How to Split Pension

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BetaTracker
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How to Split Pension

Post by BetaTracker »

My wife is planning on retiring in a few months.Her company also offers a traditional pension through an annuity. She has the option of taking 100% for herself and zero for her husband, plus various percentages the other way to an equal 50/50 split. The difference is $500 a month ($2,500 vs. $2,000) between payouts for a "single life annuity" going only to her and a "100% joint & survivor annuity" covering the both of us.
We're both about the same age and in good health, although I've got diabetes (type 2). Our family health histories aren't that divergent, either. Our parents are still alive and active in their 90s!
She's asking me what to do. I hate to weigh in either way. She knows my dad years ago decided to take the higher payout, which is working out well for them now. I've pointed out that if something happens to him, though, it might make things more difficult from a planning perspective for my mom. Is this kind of a crap shoot?
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123
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Re: How to Split Pension

Post by 123 »

Decisions about pensions often depend on evaluating other income streams (current and future) in the household and as well as family assets. How does this pension fit into that mix? Is the pension the main driving component of meeting monthly expenses?
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nodenuff2
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Re: How to Split Pension

Post by nodenuff2 »

This is a very personal decision. Do you have a pension? Would t be a financial burden to you without her income? We took the joint amount but my wife had no pension. We didn't want to gamble if I died early.
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rgs92
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Re: How to Split Pension

Post by rgs92 »

I would take the single life annuity and use some or all of the extra to build a balanced portfolio for the future.
The money you would be forfeiting each month for the rest of the single life is essentially premium paid to a whole life policy for the beneficiary, so it's probably not worth it.
randomguy
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Re: How to Split Pension

Post by randomguy »

BetaTracker wrote:My wife is planning on retiring in a few months.Her company also offers a traditional pension through an annuity. She has the option of taking 100% for herself and zero for her husband, plus various percentages the other way to an equal 50/50 split. The difference is $500 a month ($2,500 vs. $2,000) between payouts for a "single life annuity" going only to her and a "100% joint & survivor annuity" covering the both of us.
We're both about the same age and in good health, although I've got diabetes (type 2). Our family health histories aren't that divergent, either. Our parents are still alive and active in their 90s!
She's asking me what to do. I hate to weigh in either way. She knows my dad years ago decided to take the higher payout, which is working out well for them now. I've pointed out that if something happens to him, though, it might make things more difficult from a planning perspective for my mom. Is this kind of a crap shoot?
It is a crap shoot. Now the odds are that a woman will out live a man (let alone a man without diabetes) but those are just odds. You could run math saying that if she lived 20 years, you would need to live another 5 years to break even but obviously there is no way to guarantee how long she will live.

To some extent the question is if she died tomorrow, would you be ok without the pension? If so you can gamble. Otherwise you should think about hedging. You can use this pension as the hedge, buy life insurance on the spouse or maybe some other option depending on your situation.
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BetaTracker
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Re: How to Split Pension

Post by BetaTracker »

That sounds like a good idea -- take the maximum amount and put $500/month into our investment portfolio at Vanguard. We really don't need the extra money right now to live on -- we can pretty much live off her Social Security benefits and I'm planning on working for at least several more years. As she gets closer to her retirement date, we're also going to find out what the company will offer as a lump sum payment. So I guess that's an option as well.
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Leif
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Re: How to Split Pension

Post by Leif »

BetaTracker wrote:That sounds like a good idea -- take the maximum amount and put $500/month into our investment portfolio at Vanguard.
There is a risk either way. What if something happened to her and the entire pension, including the $500/month, stopped sooner rather then later?

What we are planning is an option they call "even steven". If she dies first I continue with the same pension. If I die first then her pension jumps up to the single amount. That jump up to the single amount option reduces the payment, but not as much as I would have thought. And it helps compensate for the loss of my SS to the family income.

The life insurance option, mentioned by randomguy, is also worth looking into.
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BetaTracker
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Re: How to Split Pension

Post by BetaTracker »

Leif -- how do you get the "even" option? Not sure her employer offers such a possibility -- or am I misunderstanding?
You also suggest putting some of the higher pension into life insurance. You'd do that rather than putting it into our investment portfolio?
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Watty
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Re: How to Split Pension

Post by Watty »

If the list of options their is likely once that is called something like "single life, ten year certain" where the pension will be paid for ten years no matter what. I would take a hard look at the numbers for that.

