Deciding on pension beneficiary options

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SilverGuitar
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Deciding on pension beneficiary options

Post by SilverGuitar »

Hi Bogleheads, I've got a pension question for you. My wife is a teacher in Massachusetts as is part of their pension program, MTRS. We're trying to figure out what sort of beneficiary option to choose from with her pension. Here are the options from their website (https://mtrs.state.ma.us/service/benefi ... -retirees/):
  • Option A: This option gives the retiree the highest possible retirement allowance; it does not, however, provide for any survivor benefit. If there are any benefits that were earned by the retiree in the month of his or her death, but that were not issued to the retiree, they will be pro-rated based on the number of days in the month that the retiree lived, and paid in a lump sum to either the retiree’s designated month-of-death-benefits beneficiary or estate.
  • Option B: This option provides a retiree with an allowance that is generally 1% less than an Option A allowance. It also provides for a survivor benefit in the form of a lump-sum payment of the balance, if any, remaining in the member’s annuity savings account. In most cases, the member’s annuity account will be depleted 10 to 12 years after his or her retirement date.
  • Option C: While this option pays a retirement allowance that is generally 9–11% less than an Option A allowance to the member during his or her retirement, it provides a survivor with a monthly benefit for the rest of his or her life. The amount of the survivor’s benefit is equal to 2/3 of the amount of the retiree’s benefit at the time of his or her death.
Currently leaning toward Option B. Some survivor benefit, but with only a 1% hit on her allowance. The hit in Option C seems to be far too much. Or - do we just go with Option A? Maybe I don't need to be a beneficiary on the account, because I'll also have retirement savings built up, she has other retirement, and we both have term insurance that should last us until close to retirement anyway.

Which option would you choose? Anyone in a similar situation, or have personal experience with the MTRS?
UpperNwGuy
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Re: Deciding on pension beneficiary options

Post by UpperNwGuy »

I am retired on a pension, and I am divorced. The question of a survivor benefit was part of negotiating the divorce settlement. With help of two lawyers, we agreed on Option C. After being retired for nearly a decade, I think it's the best option for both parties.

If we had not divorced, we still would have picked Option C. Option B was not offered by my plan, and Option A left too much uncertainty in the event I were to die first.
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beernutz
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Re: Deciding on pension beneficiary options

Post by beernutz »

I have options A & B in my AL state retirement plan as well in addition to a C (100% survivor benefit) and D (50% survivor benefit).

For my B option there is similarly a 1% benefit reduction however for C the reduction is only 8.7% and 4.0% for D, compared to your system's 9-11% reduction for about a 66.7% survivor benefit.

I just retired 1/1/22 and we selected the 100% benefit to give my wife guaranteed lifetime (but not COLA) income. However if there had been a 15% benefit reduction, which I think is about the equivalent of your wife's system survivor benefit reduction rate applied to mine, I might have selected options B or D.
Last edited by beernutz on Sun Jan 02, 2022 11:04 pm, edited 1 time in total.
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Svensk Anga
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Re: Deciding on pension beneficiary options

Post by Svensk Anga »

We elected an option similar to C in the Florida pension system. It was discounted 7% from the single life annuity. It pays 67% to the survivor whether that was the pensioner or the spouse. It has a COLA, so for some inflation protection, I wanted to see it continue for either survivor. A 100% survivor annuity would have been a 14% discount from single life, which was judged too steep, given cash flow needs in early retirement. We also had a 10-year certain option, perhaps a bit better than your B, for 2% discount.

I think it depends on your other resources. Substantial age difference could be a factor.
quietseas
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Re: Deciding on pension beneficiary options

Post by quietseas »

You'd need to objectively consider your ages and health. In our case both of us have long lived family genetics and healthy lifestyle, but spouse is more than 10 years older than me and has a few health issues that I do not have at this time. Spouse has me as beneficiary of pension, I am still working but we plan to opt out of survivor benefits on my pension. Weigh that against the cost. Sometimes survivor benefits are very low cost (which might be the case in your situation even if you both are the same age and are both likely to lead long lives in retirement).
Ron Ronnerson
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Re: Deciding on pension beneficiary options

Post by Ron Ronnerson »

