Pension option-Should I include child?

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Teague
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Pension option-Should I include child?

Post by Teague » Mon Apr 17, 2017 10:32 am

Greetings all,

In a couple of years I will retire and must decide on pension options then. My question is not numerical, it is philosophical.
There is no spouse involved. I do have a child (14 years old.) I can opt to have this child receive 50% of my pension benefit once I expire. They will receive this sum for their life, about $3,000 per month, with a COLA. I can easily afford to chose this option. The pension is solid and associated with a state government.

My question: Is this likely to be a good idea for the child?

The upside of course is that the child will always have regular income. But what about potential downsides - will this perhaps encourage a life of relative sloth or other undesirable behavior? So far the child is a gem, as responsible as any kid that age, bright, with no disabilities. No matter what I decide on this, they will have enough money left to them to get through college.
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Re: Pension option-Should I include child?

Post by flyingbison » Mon Apr 17, 2017 10:41 am

I've never heard of a pension plan that would pay out a lifetime survivor benefit to a child. It doesn't seem like a financially sustainable model. For example, my state pension plan has this note regarding all the survivor options: "This option is not available if your named survivor is more than 10 years younger than you and is not your spouse."

If your plan really offers this, then it seems like a no-brainer to utilize it. It's not going to harm your child to have this income.

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Re: Pension option-Should I include child?

Post by Teague » Mon Apr 17, 2017 11:55 am

flyingbison wrote:I've never heard of a pension plan that would pay out a lifetime survivor benefit to a child. It doesn't seem like a financially sustainable model. For example, my state pension plan has this note regarding all the survivor options: "This option is not available if your named survivor is more than 10 years younger than you and is not your spouse."

If your plan really offers this, then it seems like a no-brainer to utilize it. It's not going to harm your child to have this income.


It definitely works this way and has been doing so for many decades. I can name a contingent annuitant, in this case my child, with a commensurate reduction in my monthly pension benefit. My age and the age of the contingent annuitant are factored into the calculation. I would retire at 60 years old.

In my case, my monthly pension income would be $6500 with no contingent annuitant named.

Should I name the 14 year old child as contingent annuitant, my monthly pension income would be $5500, and the child would receive $3000 per month for life after I die.
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Teague
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Re: Pension option-Should I include child?

Post by Teague » Mon Apr 17, 2017 1:06 pm

Well, since no one seems to think this is a bad idea to include the child as a contingent annuitant from a developmental perspective, I'll ask if this is a good deal from an actuarial standpoint. Thanks to any who may be willing to to analyze this aspect; I'm admittedly not very good with that sort of analysis.
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Re: Pension option-Should I include child?

Post by JGoneRiding » Mon Apr 17, 2017 3:16 pm

From an accturially standpoint it's amazing! Can't believe they offer that good of a deal. Just teach your child it might disappear if state funding models change. I might not tell the child until you are older/sick

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Re: Pension option-Should I include child?

Post by dm200 » Mon Apr 17, 2017 3:24 pm

JGoneRiding wrote:From an accturially standpoint it's amazing! Can't believe they offer that good of a deal. Just teach your child it might disappear if state funding models change. I might not tell the child until you are older/sick


How much of a reduction in your pension for the 50% child survivor choice? Like others, this option amazes me (for several reasons).

Unless the child has a disability or is likely to need such a stream of income, I might lean against it and, instead, look into what you might leave in your estate to the child (presumably many years down the road). Maybe just take the amount that you would have gone to funding the child survivor annuity - save/invest it and it can either be a gift whenever you want and/or part of your estate.

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Re: Pension option-Should I include child?

Post by Teague » Mon Apr 17, 2017 3:45 pm

dm200 wrote:
JGoneRiding wrote:From an accturially standpoint it's amazing! Can't believe they offer that good of a deal. Just teach your child it might disappear if state funding models change. I might not tell the child until you are older/sick


How much of a reduction in your pension for the 50% child survivor choice? Like others, this option amazes me (for several reasons).

Unless the child has a disability or is likely to need such a stream of income, I might lean against it and, instead, look into what you might leave in your estate to the child (presumably many years down the road). Maybe just take the amount that you would have gone to funding the child survivor annuity - save/invest it and it can either be a gift whenever you want and/or part of your estate.


I was also wondering about just investing the "excess" vs. taking the survivor option.