I would also look at that this as part of your decision for when to start Social Security since taking the large single life policy earlier could allow you to delay social security longer.
BetaTracker wrote:The difference is $500 a month ($2,500 vs. $2,000) between payouts for a "single life annuity" going only to her and a "100% joint & survivor annuity" covering the both of us.
You need to work out what the difference will be after taxes. If you will be in the income range where each dollar of extra income causes more of your social security to be taxed then the amount after taxes could be a lot less than $500.
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celia
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Re: How to Split Pension

Post by celia »

BetaTracker wrote:She's asking me what to do. I hate to weigh in either way.
This is your opportunity and your right to have a "say" since you will probably have to sign off on agreeing with whatever option is chosen. You can't shirk this responsibility since you may end up alone having to live with the option you both choose. Yes, it should be a joint decision and it is important.

Let me ask you this. When you retire, will you have a similar choice to make? Why don't you collect the information from your employer and coordinate the two plans. Maybe you both want to take the survivor option with the survivor's own pension jumping back up to a full pension when one of you dies (assuming that option is offered). That's what we chose. The survivor will get more from the two pensions than we currently get. (However, the survivor will only be able to collect one of our Social Security benefits.)

Consider at least these scenarios: (these are the extreme cases and your choices should enable you to make it through any scenario)
1. What will you both be receiving when you both turn 100?
2. What will she receive when she is 100 and he dies a month after starting his pension?
3. What will he receive when he is 100 and she dies a month after starting her pension?

Please take COLA into account, with an assumed 2% annual increase, if either/ both pensions offer that. You should also include SS in the mix and start the monthly benefit as late as possible, for the person with a higher FRA benefit.
JoinToday
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Re: How to Split Pension

Post by JoinToday »

Leif wrote:...
What we are planning is an option they call "even steven".....
Do they really call it "even steven"? I would find that hilarious.
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Silk McCue
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Re: How to Split Pension

Post by Silk McCue »

celia wrote:
BetaTracker wrote:She's asking me what to do. I hate to weigh in either way.
This is your opportunity and your right to have a "say" since you will probably have to sign off on agreeing with whatever option is chosen. You can't shirk this responsibility since you may end up alone having to live with the option you both choose. Yes, it should be a joint decision and it is important.

Let me ask you this. When you retire, will you have a similar choice to make? Why don't you collect the information from your employer and coordinate the two plans. Maybe you both want to take the survivor option with the survivor's own pension jumping back up to a full pension when one of you dies (assuming that option is offered). That's what we chose. The survivor will get more from the two pensions than we currently get. (However, the survivor will only be able to collect one of our Social Security benefits.)

Consider at least these scenarios: (these are the extreme cases and your choices should enable you to make it through any scenario)
1. What will you both be receiving when you both turn 100?
2. What will she receive when she is 100 and he dies a month after starting his pension?
3. What will he receive when he is 100 and she dies a month after starting her pension?

Please take COLA into account, with an assumed 2% annual increase, if either/ both pensions offer that. You should also include SS in the mix and start the monthly benefit as late as possible, for the person with a higher FRA benefit.
Great advice from Celia. Please run the three scenarios outlined with sub par investment returns as that income is not guaranteed. As a married couple you share a joint responsibility to make certain that both of you are properly taken care of regardless of shorter than, or longer than expected lives (we don't all die of "old age", accidents and unexpected ailments strike many). Both hold significant risk that can be mitigated by proper planning. From my perspective you have built a life together and this is not her money or your money it is your joint future as a "till death do us part couple". Should you elect single life for your wife and she dies prematurely and unexpectedly you would be left without both her pension and social security. That would be a dramatic impact on your financial quality of life. Taking joint life at 80% of single life is much like choosing to invest like a boglehead in a 40/60 portfolio at age 65 rather than 100% stocks. If it were your pension would you be willing to risk her financial future by taking single life? I doubt it because you would want to know that she will be in a good financial position when you pass. You deserve the same consideration. My wife and I weighed the options and chose joint life.
rgs92
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Re: How to Split Pension

Post by rgs92 »

Yep, I feel with pensions it's better to get the money in your pocket under your control.

The question of taking a lump sum vs. a pension as an annuity frequently arises here, and in that case the annuity is usually the better deal financially, so you give up control for the financial benefit, so that often makes sense a reasonable trade-off.

But giving up money each month for basically an insurance policy I feel is a bridge too far.

And usually you take a huge hit vs. the single life annuity, so it's really a big sacrifice for a vague security thing.
The only exception may be if there was a huge age difference, like 20+ years. But insuring someone who is close in age almost never pays off, and the actuaries know that.