I’m a California teacher and my wife and I are both 47. At age 55, I can choose an option. My choices include your Option A. I also have three additional options available where my wife could continue to receive 50%, 75%, or 100% of my benefit if I were to pre-decease her. The 100% option would mean that my pension benefit would be reduced around 9% from the member-only benefit (the 50% and 75% would reduce it less than 9%). I plan to choose the 100% option as I see a 9% reduction as fairly small. There is always the chance that she might outlive me by a long time and it’s good knowing that my pension will continue coming to her. If my wife were to predeceases me, my benefit would increase to the member-only benefit.
furwut
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Re: Deciding on pension beneficiary options

Post by furwut »

In general I’d prefer going with joint life. I look at it as longevity insurance plus the fact that expenses and taxes can become more burdensome for a single person.
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iceport
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Re: Deciding on pension beneficiary options

Post by iceport »

SilverGuitar wrote: Sun Jan 02, 2022 3:11 pm Which option would you choose? Anyone in a similar situation, or have personal experience with the MTRS?
I've had a similar decision to make, and it wasn't easy. I also felt as though there was really no definitive answer. It all comes down to what's important to you both.

One way I looked at it, after committing over 30 years of my life to the job, was to try to wring as much money as possible out of this important post employment benefit. The best way to do that, I figured, was to spread the lifetime benefits across two lives, not just one. In other words, the option with the best chance of providing the largest eventual payout was one that included a survivor benefit, because the chance of one of two people living a long life is far greater than the chance of only one person living a long life. Not everybody thinks the same way and I do, I've come to realize. :)

However, I'm really only writing here to say that I think you might be missing a detail about Option C.
Option C: While this option pays a retirement allowance that is generally 9–11% less than an Option A allowance to the member...
That word "generally" is included because the reduction in benefits to the primary beneficiary are determined in part based upon your ages. So rather than rely on the "general" reduction, probably based upon historic demographics of the plan membership, have you actually computed what the true expected reduction in benefits would be? How can you make a properly informed decision without that number?

If you are older than your wife, that would lead to a smaller benefit reduction for your wife. If you are younger, that would result in a larger reduction.

Have you actually run the numbers to find out exactly how large the benefit reduction would be in your specific circumstances?

https://mtrs.state.ma.us/members/retire ... estimator/
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dlscfo
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Re: Deciding on pension beneficiary options

Post by dlscfo »

I have seen some people choose the single life option and take the extra dollars that provides over the survivor option to fund a 20 or 30 year term life insurance policy on the annuitant. If the annuitant passes first, the life insurance policy pays off to make up for the loss of the monthly annuity payment. May be something you wish to explore based on your particular circumstances (age, health, financial needs, etc).
dlscfo
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Re: Deciding on pension beneficiary options

Post by dlscfo »

I have seen some people choose the single life option and take the extra dollars that provides over the survivor option to fund a 20 or 30 year term life insurance policy on the annuitant. If the annuitant passes first, the life insurance policy pays off to make up for the loss of the monthly annuity payment. May be something you wish to explore based on your particular circumstances (age, health, financial needs, etc).
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jeffyscott
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Re: Deciding on pension beneficiary options

Post by jeffyscott »

iceport wrote: Sun Jan 02, 2022 4:49 pm One way I looked at it, after committing over 30 years of my life to the job, was to try to wring as much money as possible out of this important post employment benefit. The best way to do that, I figured, was to spread the lifetime benefits across two lives, not just one. In other words, the option with the best chance of providing the largest eventual payout was one that included a survivor benefit, because the chance of one of two people living a long life is far greater than the chance of only one person living a long life. Not everybody thinks the same way and I do, I've come to realize. :)
I do. In my system there was an option for 100% survivor benefit, plus a 180 payment guarantee. So with that one I was absolutely sure someone, me, spouse, kids would get the money. I get about 12% less than life only option would've paid. The 100% survivor option (without the guarantee) was the same reduction, at least to the nearest dollar per month.

I would assume that all the choices are actuarially equivalent, aside from not taking sex into account (benefits are the same for males and females, even though females have longer life expectancy). I know in my system that is the way it worked. My system had an option with 75% survivor benefit and that one was a 10% reduction, so it's fairly similar to the average that OP's system reports for their 2/3 option.

