The capitalization of plus to PLUS comes straight from Connecticut. I could be wrong about the state, but I don't think so.
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moneytalksloud
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Re: HUGE retirement decision.

Post by moneytalksloud »

sscritic wrote:
petrico wrote: sscritic, I'm not sure what you mean by "giveaway."
The mystery state that the OP didn't want to reveal. The capitalization of plus to PLUS comes straight from Connecticut. I could be wrong about the state, but I don't think so.
I don't mind revealing what state I am in. I'm living in New Haven Connecticut.
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iceport
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Re: HUGE retirement decision.

Post by iceport »

sscritic wrote:
petrico wrote: sscritic, I'm not sure what you mean by "giveaway."
The mystery state that the OP didn't want to reveal. The capitalization of plus to PLUS comes straight from Connecticut. I could be wrong about the state, but I don't think so.
Aaaaah, thank you. And yes, it all looks familiar.
"Discipline matters more than allocation.” |—| "In finance, if you’re certain of anything, you’re out of your mind." ─William Bernstein
sscritic
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Re: HUGE retirement decision.

Post by sscritic »

Hullodare wrote: I don't mind revealing what state I am in. I'm living in New Haven Connecticut.
It is not the state where you live, but the state retirement system that you are in. You could be living in another state and yet be working for Connecticut.

Do you understand how knowing the retirement system you are in helps? Now we can read the rules. Now people like petrico can point out that after death, what you get is a percentage of the reduced benefit, not a percentage of the unreduced benefit. This should help you, as it appeared as if you didn't understand this point.

Facts matter, and the more facts you give us, the better our advice will be (you should hope).
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moneytalksloud
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Re: HUGE retirement decision.

Post by moneytalksloud »

sscritic wrote:
Hullodare wrote: I don't mind revealing what state I am in. I'm living in New Haven Connecticut.
It is not the state where you live, but the state retirement system that you are in. You could be living in another state and yet be working for Connecticut.

Do you understand how knowing the retirement system you are in helps? Now we can read the rules. Now people like petrico can point out that after death, what you get is a percentage of the reduced benefit, not a percentage of the unreduced benefit. This should help you, as it appeared as if you didn't understand this point.

Facts matter, and the more facts you give us, the better our advice will be (you should hope).
I am so grateful for the input and advice.

I live and work in the State of Connecticut. I have lived in CT all of my life. I have worked for the State of CT for over 30 years.

My retirement plan is here: http://www.osc.ct.gov/empret/tier1summ/index.html
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iceport
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Re: HUGE retirement decision.

Post by iceport »

Hullodare,

Have you actually gone to HR and asked them to "run the numbers" for you, or are you relying on the online calculator? The only reason I ask is because some people I've known have been pleasantly surprised, with the detailed comp's working out slightly better than expected.

--Peter
"Discipline matters more than allocation.” |—| "In finance, if you’re certain of anything, you’re out of your mind." ─William Bernstein
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moneytalksloud
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Re: HUGE retirement decision.

Post by moneytalksloud »

petrico wrote:Hullodare,

Have you actually gone to HR and asked them to "run the numbers" for you, or are you relying on the online calculator? The only reason I ask is because some people I've known have been pleasantly surprised, with the detailed comp's working out slightly better than expected.

--Peter
I have an appointment for the "real" numbers but that's not for several months. The on-line calculator is what I'm using now. Many folks have told me the numbers they get from HR are more than the on-line calculator showed them. Happens almost every time. Still, they can't be radically different.
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Re: HUGE retirement decision.

Post by Draak »

delete
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btenny
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Re: HUGE retirement decision.

Post by btenny »

I second what Sometimes said. Please look carefully into getting some Term Life Insurance to provide cash for income replacement if one of you should pass away early. I did this to provide Social Security protection for my wife and I and pension protection for my wife when I took the 100% option. In my case term life insurance was a much cheaper and better deal than taking the reduced pension. But I already had a 20 year term life policy that I converted into a whole life fixed $$ policy. My wife and I applied and completed underwritting for term life policies as well. It was a better deal for me to convert my existing policy and a better for her to buy a new policy.