Rounding slightly, my full monthly amount would be $6500 with no survivor option.

Naming my child as contingent annuitant at the 50% option, I would receive $5500 per month. Once my little red choo-choo goes chugging around that final bend, my child would get $3000 per month for their lifetime.
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Re: Pension option-Should I include child?

Post by Teague » Mon Apr 17, 2017 3:53 pm

JGoneRiding wrote:From an accturially standpoint it's amazing! Can't believe they offer that good of a deal. Just teach your child it might disappear if state funding models change. I might not tell the child until you are older/sick


This is good advice, thank you.
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Re: Pension option-Should I include child?

Post by jimb_fromATL » Mon Apr 17, 2017 4:05 pm

Teague wrote:
dm200 wrote:
JGoneRiding wrote:From an accturially standpoint it's amazing! Can't believe they offer that good of a deal. Just teach your child it might disappear if state funding models change. I might not tell the child until you are older/sick


How much of a reduction in your pension for the 50% child survivor choice? Like others, this option amazes me (for several reasons).

Unless the child has a disability or is likely to need such a stream of income, I might lean against it and, instead, look into what you might leave in your estate to the child (presumably many years down the road). Maybe just take the amount that you would have gone to funding the child survivor annuity - save/invest it and it can either be a gift whenever you want and/or part of your estate.


I was also wondering about just investing the "excess" vs. taking the survivor option.

Rounding slightly, my full monthly amount would be $6500 with no survivor option.

Naming my child as contingent annuitant at the 50% option, I would receive $5500 per month. Once my little red choo-choo goes chugging around that final bend, my child would get $3000 per month for their lifetime.


Actuarial math and statistics aside, how about just taking the larger pension and since you don't need it anyway, invest the money in a taxable account?

Then if you need it because of some unexpected financial problem, it will be there for you. If you don't need it, then when you kick the bucket the child can inherit the money and do whatever he/she wants with it. Plus the kid will receive a stepped up basis and a lot of the potential capital gains tax will disappear. And if the child runs into financial problems, or needs help for education, etc or even a house down payment while you're still around, you'll have the money in savings to help them now -- instead of him/her having to wait perhaps 20+ years for you to croak.

Or you could give the difference to the child as a gift every year. Then he/she could invest more for their own retirement. One potential downside to gifting the money is that if you were to end up in a nursing home for so long that you exhausted all your assets, there would be a five year look-back period and the child would have to pay back the last 5 years receipts toward your care before you'd qualify for Medicaid/welfare taxpayer assistance.

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Re: Pension option-Should I include child?

Post by celia » Mon Apr 17, 2017 4:19 pm

JGoneRiding wrote:From an accturially standpoint it's amazing! Can't believe they offer that good of a deal. Just teach your child it might disappear if state funding models change. I might not tell the child until you are older/sick

What??? From an actuarial standpoint, it would only work if you look at what the pension for a 14-year-old would be (given the money credited to your account). It would likely be less than a half (a third??) of what you will get because the child will collect for more years. Then if you combine your 2 ages, part of the payment to you, then part to your child for the rest of his/her life, that pension will be somewhere in between the two extremes.

To give you an idea, DH and I both have state pensions and have each other as the survivor. This way the survivor will continue to get the same amount we get now for the rest of his/her life. In fact, the survivor's own pension will increase to the full amount. We are about the same age and each get about 90% of what the full amount would be.

OP, I suggest you get a quote (and share it with us) for your and your child's expected ages for the year you plan to retire. This is not a "free" benefit. It will cost you dearly.

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Re: Pension option-Should I include child?

Post by Teague » Mon Apr 17, 2017 4:22 pm

jimb_fromATL wrote:
Teague wrote:
dm200 wrote:
JGoneRiding wrote:From an accturially standpoint it's amazing! Can't believe they offer that good of a deal. Just teach your child it might disappear if state funding models change. I might not tell the child until you are older/sick


How much of a reduction in your pension for the 50% child survivor choice? Like others, this option amazes me (for several reasons).

Unless the child has a disability or is likely to need such a stream of income, I might lean against it and, instead, look into what you might leave in your estate to the child (presumably many years down the road). Maybe just take the amount that you would have gone to funding the child survivor annuity - save/invest it and it can either be a gift whenever you want and/or part of your estate.


I was also wondering about just investing the "excess" vs. taking the survivor option.