We would likely have more than enough under any of the options that were available to me at the time I retired, my spouse greatly preferred having a guaranteed income to having an even bigger pile of money to manage, should I die first. I would want the same, so given the three choices here, would want my spouse to pick option C. I feel that making yourself entirely dependent on the performance of financial markets, when you don't have to, adds unnecessary risk.

There's also the aspect that as people age, they may sometimes make major errors with their money, a monthly pension is also somewhat safer in that regard. I could be tricked out of all my money or have it stolen in some way and I would still have that monthly income from a pension.
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TN_Boy
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Re: Deciding on pension beneficiary options

Post by TN_Boy »

quietseas wrote: Sun Jan 02, 2022 4:23 pm You'd need to objectively consider your ages and health. In our case both of us have long lived family genetics and healthy lifestyle, but spouse is more than 10 years older than me and has a few health issues that I do not have at this time. Spouse has me as beneficiary of pension, I am still working but we plan to opt out of survivor benefits on my pension. Weigh that against the cost. Sometimes survivor benefits are very low cost (which might be the case in your situation even if you both are the same age and are both likely to lead long lives in retirement).
You can consider ages and health, but I'm familiar with a situation where the nearly decade younger "healthier" spouse died before they were supposed to. The 50% survivor benefit was a lot better than nothing, but it would have been little more expensive for a 100% survivor benefit to have been chosen, and the surviving spouse would have been somewhat more comfortable had that happened.

Unless one of the couple has a dire diagnosis and you KNOW they are not going to be around, I'd select survivor benefits solely based on a financial analysis looking at what happens if the pensioner dies first, almost without regard to comparative health and ages of the spouses. The averages don't mean anything for an individual couple.
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Re: Deciding on pension beneficiary options

Post by TN_Boy »

iceport wrote: Sun Jan 02, 2022 4:49 pm
SilverGuitar wrote: Sun Jan 02, 2022 3:11 pm Which option would you choose? Anyone in a similar situation, or have personal experience with the MTRS?
I've had a similar decision to make, and it wasn't easy. I also felt as though there was really no definitive answer. It all comes down to what's important to you both.

One way I looked at it, after committing over 30 years of my life to the job, was to try to wring as much money as possible out of this important post employment benefit. The best way to do that, I figured, was to spread the lifetime benefits across two lives, not just one. In other words, the option with the best chance of providing the largest eventual payout was one that included a survivor benefit, because the chance of one of two people living a long life is far greater than the chance of only one person living a long life. Not everybody thinks the same way and I do, I've come to realize. :)

However, I'm really only writing here to say that I think you might be missing a detail about Option C.
Option C: While this option pays a retirement allowance that is generally 9–11% less than an Option A allowance to the member...
That word "generally" is included because the reduction in benefits to the primary beneficiary are determined in part based upon your ages. So rather than rely on the "general" reduction, probably based upon historic demographics of the plan membership, have you actually computed what the true expected reduction in benefits would be? How can you make a properly informed decision without that number?

If you are older than your wife, that would lead to a smaller benefit reduction for your wife. If you are younger, that would result in a larger reduction.

Have you actually run the numbers to find out exactly how large the benefit reduction would be in your specific circumstances?

https://mtrs.state.ma.us/members/retire ... estimator/
Excellent point. You definitely want to get the exact number.

I'll also note in my quick perusal of the site that the OP's spouses pension is not subject to MA state taxes, a nice little extra benefit if they stay in the state.
tibbitts
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Re: Deciding on pension beneficiary options

Post by tibbitts »

iceport wrote: Sun Jan 02, 2022 4:49 pm One way I looked at it, after committing over 30 years of my life to the job, was to try to wring as much money as possible out of this important post employment benefit. The best way to do that, I figured, was to spread the lifetime benefits across two lives, not just one. In other words, the option with the best chance of providing the largest eventual payout was one that included a survivor benefit, because the chance of one of two people living a long life is far greater than the chance of only one person living a long life. Not everybody thinks the same way and I do, I've come to realize. :)

However, I'm really only writing here to say that I think you might be missing a detail about Option C.
Option C: While this option pays a retirement allowance that is generally 9–11% less than an Option A allowance to the member...
That word "generally" is included because the reduction in benefits to the primary beneficiary are determined in part based upon your ages. So rather than rely on the "general" reduction, probably based upon historic demographics of the plan membership, have you actually computed what the true expected reduction in benefits would be? How can you make a properly informed decision without that number?
But wouldn't all the options be actuarially neutral, so in fact you aren't wringing any more or less money by choosing one option over another?