So I suggest you explore this option. Good Luck...
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iceport
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Re: HUGE retirement decision.

Post by iceport »

Draak wrote:You have a very, very rich plan and we are seeing some of those plans going under scrutiny for restructure (too generous and costly to sustain), so I'd want a little more weighting to income from outside that source.
Note that the OP's plan was closed to new employees in 1984. (The rest of the tiers are far, far less generous.) There were some major pension plan concessions in 2011, but the OP's Tier I came through relatively unscathed, with only a reduction in the minimum COLA from 2.5% to 2.0%. If the OP and spouse retire before the next round of concessions, they should be good wrt the DB pension. (Health care is another story...)

--Peter
"Discipline matters more than allocation.” |—| "In finance, if you’re certain of anything, you’re out of your mind." ─William Bernstein
2cents2
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Re: HUGE retirement decision.

Post by 2cents2 »

Here's my question.
We can take our retirement payout in a few ways.
1) take full amount. $44,000 per year (each).
2) take a reduced amount (about $200 per month less per person) and if one person dies the other gets half of the deceased persons yearly salary. ($22,000 in this case).
3) take a more reduced amount (about $400 per month less per person) and if one person dies the other gets 100% of the deceased persons salary. ($44,000 per year in this case).
So, just to recap:

Full Amount= 44,000 (no survivor benefit)
Annuity which provides for 50% survivor benefit (200X12 reduction)= $41,600 (survivor benefit= $20,800)
Annuity which provides for 100% survivor benefit (400X12 reduction) = $39,200 (survivor benefit =39,200)

So, both spouses no survivor benefit annual income 88,000, one spouse dies--annual income 44,000
both spouses elect 50% survivor benefit (83,200), one spouse dies-annual income = $62,400
both spouses elect 100% survivor benefit (78,400), one spouse dies--annual income $78,400

What I am still not clear on, suppose you both elect a 100% survivor benefit and your spouse passes on. You receive the 39,200 survivor benefit from your spouse's pension, what about your own pension now that you no longer have a beneficiary--does it always stay reduced at 39,200 or does it go back up to 44,000 ?
sscritic
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Re: HUGE retirement decision.

Post by sscritic »

2cents2 wrote: What I am still not clear on, suppose you both elect a 100% survivor benefit and your spouse passes on. You receive the 39,200 survivor benefit from your spouse's pension, what about your own pension now that you no longer have a beneficiary--does it always stay reduced at 39,200 or does it go back up to 44,000 ?
The option provides a reduced monthly benefit to you for life.
Does life end when your spouse passes? Perhaps emotionally, but not in terms of your pension. At least that's the way I read. As I mentioned before, my state offers a pop up at additional cost, but it's not the state in question.
2cents2
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Re: HUGE retirement decision.

Post by 2cents2 »

sscritic wrote:
2cents2 wrote: What I am still not clear on, suppose you both elect a 100% survivor benefit and your spouse passes on. You receive the 39,200 survivor benefit from your spouse's pension, what about your own pension now that you no longer have a beneficiary--does it always stay reduced at 39,200 or does it go back up to 44,000 ?
The option provides a reduced monthly benefit to you for life.
Does life end when your spouse passes? Perhaps emotionally, but not in terms of your pension. At least that's the way I read. As I mentioned before, my state offers a pop up at additional cost, but it's not the state in question.
Oh--I see. I wonder if you have the option to pick another beneficiary if your spouse predeceases you after you have made the election?
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Re: HUGE retirement decision.