Rounding slightly, my full monthly amount would be $6500 with no survivor option.

Naming my child as contingent annuitant at the 50% option, I would receive $5500 per month. Once my little red choo-choo goes chugging around that final bend, my child would get $3000 per month for their lifetime.


Actuarial math and statistics aside, how about just taking the larger pension and since you don't need it anyway, invest the money in a taxable account?

Then if you need it because of some unexpected financial problem, it will be there for you. If you don't need it, then when you kick the bucket the child can inherit the money and do whatever he/she wants with it. Plus the kid will receive a stepped up basis and a lot of the potential capital gains tax will disappear. And if the child runs into financial problems, or needs help for education, etc or even a house down payment while you're still around, you'll have the money in savings to help them now -- instead of him/her having to wait perhaps 20+ years for you to croak.

Or you could give the difference to the child as a gift every year. Then he/she could invest more for their own retirement. One potential downside to gifting the money is that if you were to end up in a nursing home for so long that you exhausted all your assets, there would be a five year look-back period and the child would have to pay back the last 5 years receipts toward your care before you'd qualify for Medicaid/welfare taxpayer assistance.

jimb


All good points. One reason I kind of like the survivor option is that the money will be doled out to the child in prescribed doses, and said child won't be able to blow it all on something stupid. Not that I expect said child to do that, but I remember some of the decisions I made as a young adult and they were less than stellar. Of course if I live a long time and "child" starts getting payments when they are 45 years old, then I probably should have gone the other way. Err, I think.
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Re: Pension option-Should I include child?

Post by Teague » Mon Apr 17, 2017 4:33 pm

celia wrote:
JGoneRiding wrote:From an accturially standpoint it's amazing! Can't believe they offer that good of a deal. Just teach your child it might disappear if state funding models change. I might not tell the child until you are older/sick

What??? From an actuarial standpoint, it would only work if you look at what the pension for a 14-year-old would be (given the money credited to your account). It would likely be less than a half (a third??) of what you will get because the child will collect for more years. Then if you combine your 2 ages, part of the payment to you, then part to your child for the rest of his/her life, that pension will be somewhere in between the two extremes.

To give you an idea, DH and I both have state pensions and have each other as the survivor. This way the survivor will continue to get the same amount we get now for the rest of his/her life. In fact, the survivor's own pension will increase to the full amount. We are about the same age and each get about 90% of what the full amount would be.

OP, I suggest you get a quote (and share it with us) for your and your child's expected ages for the year you plan to retire. This is not a "free" benefit. It will cost you dearly.


Using a pension calculator supplied by my employer, the slightly rounded numbers are, with me retiring in 2 years at 60 years old, and child currently 14 years old:

My monthly pension income would be $6500 with no contingent annuitant named.

If I name the currently 14 year old child as contingent annuitant, my monthly pension income would be $5500, and the child would receive $3000 per month for life after I die.
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Re: Pension option-Should I include child?

Post by dm200 » Mon Apr 17, 2017 4:38 pm

Teague wrote:
celia wrote:
JGoneRiding wrote:From an accturially standpoint it's amazing! Can't believe they offer that good of a deal. Just teach your child it might disappear if state funding models change. I might not tell the child until you are older/sick

What??? From an actuarial standpoint, it would only work if you look at what the pension for a 14-year-old would be (given the money credited to your account). It would likely be less than a half (a third??) of what you will get because the child will collect for more years. Then if you combine your 2 ages, part of the payment to you, then part to your child for the rest of his/her life, that pension will be somewhere in between the two extremes.
To give you an idea, DH and I both have state pensions and have each other as the survivor. This way the survivor will continue to get the same amount we get now for the rest of his/her life. In fact, the survivor's own pension will increase to the full amount. We are about the same age and each get about 90% of what the full amount would be.
OP, I suggest you get a quote (and share it with us) for your and your child's expected ages for the year you plan to retire. This is not a "free" benefit. It will cost you dearly.

Using a pension calculator supplied by my employer, the slightly rounded numbers are, with me retiring in 2 years at 60 years old, and child currently 14 years old:
My monthly pension income would be $6500 with no contingent annuitant named.
If I name the currently 14 year old child as contingent annuitant, my monthly pension income would be $5500, and the child would receive $3000 per month for life after I die.