Take the single-life and stash it.
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SeeMoe
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Re: How to Split Pension

Post by SeeMoe »

We both had those options from our jobs when we retired years ago. So we took lower payout options for mutual security down the road of life. Mine will pay her 100% of my pension, and hers would pay me 50% of her pension. It's insurance, and security as we age. Plus we continue investing for security too, and that is 100% payable to both of us with no strings attached.

SeeMoe.. :mrgreen:
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Re: How to Split Pension

Post by sport »

Leif wrote: What we are planning is an option they call "even steven". If she dies first I continue with the same pension. If I die first then her pension jumps up to the single amount. That jump up to the single amount option reduces the payment, but not as much as I would have thought. And it helps compensate for the loss of my SS to the family income.
We have a similar situation. DW has a teacher pension in lieu of SS. I have SS. She would not get any SS survivor benefit due to the Government Pension Offset. She has her pension set with a 50% survivor benefit. However, if I predecease her, her pension benefit reverts to the 0% survivor amount. This option is called "reversion" and was obtained by a small reduction in the pension benefit she now receives.
NotWhoYouThink
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Re: How to Split Pension

Post by NotWhoYouThink »

We modeled what would happen in various scenarios. We have 2 qualified and one unqualified pensions to deal with, each of which will revert to the Single Life Annuity level if the spouse dies. We set the largest one to pay out at the same level if the "earner" dies, and the other 2 revert to 50% if the "earner" dies. It was fun with Excel to figure it all out.

This is kind of like other situations when trying to plan without knowing longevity in advance. It's not good enough to play the odds, you have to look at each situation, and if one of them is intolerable you make sure to avoid it. Losing 100% of the largest pension was intolerable for us, so we have avoided that possibility.

Of course both spouses have to be involved, and the spouse will in all cases I know of have to sign off on any plan that leaves them with less than 50% of the pension if the earner dies. Sometimes communication is poor, there are always those cases where the spouse signed papers without reading them and was stunned to be left without income after a death. Don't be that guy, be involved in the planning up front.
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dm200
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Re: How to Split Pension

Post by dm200 »

I would probably go for the 50/50 split. Pension income is very protected from judgments and bad investment decisions. A $500 per month reduction does not seem that much for long term risk reduction ($2,000 vs $2,500)

If she predeceases you, your living costs will probably (depending on circumstances) not drop that much.

I told my wife that if she predeceased me, I would need money for dating. She did not think it was "funny".
2cents2
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Re: How to Split Pension

Post by 2cents2 »

I concur with the advice to do an income stream analysis with and without the survivor benefit.

DH and I elected to do the full survivor benefit for each other. (For us) It was an expensive reduction, but I didn't really see any product that would provide comparable protection. We take less, but we also have a lot more certainty in the future. Insurance companies can use averages (average life span) because they have a large cohort. You have to protect yourself to the extremes when you are self insuring.


Another way of looking at it.... If you predecease your DW--then it won't matter (you won't know it was the wrong decision to take the reduced pension). On the other hand, if your DW predeceases without the survivor benefit you will know it was the wrong decision.... :oops:
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dm200
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Re: How to Split Pension

Post by dm200 »

One way of looking at this is to ask the spouse:

WE can get $2,500 a month as long as I am alive, If I die first, possibly a month after getting that first $2,500 check, then YOU will get nothing.
OR, WE can get $2,000 a month as long as either of us is alive.


Which do YOU want?

Put this way, I would strongly believe the latter. I would hardly call $2,000 a month for retiree joint life the "wrong" decision or that (whatever happens) that anyone "loses".
inbox788
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Re: How to Split Pension

Post by inbox788 »

Did they provide a Relative Values Notice?

I'd start with the default of highest payment and see how you'd manage if she passed before you did. You might consider 50% or 75% survival benefits as well for a lesser difference if that's what's needed.

Once you get a lump sum number, compare it to what type of annuity you could buy. I'm guessing the pension annuity will be the better offer.
robertalpert
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Re: How to Split Pension

Post by robertalpert »

When I retired, we chose the option with 100% of the joint pension going to the surviving spouse (with pop-up). Meaning that surviving spouse gets 100% of our joint pension. If the worker survives the spouse, then surviving worker's pension pops up to the originally single annuity. This is the only way I would consider doing it.
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Re: How to Split Pension

Post by RubyTuesday »

Not an ERISA lawyer, nor an actuary, but I believe the a qualified plan has to have the qualified joint and survivor payment form as the highest actuarial value. The plan should be required to tell you the relative values. Take into account any health issues you know about in your or your families' history, think about coordination with any other pensions, and go through some scenarios. COLA is a pretty big value.
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BetaTracker
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Re: How to Split Pension