Post by tj »

2cents2 wrote:
Here's my question.
We can take our retirement payout in a few ways.
1) take full amount. $44,000 per year (each).
2) take a reduced amount (about $200 per month less per person) and if one person dies the other gets half of the deceased persons yearly salary. ($22,000 in this case).
3) take a more reduced amount (about $400 per month less per person) and if one person dies the other gets 100% of the deceased persons salary. ($44,000 per year in this case).
So, just to recap:

Full Amount= 44,000 (no survivor benefit)
Annuity which provides for 50% survivor benefit (200X12 reduction)= $41,600 (survivor benefit= $20,800)
Annuity which provides for 100% survivor benefit (400X12 reduction) = $39,200 (survivor benefit =39,200)

So, both spouses no survivor benefit annual income 88,000, one spouse dies--annual income 44,000
both spouses elect 50% survivor benefit (83,200), one spouse dies-annual income = $62,400
both spouses elect 100% survivor benefit (78,400), one spouse dies--annual income $78,400

What I am still not clear on, suppose you both elect a 100% survivor benefit and your spouse passes on. You receive the 39,200 survivor benefit from your spouse's pension, what about your own pension now that you no longer have a beneficiary--does it always stay reduced at 39,200 or does it go back up to 44,000 ?

Didn't it state the survivor for that option didn't have to be a spouse? "This contingent annuitant can be any person, including your spouse. "

So, could you replace the survivor beneficiary with your kid or a sibling after your spouse passes? The former would certainly lengthen the benefit period....
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moneytalksloud
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Re: HUGE retirement decision.

Post by moneytalksloud »

tj wrote:
2cents2 wrote:
Here's my question.
We can take our retirement payout in a few ways.
1) take full amount. $44,000 per year (each).
2) take a reduced amount (about $200 per month less per person) and if one person dies the other gets half of the deceased persons yearly salary. ($22,000 in this case).
3) take a more reduced amount (about $400 per month less per person) and if one person dies the other gets 100% of the deceased persons salary. ($44,000 per year in this case).
So, just to recap:

Full Amount= 44,000 (no survivor benefit)
Annuity which provides for 50% survivor benefit (200X12 reduction)= $41,600 (survivor benefit= $20,800)
Annuity which provides for 100% survivor benefit (400X12 reduction) = $39,200 (survivor benefit =39,200)

So, both spouses no survivor benefit annual income 88,000, one spouse dies--annual income 44,000
both spouses elect 50% survivor benefit (83,200), one spouse dies-annual income = $62,400
both spouses elect 100% survivor benefit (78,400), one spouse dies--annual income $78,400

What I am still not clear on, suppose you both elect a 100% survivor benefit and your spouse passes on. You receive the 39,200 survivor benefit from your spouse's pension, what about your own pension now that you no longer have a beneficiary--does it always stay reduced at 39,200 or does it go back up to 44,000 ?

Didn't it state the survivor for that option didn't have to be a spouse? "This contingent annuitant can be any person, including your spouse. "

So, could you replace the survivor beneficiary with your kid or a sibling after your spouse passes? The former would certainly lengthen the benefit period....
Yes. I believe this is the case. We have no children by the way.

As a general statement. I just signed up for this forum yesterday. It has been without a doubt the most amazing experience with regards to quality feedback and fast response times I have ever been involved in on the web. I go back to Windows 95 so I have seen quite a bit.

I just want to thank everyone for the advice and feedback. I am grateful for all of your thoughts and wisdom.
sscritic
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Re: HUGE retirement decision.

Post by sscritic »

tj wrote: Didn't it state the survivor for that option didn't have to be a spouse? "This contingent annuitant can be any person, including your spouse. "

So, could you replace the survivor beneficiary with your kid or a sibling after your spouse passes? The former would certainly lengthen the benefit period....
Do you know what an actuary is? They do stuff like figure out how long money will last if paid to someone or to joint someones. The benefit is computed based on the age of the beneficiaries. If you retire at 55 and name your one year old granddaughter as the joint beneficiary, the reduction from a single life will be a lot greater than $200 a month. Now just think if you could start off with your 85 year old father (not mother) as beneficiary and then after he died two years later, change to your one year old granddaughter. What a scam! That's even better than the social security games that people play.