If you do choose this child survivor option:

1. I would not inform the child of this for a very long time

2. I would (with the assistance, advice, etc. of an estate planning attorney) make sure this was included in the estate plans for you.

3. While this is not part of your estate, some kind of mention in the will (as information) or in some kind of final letter would be a good idea - make sure that the child files the claim

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Re: Pension option-Should I include child?

Post by Teague » Mon Apr 17, 2017 4:44 pm

^ Thank you.
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Re: Pension option-Should I include child?

Post by celia » Mon Apr 17, 2017 4:44 pm

Teague wrote:My question is not numerical, it is philosophical.

But, OP didn't want to hear about actuarial comments. He/she wants philosophical, practical, psychological comments.

I think the child should learn to be independent, finish college without any debt, if possible, and learn how to obtain a job, find housing, feed themself, help others (spouse, children, parents, volunteer in the community), and learn life skills. Each step is a satisfying accomplishment. Why do you want to create a huge "security blanket"? This may also impact a relationship with a future spouse if the child is aware of it (ie, has a hidden nest egg ready to crack open in the future). And when the money stream starts, it could be a cause of friction (one spouse has to work and one doesn't in order to contribute the same towards the family). If the child has large dreams to help the world in some type of volunteer/non-profit capacity, that is one thing, but to encourage sloth is another. You could end up with a 40-yo video-game fanatic who doesn't exercise or have many friends and doesn't need to since he's set for life.

I would take the full pension and set aside (some of?) the excess for the child after you die. Even that could be a lot for one person since you seem to have more pension than you really need. I suspect you also have a lot of savings, since you are on bogleheads. Had you considered creating your own "money stream" for the child after you die? If this option wasn't available to you, would you create your own stream? I suspect most parents in your situation don't, but that could be because they don't think of it or they want to leave things flexible since they don't know the future. Maybe the Teague-created money stream should benefit grandkids or charity or ???

Meanwhile, if you and the child don't currently do volunteer work of any kind, why don't you try it? See if your child is even interested in doing things for others without being paid all the time. You will both learn more about each other. Start by finding which causes you both are interested in.

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Re: Pension option-Should I include child?

Post by Teague » Mon Apr 17, 2017 4:51 pm

^ Thank you. Along the way I did modify my request and ask for an actuarial analysis, since until your post no one suggested the survivor income would be a problem. But that is indeed exactly what I was initially concerned about.

Warren Buffet said something like he's leaving his kids enough so they can do anything, but not so much that they can do nothing.
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Re: Pension option-Should I include child?

Post by dm200 » Mon Apr 17, 2017 5:14 pm

Teague wrote:^ Thank you. Along the way I did modify my request and ask for an actuarial analysis, since until your post no one suggested the survivor income would be a problem. But that is indeed exactly what I was initially concerned about.
Warren Buffet said something like he's leaving his kids enough so they can do anything, but not so much that they can do nothing.


One possible or potential benefit might be "asset protection".

I also think there may be a big "philosophical" issue/difference if the child knows about what is coming when you die as opposed to just getting this "surprise" income stream after your death.

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Re: Pension option-Should I include child?

Post by Teague » Mon Apr 17, 2017 6:28 pm

Thanks to all for the input. I think I'd better head over to the consumer issues section now and look for a deal on crystal balls. If I could simply determine future events my job would be much easier.
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Re: Pension option-Should I include child?

Post by thatwhichisgood » Mon Apr 17, 2017 7:16 pm

I think it would be wonderful for you to provide this amazing benefit and opportunity for your child.

Without knowing what tomorrow would bring... of course. Do it. By the way... you don't have to tell them.

I would be honored and proud to be able to offer that kind of security to my loved one. The wealthy do this in many ways and their kids still grow up and are productive ... or not.

I would do it in a heartbeat.

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Re: Pension option-Should I include child?

Post by celia » Mon Apr 17, 2017 8:02 pm

Advantages of including child as beneficiary:
1. If you are/will be near the tax-free estate limits when you die (currently 5.4M?), this decision will keep some of the money out of your estate and go directly to the child (since your pension will be smaller).
2. It may keep you in a lower tax bracket or at least not have as much income to report each year (since your pension will be smaller).
3. It cements the decision in stone, should you become incapacitated or the stock markets crash and stay depressed for many years just before you die.