Also at least in my state, minimum non-cola future benefits are guaranteed, but there can (and have, very occasionally) been discretionary supplemental payment granted by the legislature, so you're still stuck with "in general" and not making a fully informed decision.
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calmaniac
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Re: Deciding on pension beneficiary options

Post by calmaniac »

OP,

Questions for you:
• Your current age, wife's age
• Expected ages at retirement
• Does the MTRS pension include a COLA?
• Extra credit: What are your monthly expenses and what other sources of secure retirement income do you have (such as Social Security)?
≈63yo. AA 70/30: 30% TSM, 16% value (VIOV/VFVA/AVUV), 16% foreign LC, 8%emerging, 30% GFund/VBTIX. Fed pensions now ≈60% of expenses. Taking SS @age 70--> pension+SS ≈100% of expenses. What me worry?
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iceport
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Re: Deciding on pension beneficiary options

Post by iceport »

tibbitts wrote: Sun Jan 02, 2022 6:43 pm But wouldn't all the options be actuarially neutral, so in fact you aren't wringing any more or less money by choosing one option over another?
Yes, I suppose you are correct, actuarially speaking. But statistics break down on an individual level.

I had more options than the OP, and could choose from either a 50% or 100% survivor benefit. Being unmarried, I chose the 50% survivor option for an older sibling. Then a few years after retiring I had a major health scare, and before it seemed like I'd be OK, I was kicking myself for not picking the 100% survivor option.

I really don't think there is a single, objectively "correct" choice.
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RudyS
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Re: Deciding on pension beneficiary options

Post by RudyS »

Depends on the other financial resources available. Ie, savings/investments, second person's pension, social security. May be reasonable to take full pension and no survivor benefit. That gives the couple more money monthly immediately on the first retirement. It can be spent, invested, etc. Of course you can can try to predict relative longevities. It's not a simple decision.
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Lee_WSP
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Re: Deciding on pension beneficiary options

Post by Lee_WSP »

They usually calculate this as follows:

Actuarially, there is no difference in *expected* payouts. The difference is going to lie in how your actual life progresses from the average actuarial life calculated by the number crunchers.

So, if for some reason you have a strong belief that you will outlive your wife, and this will happen after 10-12 years, then option C is more appealing. Option C would still be more appealing if you believe that the reduced pension over your remaining life is going to be better than the lump sum payout of the ‘savings account’.

Option B is splitting the baby and is the most likely to just end up never happening and is simply inferior to both A & B in all but a few unlikely scenarios. Hence the low cost.
TN_Boy
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Re: Deciding on pension beneficiary options

Post by TN_Boy »

SilverGuitar wrote: Sun Jan 02, 2022 3:11 pm Hi Bogleheads, I've got a pension question for you. My wife is a teacher in Massachusetts as is part of their pension program, MTRS. We're trying to figure out what sort of beneficiary option to choose from with her pension. Here are the options from their website (https://mtrs.state.ma.us/service/benefi ... -retirees/):
  • Option A: This option gives the retiree the highest possible retirement allowance; it does not, however, provide for any survivor benefit. If there are any benefits that were earned by the retiree in the month of his or her death, but that were not issued to the retiree, they will be pro-rated based on the number of days in the month that the retiree lived, and paid in a lump sum to either the retiree’s designated month-of-death-benefits beneficiary or estate.
  • Option B: This option provides a retiree with an allowance that is generally 1% less than an Option A allowance. It also provides for a survivor benefit in the form of a lump-sum payment of the balance, if any, remaining in the member’s annuity savings account. In most cases, the member’s annuity account will be depleted 10 to 12 years after his or her retirement date.
  • Option C: While this option pays a retirement allowance that is generally 9–11% less than an Option A allowance to the member during his or her retirement, it provides a survivor with a monthly benefit for the rest of his or her life. The amount of the survivor’s benefit is equal to 2/3 of the amount of the retiree’s benefit at the time of his or her death.
Currently leaning toward Option B. Some survivor benefit, but with only a 1% hit on her allowance. The hit in Option C seems to be far too much. Or - do we just go with Option A? Maybe I don't need to be a beneficiary on the account, because I'll also have retirement savings built up, she has other retirement, and we both have term insurance that should last us until close to retirement anyway.