Short answer, no. There is no replacing the other beneficiary whether the other beneficiary is alive or dead. Now that's a thought: pick your wife as the joint beneficiary, then get divorced and replace her with a twenty year old honey. Now you can replace your wife with a twenty year old honey in real life, but you can't do it on your pension.

P.S. If a state allows this, they are incredibly stupid.
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moneytalksloud
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Re: HUGE retirement decision.

Post by moneytalksloud »

sscritic wrote:
tj wrote: Didn't it state the survivor for that option didn't have to be a spouse? "This contingent annuitant can be any person, including your spouse. "

So, could you replace the survivor beneficiary with your kid or a sibling after your spouse passes? The former would certainly lengthen the benefit period....

Short answer, no. There is no replacing the other beneficiary whether the other beneficiary is alive or dead. Now that's a thought: pick your wife as the joint beneficiary, then get divorced and replace her with a twenty year old honey. Now you can replace your wife with a twenty year old honey in real life, but you can't do it on your pension.

P.S. If a state allows this, they are incredibly stupid.
The Tier 1 retirement system ended in 1984. The state of CT doesn't allow this anymore. But the used to and I'm in Tier 1. But I have no children. Not worried about leaving a bundle to anyone.
sscritic
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Re: HUGE retirement decision.

Post by sscritic »

Hullodare wrote: The Tier 1 retirement system ended in 1984. The state of CT doesn't allow this anymore. But the used to and I'm in Tier 1. But I have no children. Not worried about leaving a bundle to anyone.
I don't see that you can change the contingent annuitant. The benefit amount is set based on the age of the contingent annuitant. Your choice of option is not revocable.
If you elect a benefit option that will continue an income to a surviving contingent annuitant, the benefit amount you receive will depend on your age and, with the exception of Option C, the age of your contingent annuitant. In the case of Option C, your closest age is the determining factor. The amount is less than you would receive if benefits were paid to you alone.

...

Your benefit payment option cannot be changed after retirement. Therefore, it is very important that you elect your "option" following careful review of all the available choices.
Tier I summary

Is the information that you can change the contingent annuitant after making your initial designation available on line?

I found this on the form for designating your contingent annuitant.
After retirement, if your annuitant dies before you, you will continue to receive your reduced retirement allowance for the remainder of your lifetime with no income payments continuing after your death. After retirement, you cannot name another contingent annuitant to receive the benefits or change the percentage of reduced income. Your benefit payment option cannot be changed after retirement for any reason.
INCOME PAYMENT ELECTION FORM
State Employees Retirement System
Option B - 50% or 100% Survivor
http://www.osc.ct.gov/agencies/forms/pdf/CO-900.pdf

That sure sounds like you can't change the contingent annuitant after you retire. Is there a different version of the form for Tier I? The form doesn't say it is only for Tier II and III.

I understand this is not your particular concern, but I think the readers should understand that letting you change your beneficiary after the fact is not something that most systems would allow. I would be interested if Tier I is indeed just such a system.
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moneytalksloud
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Re: HUGE retirement decision.

Post by moneytalksloud »

sscritic wrote:
Hullodare wrote: The Tier 1 retirement system ended in 1984. The state of CT doesn't allow this anymore. But the used to and I'm in Tier 1. But I have no children. Not worried about leaving a bundle to anyone.
I don't see that you can change the contingent annuitant. The benefit amount is set based on the age of the contingent annuitant. Your choice of option is not revocable.
If you elect a benefit option that will continue an income to a surviving contingent annuitant, the benefit amount you receive will depend on your age and, with the exception of Option C, the age of your contingent annuitant. In the case of Option C, your closest age is the determining factor. The amount is less than you would receive if benefits were paid to you alone.

...

Your benefit payment option cannot be changed after retirement. Therefore, it is very important that you elect your "option" following careful review of all the available choices.
Tier I summary

Is the information that you can change the contingent annuitant after making your initial designation available on line?