Post by BetaTracker »

Lots of good info to chew on -- we hadn't even thought about asking for relative value data. They haven't offered it to us at this point. Does anyone think that hiring an hourly planner to run the numbers for us might be a good idea? (Neither of us are good with spreadsheets!) Or is that a waste of money?
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Leif
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Re: How to Split Pension

Post by Leif »

BetaTracker wrote:Leif -- how do you get the "even" option? Not sure her employer offers such a possibility -- or am I misunderstanding?
You also suggest putting some of the higher pension into life insurance. You'd do that rather than putting it into our investment portfolio?
The "even" option is one of 5 or 6 options for taking an annual payment offered by my wife's employer. Your situation may well be different.

Insurance is to guard against the risk to the survivor of an early death. The point is to try to prevent either you or your spouse from being impoverished by an early death. In this case you may be at risk depending on your circumstances.
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Leif
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Re: How to Split Pension

Post by Leif »

JoinToday wrote:
Leif wrote:...
What we are planning is an option they call "even steven".....
Do they really call it "even steven"? I would find that hilarious.
No, they don't really call it that :wink:. I think it is something like option 4B. The person explaining it used that term to try to make it easier to understand from many different options. I guess it worked, it stuck with me.
Cruise
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Re: How to Split Pension

Post by Cruise »

BetaTracker wrote:Lots of good info to chew on -- we hadn't even thought about asking for relative value data. They haven't offered it to us at this point. Does anyone think that hiring an hourly planner to run the numbers for us might be a good idea? (Neither of us are good with spreadsheets!) Or is that a waste of money?
Unless you consider the $2000/mo. as "play money," I believe you are overthinking this. Carefully consider the financial downside of your spouse dying early, and what impact having zero pension from her would have on you.
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celia
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Re: How to Split Pension

Post by celia »

BetaTracker wrote:(Neither of us are good with spreadsheets!)
This may be part of your answer to whether you should take a lump sum or not. If either of you (a potential survivor, maybe living 30 years longer than the other) is not interested in investments, is not good with numbers, doesn't understand taxes, may have cognitive decline down the road, or doesn't trust others to manage your money, then why would you want to take the lump sum?

The annuity-like pension is more likely to always be there for the survivor.
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dm200
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Re: How to Split Pension

Post by dm200 »

In my opinion, unless you BOTH have high other income (and this decision is not a risk to either of you), I believe the focus should be on the real risk of death (of either) at any time. Either could die within a month of making the decision (regardless of family longevity, good health, low health risk factors, etc.). There is NO situation where anyone's risk of death is ZERO.
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celia
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Re: How to Split Pension

Post by celia »

BetaTracker wrote:Does anyone think that hiring an hourly planner to run the numbers for us might be a good idea? (Neither of us are good with spreadsheets!) Or is that a waste of money?
If you don't mind your case being discussed publicly, you could post your approximate numbers here. We would need to know:

your current ages
age you think each of you would start a pension
her pension options (and if it has COLA)
your pension options (and if it has COLA)
her Full Retirement Age (FRA) SS benefit
your Full Retirement Age (FRA) SS benefit
RMDs from any retirement plan either of you have
any other sources of retirement income you want to be considered

If you'd rather have someone else calculate your choices for you, they will need this same information.
rgs92
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Re: How to Split Pension

Post by rgs92 »

I always think that if I was single (or my wife was), expenses would be a lot lower. Lower than half our combined expenses now. (I put estimates into a spreadsheet to verify this.) I was surprised how costs would drop, but it's personal to everyone's individual situation of course, but you should try it and see and you may be as surprised as I was. So maybe you would not need the survivor's benefit that much.
inbox788
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Re: How to Split Pension

Post by inbox788 »

BetaTracker wrote:Lots of good info to chew on -- we hadn't even thought about asking for relative value data. They haven't offered it to us at this point. Does anyone think that hiring an hourly planner to run the numbers for us might be a good idea? (Neither of us are good with spreadsheets!) Or is that a waste of money?
It's probably a waste of money, but depends on whether you can figure out the situation yourself.

Don't know your particular situation, but I assume you're still working an will get a similar pension that you can survive on (or have savings on the side; 401k? -- and there's SS to consider). Both of you receiving a pension and sharing expenses should provide quite a comfortable retirement, and you can both put $500/month or $12k into a survival/emergency fund hopefully for the next 30+ years. Sometime before you're in your 90's you can spend some/most of it.
randomguy
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Re: How to Split Pension

Post by randomguy »

dm200 wrote:One way of looking at this is to ask the spouse:

WE can get $2,500 a month as long as I am alive, If I die first, possibly a month after getting that first $2,500 check, then YOU will get nothing.
OR, WE can get $2,000 a month as long as either of us is alive.