Advantage of NOT having child as beneficiary:
1. You can be more flexible in your estate planning and see what kinds of decisions the child makes in the next 20 years.
2. You can split the benefit among several people or causes (child, grandchildren's college funds, charities, special needs relative) by creating your own income stream(s) or lump sums. Some of these can be people or causes that will be "born" in the future. Your child won't have to shoulder a large inheritance by him/herself.
3. If you are confident of your investing skills compared to a pension plan, you might be able to build a larger income stream for the child, if that is your goal, or make the stream smaller, if desired.
4. Although unlikely, what if you and the child have a "falling out"? There are also some mental illness that do not become obvious until one's early 20s that could hinder prudent handling of finances.

I don't think of it as an "amazing benefit" so much as a future annuity. You are paying for it one way or another. It is not free. Keep that in mind as you read the comments. And we have no idea what the management "fees" for this service are, compared to a stream of money we set up ourselves. Where are all those people who say "Don't pay an advisor. You can Do It Yourself!"

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Re: Pension option-Should I include child?

Post by BanditKing » Mon Apr 17, 2017 9:29 pm

Two words. DO IT.

Rely on your own guidance to teach your child the lessons they need when the time comes. No need to overthink this. :happy

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Re: Pension option-Should I include child?

Post by tibbitts » Mon Apr 17, 2017 9:52 pm

If I understand the terms I would take the annuity payout over the child's life, given the circumstances you say. It seems like too good a deal to turn down. I don't see how anyone could come close to reliably matching those benefits by investing the $12k/year difference over your likely lifespan.

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Re: Pension option-Should I include child?

Post by jimb_fromATL » Mon Apr 17, 2017 11:11 pm

Teague wrote:Thanks to all for the input. I think I'd better head over to the consumer issues section now and look for a deal on crystal balls. If I could simply determine future events my job would be much easier.


We strive to please. LINK
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Re: Pension option-Should I include child?

Post by #Cruncher » Tue Apr 18, 2017 4:54 pm

Teague in this post wrote:... I'll ask if this is a good deal from an actuarial standpoint.
Unfortunately, Teague, you omit some assumptions needed for a good estimate and others are contradictory.
  • You don't state your and your child's sex.
  • You don't state what kind of Cost of Living Adjustment (COLA) applies.
  • In one place you say your child would get $3,000 per month after you die, but in another you say the child would get 50% of $5,500.
I've gone ahead and calculated the probable present values of the two alternatives using the following assumptions:
  • You are female and your child is male. (This is the least favorable for the 50% survivor option.)
  • The COLA is a simple adjustment to the Consumer Price Index, just like Social Security. (I reflect this assumption by using only 2% to discount the survival-weighted cash flows.)
  • Your child gets only 50% of $5,500, not $3,000.
  • When the pension begins, you are 60 and your child is 16.
  • The mortality of you both corresponds to the 2013 SSA Period Life Table. (It shows a woman age 60 and a boy age 16 have life expectancies of 24.46 and 60.99 years respectively.)

Code: Select all

                -- Pmt/Mo While Alive --
                 Only     Only              -- PV Discounted --
                 You     Child      Both      @ 2.0%    @ 5.65%
                -----    -----     -----    ---------   -------
Single Life     6,500        0     6,500    1,466,000   989,000
50% Survivor    5,500    2,750     5,500    1,772,000   989,000
I used this longevity estimator to calculate the survival-weighted benefits of the Single life and 50% Survivor options. [*] When discounted at 2% the present value of the 50% Survivor option is about $300,000 more than the Single life option ($1,772,000 vs $1,466,000). If you are male or your child is female, the difference would be greater. I would check into the terms of the COLA, however. For example, if CPI indexation doesn't begin for your child until his pension begins, its value is much reduced.

tibbitts in next to last post wrote:I don't see how anyone could come close to reliably matching those benefits [of the child beneficiary option] by investing the $12k/year difference over your likely lifespan.
I agree. Given the assumptions above, the additional cash flow from the Single life pension would have to be invested at a 5.65% real return to match the 50% Survivor option.