I found this on the form for designating your contingent annuitant.
After retirement, if your annuitant dies before you, you will continue to receive your reduced retirement allowance for the remainder of your lifetime with no income payments continuing after your death. After retirement, you cannot name another contingent annuitant to receive the benefits or change the percentage of reduced income. Your benefit payment option cannot be changed after retirement for any reason.
INCOME PAYMENT ELECTION FORM
State Employees Retirement System
Option B - 50% or 100% Survivor
http://www.osc.ct.gov/agencies/forms/pdf/CO-900.pdf

That sure sounds like you can't change the contingent annuitant after you retire. Is there a different version of the form for Tier I? The form doesn't say it is only for Tier II and III.

I understand this is not your particular concern, but I think the readers should understand that letting you change your beneficiary after the fact is not something that most systems would allow. I would be interested if Tier I is indeed just such a system.
You are correct. You cannot change the contingent annuitant after you retire. That stands for Tier 1 too.
2cents2
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Re: HUGE retirement decision.

Post by 2cents2 »

[quote="sscritic]I understand this is not your particular concern, but I think the readers should understand that letting you change your beneficiary after the fact is not something that most systems would allow. I would be interested if Tier I is indeed just such a system.[/quote]
The rules are the rules--but, from the standpoint of having an opinion as to which option is better it is an important consideration.

In some ways getting a life insurance product instead of taking the reduced pension might be a better option (at least the policy could be cancelled if it wasn't needed anymore). It would be worth investigating before making a decision.

On the other hand, the COLAs seem pretty good and more difficult to cover with insurance....
vested1
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Re: HUGE retirement decision.

Post by vested1 »

I have a similar thread going right now, and in your circumstance I would take option #3. There's a lot to be said for eliminating financial anxiety concerning the death of a spouse. The COLA provision would also mean a greater base at 100% survivor benefit as compared to the 50% survivor base amount.
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moneytalksloud
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Re: HUGE retirement decision.

Post by moneytalksloud »

Lots of great advice here.

Some say take option 1, some say option 2, some say option 3. No consensus.

By the way. I can get a 20 term life insurance policy for myself now that would provide $500,000 to my beneficiary (My wife) upon my death. It would cost me $135 per month. I've never had term life before. I assume the rates go up as you grow older. Sorry for my ignorance on that point.
tj
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Re: HUGE retirement decision.

Post by tj »

Hullodare wrote:Lots of great advice here.

Some say take option 1, some say option 2, some say option 3. No consensus.

By the way. I can get a 20 term life insurance policy for myself now that would provide $500,000 to my beneficiary (My wife) upon my death. It would cost me $135 per month. I've never had term life before. I assume the rates go up as you grow older. Sorry for my ignorance on that point.
If its a 20 year level term, the rate should stay the same for all 20 years.
Yukon
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Re: HUGE retirement decision.

Post by Yukon »

How much are your annual expenses?
Don't Work Forever.
Iorek
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Re: HUGE retirement decision.

Post by Iorek »

This question comes up a lot for federal retirees and I know one strategy that is often recommended is to price out a life insurance policy-- even though it may seem odd to be buying life insurance at retirement it can be cheaper than taking the reduced annuity.

I would probably go with option 2, but that's really an off the cuff reaction, without thinking about the numbers.
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moneytalksloud
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Re: HUGE retirement decision.

Post by moneytalksloud »

Yukon wrote:How much are your annual expenses?
Well, no mortgage, no car payments, no loans of any kind.

Insurance on the house, cars (obviously). Cable, Internet, phone, heating the home, food, other normal everyday things in life. Not big spenders on useless stuff.
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englishgirl
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Re: HUGE retirement decision.

Post by englishgirl »

Hullodare wrote:...Some say take option 1, some say option 2, some say option 3. No consensus.
....
Generally, when there's no consensus here it means that none of the options stand out as being much worse or better than the others, and it comes down to a personality-type decision. What would feel best to you? What would allow you to sleep well at night?
Sarah
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