Which do YOU want?

Put this way, I would strongly believe the latter. I would hardly call $2,000 a month for retiree joint life the "wrong" decision or that (whatever happens) that anyone "loses".
I would take the 2500. The offer is gender neutral. That doesn't favor you in this case. It favors the case where the pension holder is male and older than the spouse. If you want insurance against the premature death of your spouse, buy life insurance. Get the benefit of the pension (i.e. your wife should live longer than the average) being gender neutral and exploit that she is female (i.e. gets cheaper life insurance).


With pretty much any insurance choice (and paying 500 /month is buying insurance), you need to balance your desire and need to take risk. Some people like to carry minimum levels of insurance. Others like to insure against as much as possible. And once you make your choice, figure out how to do that as cheapily as possible.
Bogel0048
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Re: How to Split Pension

Post by Bogel0048 »

The correct way to answer this question is to ask whether you will have sufficient income to cover all the expenses you might possibly need to cover if your wife takes a single annuity pension and then dies well before you do. You need to lay out all of your possible expenses, the ones you know and the ones you might encounter, such as spending your last ten years in a nursing home. Then you need to lay out all of your sources of income. If it looks like you'll be OK w/o your wife's pension if she dies early it should be OK for her to take the larger single annuity pension if that's what she prefers, assuming you agree.

If it looks like you might need her continuing pension if she dies early then she really ought to take the smaller joint annuity pension.

Having said all this, it is ultimately a very subjective decision. My wife and I have plenty of savings. She has no pension but she has a ton of IRA money. Her ability to cover her expenses if I die early is simply not an issue. Both her father, an engineer, and my father, and accountant, took single annuity pensions and then lived until their late 90s. Based on this, I was all set to take a single annuity pension. Then when my wife mentioned I was getting ready to retire one of her colleagues, a social security expert (!), said if her husband really meant to provide for her future properly he should take a joint annuity. We don't talk about how much we have saved and this colleague knows nothing about our finances, but once he made that comment there was no way I could not take a reduced joint annuity pension (although I did go with a 50% survivor benefit).
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dm200
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Re: How to Split Pension

Post by dm200 »

I would take the 2500. The offer is gender neutral. That doesn't favor you in this case. It favors the case where the pension holder is male and older than the spouse. If you want insurance against the premature death of your spouse, buy life insurance. Get the benefit of the pension (i.e. your wife should live longer than the average) being gender neutral and exploit that she is female (i.e. gets cheaper life insurance).
Actuarially, you are correct that a "gender neutral" choice favors a female survivor and disadvantages a male survivor.

I believe, though, that the amount of the reduction may depend on the age of the spouse. [Not 100% sure]. That is a retiree with a spouse ten years older would have less of a survivor penalty than one with a spouse ten years younger.
delamer
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Re: How to Split Pension

Post by delamer »

Bogel0048 wrote:The correct way to answer this question is to ask whether you will have sufficient income to cover all the expenses you might possibly need to cover if your wife takes a single annuity pension and then dies well before you do. You need to lay out all of your possible expenses, the ones you know and the ones you might encounter, such as spending your last ten years in a nursing home. Then you need to lay out all of your sources of income. If it looks like you'll be OK w/o your wife's pension if she dies early it should be OK for her to take the larger single annuity pension if that's what she prefers, assuming you agree.

If it looks like you might need her continuing pension if she dies early then she really ought to take the smaller joint annuity pension.

Having said all this, it is ultimately a very subjective decision. My wife and I have plenty of savings. She has no pension but she has a ton of IRA money. Her ability to cover her expenses if I die early is simply not an issue. Both her father, an engineer, and my father, and accountant, took single annuity pensions and then lived until their late 90s. Based on this, I was all set to take a single annuity pension. Then when my wife mentioned I was getting ready to retire one of her colleagues, a social security expert (!), said if her husband really meant to provide for her future properly he should take a joint annuity. We don't talk about how much we have saved and this colleague knows nothing about our finances, but once he made that comment there was no way I could not take a reduced joint annuity pension (although I did go with a 50% survivor benefit).
Two relatives in my extended famiky were killed in car accidents, both under the age of 30 but obviously it could happen at any age. My aunt died of a brain tumor at age 70, even though her mother -- my grandmother -- lived until her early 90's.