Which option would you choose? Anyone in a similar situation, or have personal experience with the MTRS?
Here is another way to think about this.

If a 10% (or so) hit for option C is "too much" can you afford to live if your wife dies before you?

Will your wife get any SS in addition to her state pension? From a brief scan it looks like MA state employees will not get SS from years of service in MA state system. But she might have SS earnings from other employers, though likely small even if it exists.

Anyway, so there you and wife are, both fully retired, 65 years old or more, and she regretfully leaves this earth. You were living off her

1) pension,
2) your retirement savings,
3) presumably your SS, and
4) " she has other retirement" [a 401k or IRA or ?]

If 2,3, and 4 are now enough for you to be absolutely okay, then Option A is fine. If 2,3, and 4 are NOT going to leave you okay, then I think Option C is clearly the correct choice.

But I confess, as I re-read your post, not to fully understand why you ask, as you said:

" Maybe I don't need to be a beneficiary on the account,"

in which case you must be certain that 2,3, and 4 will be sufficient and the 10% or so hit from option C is "too much" Why is it too much? If the pension was 45k, then option C would reduce it to 40.5k, which doesn't seem bad at all given other income sources and the insurance aspect.

I'll repeat that looking at statistics here is a waste of time; it doesn't matter what happens to the average couple your age(s), you only care what might happen to you and that is unknown.

So, how much money does SilverGuitar need? Until you answer that question, you can't pick the right pension option.
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jeffyscott
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Re: Deciding on pension beneficiary options

Post by jeffyscott »

I would add to the above that another question that should be asked is: Can the couple afford to live if she chooses option C and both have long lives?

If that's no, then the 10% reduction is too much. But if the answer is "yes" to that, then the 10% or so reduction is actually not too much.

And if the answers to both that and TN_Boy's question are "yes", then it's a choice of more or less risk, with option C being the lowest risk. All options are presumably approximately actuarially equivalent, barring some special knowledge of life expectancy of the OP and/or spouse, but I do not think all have equal risk. A pile of money carries greater risk than a government guaranteed monthly annuity.

Another factor is that the actuarial equivalence may be based on optimistic projected returns. And in that case, the one with the longest payout is actually going to have the greatest value. Even if the equivalence is based on market returns of, say, 5%, there is no where that you can get a risk-free 5%.
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TN_Boy
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Re: Deciding on pension beneficiary options

Post by TN_Boy »

jeffyscott wrote: Mon Jan 03, 2022 11:13 am I would add to the above that another question that should be asked is: Can the couple afford to live if she chooses option C and both have long lives?

If that's no, then the 10% reduction is too much. But if the answer is "yes" to that, then the 10% or so reduction is actually not too much.

And if the answers to both that and TN_Boy's question are "yes", then it's a choice of more or less risk, with option C being the lowest risk. All options are presumably approximately actuarially equivalent, barring some special knowledge of life expectancy of the OP and/or spouse, but I do not think all have equal risk. A pile of money carries greater risk than a government guaranteed monthly annuity.

Another factor is that the actuarial equivalence may be based on optimistic projected returns. And in that case, the one with the longest payout is actually going to have the greatest value. Even if the equivalence is based on market returns of, say, 5%, there is no where that you can get a risk-free 5%.
Agreed, but what the OP said, 1) that he had retirement benefits, 2) I assume he has SS, 3) she has other retirement benefits, etc it struck me as unlikely that a 10%ish reduction in just her pension would be a major issue. I mean, if that's the case, it seems like the OP would be in a world of hurt if she dies first and the pension income goes to 0! How could one be true and not the other?

It depends on what the numbers are, especially the projected living expenses. For example, I used an example of a 45k pension but I don't know what the number really is.