* For anyone interested, here are the survival-weighted benefits:

Code: Select all

     --- Age ----  --- Pct Alive ----   ---- Wtd $ ----
Year Parent Child  Parent  Child Only   Single     50%

Code: Select all

  0     60    16  100.000%    0.000%    77,745   65,892
  1     61    17   99.346%    0.654%    77,217   65,668
  2     62    18   98.646%    1.352%    76,651   65,429
  3     63    19   97.896%    2.100%    76,042   65,170
  4     64    20   97.085%    2.907%    75,384   64,889
  5     65    21   96.207%    3.779%    74,667   64,584
  6     66    22   95.248%    4.729%    73,887   64,250
  7     67    23   94.206%    5.759%    73,039   63,887
  8     68    24   93.074%    6.875%    72,121   63,493
  9     69    25   91.853%    8.077%    71,132   63,067
 10     70    26   90.536%    9.369%    70,063   62,606
 11     71    27   89.112%   10.764%    68,905   62,106
 12     72    28   87.567%   12.275%    67,650   61,562
 13     73    29   85.895%   13.907%    66,293   60,974
 14     74    30   84.086%   15.667%    64,827   60,336
 15     75    31   82.137%   17.560%    63,243   59,646
 16     76    32   80.025%   19.607%    61,527   58,897
 17     77    33   77.735%   21.821%    59,671   58,085
 18     78    34   75.266%   24.203%    57,676   57,210 <--
 19     79    35   72.621%   26.749%    55,542   56,272
 20     80    36   69.794%   29.462%    53,261   55,267
 21     81    37   66.772%   32.354%    50,823   54,189
 22     82    38   63.544%   35.435%    48,225   53,038
 23     83    39   60.110%   38.700%    45,470   51,813
 24     84    40   56.480%   42.139%    42,568   50,518
 25     85    41   52.668%   45.734%    39,530   49,156
 26     86    42   48.691%   49.465%    36,373   47,734
 27     87    43   44.573%   53.306%    33,121   46,261
 28     88    44   40.352%   57.215%    29,806   44,750
 29     89    45   36.074%   61.143%    26,470   43,216
 30     90    46   31.799%   65.027%    23,164   41,681
 31     91    47   27.595%   68.796%    19,941   40,167
 32     92    48   23.536%   72.378%    16,861   38,699
 33     93    49   19.696%   75.696%    13,977   37,299
 34     94    50   16.143%   78.683%    11,340   35,990
 35     95    51   12.935%   81.281%     8,993   34,789
 36     96    52   10.125%   83.441%     6,967   33,711
 37     97    53    7.739%   85.139%     5,270   32,760
 38     98    54    5.774%   86.380%     3,893   31,933
 39     99    55    4.209%   87.185%     2,811   31,218
 40    100    56    2.999%   87.598%     1,983   30,598
 41    101    57    2.086%   87.674%     1,364   30,053
 42    102    58    1.412%   87.472%       913   29,567
 43    103    59    0.929%   87.039%       593   29,123
 44    104    60    0.591%   86.422%       372   28,707
 45    105    61    0.364%   85.649%       226   28,307
 46    106    62    0.215%   84.747%       132   27,911
 47    107    63    0.122%   83.734%        74   27,512
 48    108    64    0.067%   82.628%        39   27,104
 49    109    65    0.034%   81.436%        20   26,680
 50    110    66    0.016%   80.159%         9   26,235
 51    111    67    0.008%   78.795%         4   25,766
 52    112    68    0.003%   77.344%         2   25,270
 53    113    69    0.001%   75.802%         0   24,745
 54    114    70    0.000%   74.164%         0   24,186
 55    115    71    0.000%   72.419%         0   23,591
 56    116    72    0.000%   70.558%         0   22,958
 57    117    73    0.000%   68.580%         0   22,285
 58    118    74    0.000%   66.483%         0   21,574
 59    119    75    0.000%   64.266%         0   20,820
 60    120    76    0.000%   61.916%         0   20,021
 61    121    77    0.000%   59.422%         0   19,175
 62    122    78    0.000%   56.787%         0   18,283
 63    123    79    0.000%   54.016%         0   17,346
 64    124    80    0.000%   51.114%         0   16,366
 65    125    81    0.000%   48.077%         0   15,343
 66    126    82    0.000%   44.910%         0   14,279
 67    127    83    0.000%   41.628%         0   13,180
 68    128    84    0.000%   38.253%         0   12,056
 69    129    85    0.000%   34.812%         0   10,915
 70    130    86    0.000%   31.337%         0    9,768
 71    131    87    0.000%   27.862%         0    8,629
 72    132    88    0.000%   24.433%         0    7,512
 73    133    89    0.000%   21.096%         0    6,435
 74    134    90    0.000%   17.905%         0    5,414
 75    135    91    0.000%   14.909%         0    4,466
 76    136    92    0.000%   12.158%         0    3,605
 77    137    93    0.000%    9.691%         0    2,842
 78    138    94    0.000%    7.534%         0    2,184
 79    139    95    0.000%    5.701%         0    1,633
 80    140    96    0.000%    4.197%         0    1,188
 81    141    97    0.000%    3.005%         0      842
 82    142    98    0.000%    2.095%         0      581
 83    143    99    0.000%    1.423%         0      391
 84    144   100    0.000%    0.944%         0      257
 85    145   101    0.000%    0.611%         0      164
 86    146   102    0.000%    0.384%         0      102
 87    147   103    0.000%    0.234%         0       61
 88    148   104    0.000%    0.138%         0       36
 89    149   105    0.000%    0.079%         0       20
 90    150   106    0.000%    0.043%         0       11
 91    151   107    0.000%    0.023%         0        6
 92    152   108    0.000%    0.011%         0        3
 93    153   109    0.000%    0.005%         0        1
 94    154   110    0.000%    0.002%         0        0
For example at year 18 when they are about the same:

Code: Select all

Single: 57,676 = 12 * 6500 * average(75.266%, 72.621%)
   50%: 57,210 = 12 * 5500 * average(75.266%, 72.621%) + 12 * 2750 * average(24.203%, 26.749%)

Edited to simplify table of survival-weighted benefits.
Last edited by #Cruncher on Tue Apr 18, 2017 7:39 pm, edited 1 time in total.

User avatar
HomerJ
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Re: Pension option-Should I include child?

Post by HomerJ » Tue Apr 18, 2017 5:02 pm

Teague wrote:In my case, my monthly pension income would be $6500 with no contingent annuitant named.

Should I name the 14 year old child as contingent annuitant, my monthly pension income would be $5500, and the child would receive $3000 per month for life after I die.


I don't know how the above statement can be true AND the statement below also be true.

The pension is solid


It's a great deal. However, that state will be bankrupt someday, I fear.

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HomerJ
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Re: Pension option-Should I include child?

Post by HomerJ » Tue Apr 18, 2017 5:06 pm

Teague wrote:Using a pension calculator supplied by my employer, the slightly rounded numbers are, with me retiring in 2 years at 60 years old, and child currently 14 years old:


It's definitely a good deal since you had a child so late (at 44).

Teague
Posts: 605
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Re: Pension option-Should I include child?

Post by Teague » Tue Apr 18, 2017 8:39 pm

Thank you all, with a special Order of Arithmetic Wizardry medal (with clusters) presented to #Cruncher for service far above and beyond the call of duty. I do apologize for rounding some of the numbers I quoted; I never expected such a comprehensive analysis! Yet again the denizens of this forum amaze me.
Semper Augustus

JGoneRiding
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Re: Pension option-Should I include child?

Post by JGoneRiding » Tue Apr 18, 2017 8:47 pm

Teague wrote:^ Thank you. Along the way I did modify my request and ask for an actuarial analysis, since until your post no one suggested the survivor income would be a problem. But that is indeed exactly what I was initially concerned about.

Warren Buffet said something like he's leaving his kids enough so they can do anything, but not so much that they can do nothing.


In 20 years (hopefully ) I wouldn't consider 3k a month to be enough to not do anything but just me. Trust me that is not enough to livethe American dream

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Watty
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Re: Pension option-Should I include child?

Post by Watty » Tue Apr 18, 2017 10:10 pm

Teague wrote: I can easily afford to chose this option.


Reading between the lines would suspect that in pretty much any scenario the kid will likely get a large inheritance some day even you don't choose the pension option.

If not then you should not take the reduced the pension.

If so then they might get a large inheritance check when your estate is settled some day and $3,000 a month pension

Teague wrote: it is philosophical.


Frankly the $3,000 would almost be a sideshow in that case. What they do with the rest of their inheritance would likely be more of an issue. Even if you trust them to handle the money well there can be situations like with a divorce or lawsuit that would make leaving them their inheritance in a trust a good idea.

DrDubious
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Re: Pension option-Should I include child?

Post by DrDubious » Wed Apr 19, 2017 12:10 am

OP, is there any chance of you having another child? If so, this situation could get extremely ugly.