My point is that while we all need to plan for a long life, we never know what is around the corner even if we are in good health. I would not make a decision to forgo a survivor's benefit based purely on family longevity. It might make sense to adjust the amount, but not to skip it entirely.

For their survivor to be able to continue health insurance, federal retirees must elect a survivor's benefit for their pension. No survivor pension, no health insurance for the survivor either which makes the decision that much easier. For a 50% survivor benefit, the pension to the retiree is reduced by 10%. And the retiree is entitled to the full pension going forward if the potential survivor dies before the pensioner. So there are very few circumstances where it would make sense to forgo the survivor's benefit.
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dm200
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Re: How to Split Pension

Post by dm200 »

My point is that while we all need to plan for a long life, we never know what is around the corner even if we are in good health. I would not make a decision to forgo a survivor's benefit based purely on family longevity. It might make sense to adjust the amount, but not to skip it entirely.
I agree.
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Re: How to Split Pension

Post by Bogel0048 »

delamer wrote: I would not make a decision to forgo a survivor's benefit based purely on family longevity.
I agree, parents' longevity should not be a factor. My initial inclination to take a single life annuity was based purely on our financial resources, not on our fathers' longevity. I mentioned our fathers' single annuity pensions, which our mothers signed off on, simply to indicate that my wife and I were both experienced with our parents' choices to have our fathers select single annuity pensions. Our fathers' longevity was not a factor in my initial inclination to select a single life annuity and I am sorry if mentioning it made it appear to be a factor to you.

The first part of my post suggested the rational/objective way to assess the OP's question. The second part of my post was intended to point out the subjective factors that enter in to this type of decision. Even though our finances clearly indicated one decision, my wife's colleague's comment, delivered as an expert opinion despite no knowledge of our finances, put our overall decision in a very subjective context. Together, we settled the subjective issue the "easy" way, by giving up $625 per month in income which we both agreed we did not need. Nonetheless, it would have bought us a lot of ice cream cones or gelato during our vacations over the eight years since I retired (I'm sorry to mention longevity again).
randomguy
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Re: How to Split Pension

Post by randomguy »

dm200 wrote:
I would take the 2500. The offer is gender neutral. That doesn't favor you in this case. It favors the case where the pension holder is male and older than the spouse. If you want insurance against the premature death of your spouse, buy life insurance. Get the benefit of the pension (i.e. your wife should live longer than the average) being gender neutral and exploit that she is female (i.e. gets cheaper life insurance).
Actuarially, you are correct that a "gender neutral" choice favors a female survivor and disadvantages a male survivor.

I believe, though, that the amount of the reduction may depend on the age of the spouse. [Not 100% sure]. That is a retiree with a spouse ten years older would have less of a survivor penalty than one with a spouse ten years younger.
I have never seen a plan where the age of the spouse matters. I have no clue if it is legal or not to make adjustments based on things like spouses age or gender.
rgs92
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Re: How to Split Pension

Post by rgs92 »

But the fact remains you are buying insurance effectively. Insurance is for people with dependent children generally. A married couple has assets that are shared. If you wouldn't run out and buy life insurance, I don't see why you would do it this way.
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dm200
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Re: How to Split Pension

Post by dm200 »

I have never seen a plan where the age of the spouse matters. I have no clue if it is legal or not to make adjustments based on things like spouses age or gender
I know gender of spouse is not considered (I do not think it can be), but I thought (memory is vague - over six years) that was a factor in two very small pensions where I was vested at former employees.

I searched the Boeing Company pension options and found (what I had recalled) that the age of the surving spouse (in relation to the retiree) makes a difference. http://theinvestgator.com/how-to-choose ... -retirees/

I have no idea how common this is, but this link shows that my recollection was correct.
2cents2
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Re: How to Split Pension

Post by 2cents2 »

randomguy wrote:
dm200 wrote:
I would take the 2500. The offer is gender neutral. That doesn't favor you in this case. It favors the case where the pension holder is male and older than the spouse. If you want insurance against the premature death of your spouse, buy life insurance. Get the benefit of the pension (i.e. your wife should live longer than the average) being gender neutral and exploit that she is female (i.e. gets cheaper life insurance).
Actuarially, you are correct that a "gender neutral" choice favors a female survivor and disadvantages a male survivor.