I also didn't see whether or not the pension is COLAed or not, but I might have missed that. If not COLAed it will of course lose quite a bit of purchasing power over the years.
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Re: Deciding on pension beneficiary options

Post by TN_Boy »

I'm always sad when somebody posts a question, and people take the time to give responses .... and the OP goes away.

Never tells us if the input was helpful, or what they decided to do, or thanks anybody for their time.
MHA556
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Re: Deciding on pension beneficiary options

Post by MHA556 »

Too much missing info from the original post to make a recommendation.

Personally went with a 7% reduction (age based) to give my wife 100% survivorship payments. Very likely she outlives me, and it won’t take more than a few years to make it pay off if that happens.

With her pension we likely will do the same, although it isn’t as exactly based on age differences as my pension plan is.
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Re: Deciding on pension beneficiary options

Post by delamer »

A 10% cut in your wife’s annuity is a small price to pay to provide you with a substantial benefit if she gets run over by the proverbial bus.

If her pension is $2,000/month, then she gets $1,800/month. And if she dies first, you get $1,332.

Adjust as necessary to get your actual numbers.

Generally, these plans also provide that if you die first then your wife’s benefit will be increased to the $2,000/month. But you should confirm that.
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SilverGuitar
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Re: Deciding on pension beneficiary options

Post by SilverGuitar »

Thanks everyone so much for your thoughtful responses. I'm so sorry I didn't get back on sooner - life has been crazy amidst holidays and illnesses, and I'd meant to return much earlier. Your responses have given me a lot to think about. Some more info and specific responses below:
quietseas wrote: Sun Jan 02, 2022 4:23 pm You'd need to objectively consider your ages and health.
I'm seeing it would be pretty unlikely for my wife (the pension plan holder) to pass before me. While in pretty good health, I have a couple of minor health issues that could tilt the scales. We're about the same age but I'm 2 years older. And I'm a guy, whereas she's a gal, so already she has a longer life expectancy.

Including her pension contributions, we're contributing roughly 15-20% of our incomes to retirement, so I would probably be fine if she passed before me. Maybe another reason to not elect for a beneficiary option.
dlscfo wrote: Sun Jan 02, 2022 5:16 pm I have seen some people choose the single life option and take the extra dollars that provides over the survivor option to fund a 20 or 30 year term life insurance policy on the annuitant. If the annuitant passes first, the life insurance policy pays off to make up for the loss of the monthly annuity payment. May be something you wish to explore based on your particular circumstances (age, health, financial needs, etc).
This is an interesting idea. We'd have the flexibility to sort of create our own beneficiary option in this way, should we choose. Without being locked into my wife permanently receiving up to 10% or so less in her pension payments.
iceport wrote: Sun Jan 02, 2022 4:49 pm That word "generally" is included because the reduction in benefits to the primary beneficiary are determined in part based upon your ages. So rather than rely on the "general" reduction, probably based upon historic demographics of the plan membership, have you actually computed what the true expected reduction in benefits would be? How can you make a properly informed decision without that number?

If you are older than your wife, that would lead to a smaller benefit reduction for your wife. If you are younger, that would result in a larger reduction.

Have you actually run the numbers to find out exactly how large the benefit reduction would be in your specific circumstances?

https://mtrs.state.ma.us/members/retire ... estimator/
Very good point. I need to set aside some time to do the actual calculations. Maybe next Monday when I have the day off but our kid is in daycare 8-)
jeffyscott wrote: Sun Jan 02, 2022 5:26 pm There's also the aspect that as people age, they may sometimes make major errors with their money, a monthly pension is also somewhat safer in that regard. I could be tricked out of all my money or have it stolen in some way and I would still have that monthly income from a pension.
Scary to think about but that's a good point!
TN_Boy wrote: Sun Jan 02, 2022 5:55 pm Unless one of the couple has a dire diagnosis and you KNOW they are not going to be around, I'd select survivor benefits solely based on a financial analysis looking at what happens if the pensioner dies first, almost without regard to comparative health and ages of the spouses. The averages don't mean anything for an individual couple.
Hm this point gives me pause again...just in that we can never know for sure how things end up. In addition to the low likelihood of my wife passing before me (given that she's a couple years younger, doesn't have as many health things she's having to monitor, and also is a woman vs. me being a man), I'm also leaning toward electing no beneficiary options because I'm fairly certain about being all set in retirement myself, even without her pension. She has other retirement accounts, and I have my own.
TN_Boy wrote: Sun Jan 02, 2022 5:59 pm I'll also note in my quick perusal of the site that the OP's spouses pension is not subject to MA state taxes, a nice little extra benefit if they stay in the state.
Sweet! Thanks for tracking this down! :sharebeer
tibbitts wrote: Sun Jan 02, 2022 6:43 pm But wouldn't all the options be actuarially neutral, so in fact you aren't wringing any more or less money by choosing one option over another?
I'd hope they would roughly equal, but given the low likelihood of my wife (the pension plan holder) passing before me, I'm leaning more toward us not taking the up-to-10%-ish hit on her pension when it's fairly unlikely that she'd pass before me anyway.
calmaniac wrote: Sun Jan 02, 2022 7:18 pm OP,