On another front, is it possible for the joint annuitant's pension payments to go into some sort of trust? I have no idea if that can be legally valid, but if so that might be a way to mitigate some of the behavioral complications I think you are afraid of, particularly if you knock off while the kid is still a minor.

Could any of the resident trust and estate types comment on this?

Teague
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Re: Pension option-Should I include child?

Post by Teague » Wed Apr 19, 2017 12:57 pm

Watty wrote:
Teague wrote: I can easily afford to chose this option.


Reading between the lines would suspect that in pretty much any scenario the kid will likely get a large inheritance some day even you don't choose the pension option.

If not then you should not take the reduced the pension.

If so then they might get a large inheritance check when your estate is settled some day and $3,000 a month pension

Teague wrote: it is philosophical.


Frankly the $3,000 would almost be a sideshow in that case. What they do with the rest of their inheritance would likely be more of an issue. Even if you trust them to handle the money well there can be situations like with a divorce or lawsuit that would make leaving them their inheritance in a trust a good idea.


Maybe I shouldn't have used the term I can easily afford, I think just plain afford might have been better.

But you are right, there is likely to be an inheritance as well; how large remains to be seen. I do plan to create a trust. Thanks much.
Semper Augustus

Teague
Posts: 605
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Re: Pension option-Should I include child?

Post by Teague » Wed Apr 19, 2017 1:05 pm

DrDubious wrote:OP, is there any chance of you having another child? If so, this situation could get extremely ugly.

On another front, is it possible for the joint annuitant's pension payments to go into some sort of trust? I have no idea if that can be legally valid, but if so that might be a way to mitigate some of the behavioral complications I think you are afraid of, particularly if you knock off while the kid is still a minor.

Could any of the resident trust and estate types comment on this?


There is no chance I will have another child. Well, unless that whole stork business is actually a thing.
I will set up a trust, but that will be for distributing any inheritance. Of course the pension will be mentioned in my will, or however a qualified attorney sets it up. This pension survivor payment will have enough structure built in (a limited amount each month) that I don't feel the need to restrict these payments further. I think of these survivor pension payments as a safety net - no matter what else happens, they should always be there - a subsistence amount for life.
Semper Augustus

Teague
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Re: Pension option-Should I include child?

Post by Teague » Wed Apr 19, 2017 2:01 pm

HomerJ wrote:
Teague wrote:In my case, my monthly pension income would be $6500 with no contingent annuitant named.

Should I name the 14 year old child as contingent annuitant, my monthly pension income would be $5500, and the child would receive $3000 per month for life after I die.


I don't know how the above statement can be true AND the statement below also be true.

The pension is solid


It's a great deal. However, that state will be bankrupt someday, I fear.


Indeed, and those running the pension seem to agree, so they have made changes that are applied to those hired later that I was. I believe the model applied to my cohort likely uses out-of-date and overly optimistic assumptions about rates of investment return and overly pessimistic assumptions about current life expectancy. This became clear to the pension overseers during the financial meltdown of 2008-9, and changes were made. These folks now assure us that things are sound going forward. We shall see, of course.
Semper Augustus

inbox788
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Re: Pension option-Should I include child?

Post by inbox788 » Thu Apr 20, 2017 11:53 am

JGoneRiding wrote:From an accturially standpoint it's amazing! Can't believe they offer that good of a deal. Just teach your child it might disappear if state funding models change. I might not tell the child until you are older/sick

IMO, it's not that amazing, and I'm not sure it's that great a deal.

A 60 year old female can get $1M life insurance for 25 year term (didn't find 30 year results) for $500-800/month. So for $1000/month, you should be able to take take that $1M+ and generate $40k/year on 4% or lower returns.

Now this isn't lifetime, or whole life insurance, but protects the child till age 40. Like whole life insurance which has a lot of separate selling points (many that don't apply except in specific situations), this result also doesn't match up well with needs. I can see the need for 10 years while the child grows up and goes to college, but after age 25 or 30, seems to be unnecessary unless special circumstances.

https://www.term4sale.com/
https://www.nylaarp.com/Life-Insurance/Permanent#/Step1

If needed, use some of the $1000/month to buy necessary term life insurance (10 years?), and spend the rest on yourself or the child. You could set up a trust for the life insurance payout if you don't have someone trustworthy to manage the funds before the child matures.

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