I believe, though, that the amount of the reduction may depend on the age of the spouse. [Not 100% sure]. That is a retiree with a spouse ten years older would have less of a survivor penalty than one with a spouse ten years younger.
I have never seen a plan where the age of the spouse matters. I have no clue if it is legal or not to make adjustments based on things like spouses age or gender.
It makes a difference when pricing out annuities with survivor benefits. DH's pension from megacorp asks for my age when figuring survivor benefits. I just checked the estimates--If DH traded me in for a new model (10 years younger), he would take an additional 11% reduction for the 100% survivor benefit. (He doesn't start this pension for 3 years--I don't think changes can be made after starting the pension)
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dm200
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Re: How to Split Pension

Post by dm200 »

-I don't think changes can be made after starting the pension)
Yes, no changes. It looks like the spouse at the time of choice is the one who gets the survivor benefits - not the spouse (if different) at the time of death.

So, if I am married to "Susie" when I make the choice, say, of a 100% spousal survivor benefit - then two years later get divorced from "Susie" and marry "Maria" - then die, the 100% survivor pension goes to "Susie" and not "Maria". I's bet that would be an "interesting" discussion between "Susie" and "Maria"! I suppose it would be important in the divorce/financial settlement with "Susie" that this (potential) benefit to her is fully taken into account. Probably a good idea to inform Maria as well - early in the marriage.
Last edited by dm200 on Thu Feb 23, 2017 3:01 pm, edited 1 time in total.
rxtra8
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Re: How to Split Pension

Post by rxtra8 »

I am recently retired, 12/16/17, and my wife and I went through this decision. We had a choice of lump sum, or various other schemes of 50%-100% to the survivor etc. The lump sum would have given a 20% reduction at Immediate Annuity compared to the pension. No matter which choice we made, the choices were actuarily equal (according to the info given). I did have to enter my wife's birthday so I imagine that had an impact on the final offers. I understood that the difference between the 50% survivor amount and the single annuity came down to insurance. I priced a likely amount for insurance and it was close to the difference but what would be the price as we go forward for this insurance years later? We choose the 50% survivor annuity. All annuities were non-COLA.

But every case is different. Other factors:
1. My wife is a CPA and knows her way around finances; better than me. She can be extremely frugal and not feel deprived. She will easily navigate life and money with the 50% survivor amount.
2. I am 10.5 years older
3. We have no children and no need to leave a legacy
4. I am 66 (67 this year) and my wife just turned 56 and we are both in excellent physical condition; eat healthy and exercise.
5. We both have 401/403s and now an IRA that should produce 60-80K per year at 4% withdrawal.
6. New have 3 rentals with 2 paid off.
7. I will take SS at 70. That and my pension will cover all of our yearly expenses.
8. Our mortgage, 2.5% fixed, will be gone in 14 years and that is 40% of our budget.

All that played a part in our decision process.
“The eye sees only what the mind is prepared to comprehend.” | — Robertson Davies
randomguy
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Re: How to Split Pension

Post by randomguy »

dm200 wrote:
I have never seen a plan where the age of the spouse matters. I have no clue if it is legal or not to make adjustments based on things like spouses age or gender
I know gender of spouse is not considered (I do not think it can be), but I thought (memory is vague - over six years) that was a factor in two very small pensions where I was vested at former employees.

I searched the Boeing Company pension options and found (what I had recalled) that the age of the surving spouse (in relation to the retiree) makes a difference. http://theinvestgator.com/how-to-choose ... -retirees/

I have no idea how common this is, but this link shows that my recollection was correct.
Maybe my small sample size is the abnormal one:)

But let say it is neutral. The plus of a huge difference is that the regret factor goes down. The 65 year old guy with a 40 year old wife has a much better chance of her collecting than the 65 year old gal with a 65 year old husband. On average the payouts might be the same but reducing the chances of the worse outcomes (i.e. paying for the insurance and not collecting anything) go way down.

And in the real world, I feel like everyone I know takes the lump sum. They were not comparing it to some annuity or bond portfolio. They all go I can make 3% with my investment portfolio and will do better. Besides the company might fold. I have a feeling if I knew more COLA/government pension people, my experience would be different. I don't know if schools offer lump sums or not but every teacher I know is enjoying the pension.
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Re: How to Split Pension

Post by rxtra8 »

randomguy wrote:
dm200 wrote:

And in the real world, I feel like everyone I know takes the lump sum. They were not comparing it to some annuity or bond portfolio. They all go I can make 3% with my investment portfolio and will do better.
I saw the same thing at my company. Lots of recent retirees due to changes in the retirement package and lots of folks taking lump sum; I think that they just can't resist that pile of cash staring at them. If I were to take my lump sum and get 3%, that would not be half of my pension...plus the market does not go up in a straight line...sequence of returns. But there were other factors in my decision as previously mentioned.
“The eye sees only what the mind is prepared to comprehend.” | — Robertson Davies
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Re: How to Split Pension