Questions for you:
• Your current age, wife's age
• Expected ages at retirement
• Does the MTRS pension include a COLA?
• Extra credit: What are your monthly expenses and what other sources of secure retirement income do you have (such as Social Security)?
• My age 36, her age 34
• Expected ages at retirement: currently 65, but that's still in flux - just got a major raise, but might also have a second kid at some point, etc.
• COLA? Not totally sure - this is still very new to me. Looks like they provide a COLA, but it's just 3% on the first $13,000 of benefit, so maybe that's not so great? Could use help understanding how this ranks compared to other plans... https://mtrs.state.ma.us/2021-cola-news/
• Monthly expenses: Monthly expenses around $6-$7k. She'll receive a small amount of social security from a couple years in the private sector before moving to public schools. I should have "normal" social security due to always working in the private sector (and likely will continue to do so).
RudyS wrote: Sun Jan 02, 2022 10:28 pm Option B is splitting the baby and is the most likely to just end up never happening and is simply inferior to both A & B in all but a few unlikely scenarios. Hence the low cost.
Great way to put it! Subconsciously I found myself leaning a little toward that, given that it's only a 1% reduction, and feels like I'm diversifying in some way, but yeah probably not worth it. The baby need not be split!
TN_Boy wrote: Mon Jan 03, 2022 10:16 am Here is another way to think about this.

If a 10% (or so) hit for option C is "too much" can you afford to live if your wife dies before you?

Will your wife get any SS in addition to her state pension? From a brief scan it looks like MA state employees will not get SS from years of service in MA state system. But she might have SS earnings from other employers, though likely small even if it exists.

Anyway, so there you and wife are, both fully retired, 65 years old or more, and she regretfully leaves this earth. You were living off her

1) pension,
2) your retirement savings,
3) presumably your SS, and
4) " she has other retirement" [a 401k or IRA or ?]

If 2,3, and 4 are now enough for you to be absolutely okay, then Option A is fine. If 2,3, and 4 are NOT going to leave you okay, then I think Option C is clearly the correct choice.

But I confess, as I re-read your post, not to fully understand why you ask, as you said:

" Maybe I don't need to be a beneficiary on the account,"

in which case you must be certain that 2,3, and 4 will be sufficient and the 10% or so hit from option C is "too much" Why is it too much? If the pension was 45k, then option C would reduce it to 40.5k, which doesn't seem bad at all given other income sources and the insurance aspect.

I'll repeat that looking at statistics here is a waste of time; it doesn't matter what happens to the average couple your age(s), you only care what might happen to you and that is unknown.

So, how much money does SilverGuitar need? Until you answer that question, you can't pick the right pension option.
All excellent points. I'd lean toward #s 2-4 being enough. Maybe my wife and I ought to at some point sit down with a financial advisor to really thoroughly dig through all of this, as I'm feeling a bit over my depth on how best to predict everything, though all of the responses on this post have really helped to give me a lot to think about.