Post by delamer »

rxtra8 wrote:
randomguy wrote:
dm200 wrote:

And in the real world, I feel like everyone I know takes the lump sum. They were not comparing it to some annuity or bond portfolio. They all go I can make 3% with my investment portfolio and will do better.
I saw the same thing at my company. Lots of recent retirees due to changes in the retirement package and lots of folks taking lump sum; I think that they just can't resist that pile of cash staring at them. If I were to take my lump sum and get 3%, that would not be half of my pension...plus the market does not go up in a straight line...sequence of returns. But there were other factors in my decision as previously mentioned.
I also wonder how many of them have "a guy" whispering in their ear that he can make them 6% without any risk or with an annuity that they don't really understand, and they believe him? People are often their own worst financial enemy.
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Re: How to Split Pension

Post by cherijoh »

BetaTracker wrote:That sounds like a good idea -- take the maximum amount and put $500/month into our investment portfolio at Vanguard. We really don't need the extra money right now to live on -- we can pretty much live off her Social Security benefits and I'm planning on working for at least several more years. As she gets closer to her retirement date, we're also going to find out what the company will offer as a lump sum payment. So I guess that's an option as well.
Not all pensions offer a lump sum option. My pension from my former employer does not. If one was offered, I would have expected that HR would have provided the value at the same time they provided the "single life" and "joint & survivor" annuity values. She should check her summary plan description to see if a lump sum is an option.
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dm200
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Re: How to Split Pension

Post by dm200 »

cherijoh wrote:
BetaTracker wrote:That sounds like a good idea -- take the maximum amount and put $500/month into our investment portfolio at Vanguard. We really don't need the extra money right now to live on -- we can pretty much live off her Social Security benefits and I'm planning on working for at least several more years. As she gets closer to her retirement date, we're also going to find out what the company will offer as a lump sum payment. So I guess that's an option as well.
Not all pensions offer a lump sum option. My pension from my former employer does not. If one was offered, I would have expected that HR would have provided the value at the same time they provided the "single life" and "joint & survivor" annuity values. She should check her summary plan description to see if a lump sum is an option.
Neither of my very small, vested ones offered a lump sum option.
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Re: How to Split Pension

Post by randomguy »

delamer wrote:
rxtra8 wrote:
randomguy wrote:
dm200 wrote:

And in the real world, I feel like everyone I know takes the lump sum. They were not comparing it to some annuity or bond portfolio. They all go I can make 3% with my investment portfolio and will do better.
I saw the same thing at my company. Lots of recent retirees due to changes in the retirement package and lots of folks taking lump sum; I think that they just can't resist that pile of cash staring at them. If I were to take my lump sum and get 3%, that would not be half of my pension...plus the market does not go up in a straight line...sequence of returns. But there were other factors in my decision as previously mentioned.
I also wonder how many of them have "a guy" whispering in their ear that he can make them 6% without any risk or with an annuity that they don't really understand, and they believe him? People are often their own worst financial enemy.
It is a combo. People go I can make 7% in the market easy, get the same income as the pension, AND have a big lump sum left over. If I only get 3%, I will still have this lump sum when I die in 20 years but it will not be as big.They discount the longevity risk and market risk. Or maybe they are smart and figure the odds of the pension being cut by 40% to the PBGC maxes if the company folds in next 20 years is unacceptably high and they want to diversify against that risk.
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Re: How to Split Pension

Post by ubermax »

BetaTracker wrote:Leif -- how do you get the "even" option? Not sure her employer offers such a possibility -- or am I misunderstanding?
You also suggest putting some of the higher pension into life insurance. You'd do that rather than putting it into our investment portfolio?
A more common term is J&S annuity with Pop-Up , an example : your wife is the primary annuitant and you are secondary , assume she is entitled to $100 per month as a life annuity and you as a couple elect the 100% J&S with Pop-Up ; it will be a reduced benefit , assume it's $85 per month beginning when she retires - now if she dies first you will continue to receive the $85 but if you die first her benefit Pops-Up to the $100 ; since the Pop-Up feature adds cost , the straight 100% J&S without Pop-Up will provide a little more than the $85 per month in this example .

As someone mentioned , requesting a relative value comparison for all the options under the plan would be a good idea , I agree ; also ,as others have mentioned , you should make the decision in the context of your overall financial situation.

Good Luck !!
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