At this point, when I consider the 10% hit from Option C, I feel like while it may just be a few thousand a year, over a period of 20-30+ years (hopefully), that could really add up, especially if we're reinvesting some. Her pension in retirement is likely to be around $80k in today's dollars. In a way it feels like Option C would be expensive insurance that we're not likely to need, given our genders and me having slightly more health concerns, and her being a couple years younger. Plus the fact that she has a Roth IRA and a rollover IRA from a previous employer, and I've got a 401k and Roth IRA, and we're contributing fairly well to the Roths and my 401k each year (15-20%-ish of combined gross incomes if you include her mandatory 11% pension contribution).
TN_Boy wrote: Wed Jan 05, 2022 11:00 am I'm always sad when somebody posts a question, and people take the time to give responses .... and the OP goes away.

Never tells us if the input was helpful, or what they decided to do, or thanks anybody for their time.
Sorry!! :( Life got in the way and I was overwhelmed with the number of helpful responses. Hopefully my reply here can start to do them justice. The advice is very much appreciated.
delamer wrote: Wed Jan 05, 2022 12:25 pm Generally, these plans also provide that if you die first then your wife’s benefit will be increased to the $2,000/month. But you should confirm that.
Interesting point... I should look into this. Gah, there's so much to consider!

Thanks again all! Very much appreciated. This is an amazing forum and apologies again for such a delayed response to your thoughtful advice. Hope everyone's 2022 is off to a good start! :beer
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Re: Deciding on pension beneficiary options

Post by TN_Boy »

SilverGuitar wrote: Mon Jan 10, 2022 10:59 am Thanks everyone so much for your thoughtful responses. I'm so sorry I didn't get back on sooner - life has been crazy amidst holidays and illnesses, and I'd meant to return much earlier. Your responses have given me a lot to think about. Some more info and specific responses below:


Stuff deleted ....
TN_Boy wrote: Sun Jan 02, 2022 5:55 pm Unless one of the couple has a dire diagnosis and you KNOW they are not going to be around, I'd select survivor benefits solely based on a financial analysis looking at what happens if the pensioner dies first, almost without regard to comparative health and ages of the spouses. The averages don't mean anything for an individual couple.
Hm this point gives me pause again...just in that we can never know for sure how things end up. In addition to the low likelihood of my wife passing before me (given that she's a couple years younger, doesn't have as many health things she's having to monitor, and also is a woman vs. me being a man), I'm also leaning toward electing no beneficiary options because I'm fairly certain about being all set in retirement myself, even without her pension. She has other retirement accounts, and I have my own.
TN_Boy wrote: Sun Jan 02, 2022 5:59 pm I'll also note in my quick perusal of the site that the OP's spouses pension is not subject to MA state taxes, a nice little extra benefit if they stay in the state.
Sweet! Thanks for tracking this down! :sharebeer

stuff deleted ..


At this point, when I consider the 10% hit from Option C, I feel like while it may just be a few thousand a year, over a period of 20-30+ years (hopefully), that could really add up, especially if we're reinvesting some. Her pension in retirement is likely to be around $80k in today's dollars. In a way it feels like Option C would be expensive insurance that we're not likely to need, given our genders and me having slightly more health concerns, and her being a couple years younger. Plus the fact that she has a Roth IRA and a rollover IRA from a previous employer, and I've got a 401k and Roth IRA, and we're contributing fairly well to the Roths and my 401k each year (15-20%-ish of combined gross incomes if you include her mandatory 11% pension contribution).
TN_Boy wrote: Wed Jan 05, 2022 11:00 am I'm always sad when somebody posts a question, and people take the time to give responses .... and the OP goes away.

Never tells us if the input was helpful, or what they decided to do, or thanks anybody for their time.
Sorry!! :( Life got in the way and I was overwhelmed with the number of helpful responses. Hopefully my reply here can start to do them justice. The advice is very much appreciated.
Thanks for getting back to us!

I wanted to make one more observation on this comment of yours:
In addition to the low likelihood of my wife passing before me (given that she's a couple years younger, doesn't have as many health things she's having to monitor, and also is a woman vs. me being a man),
by repeating this comment of mine: "you can consider ages and health, but I'm familiar with a situation where the nearly decade younger "healthier" spouse died before they were supposed to." And yes, the younger one was female.

Do you have to pick NOW, at ages 36 and 34? My spouse didn't have to decide until taking the pension .... Your assumption about who will die first seems a bit premature given your ages. A lot can go wrong before you two hit your sixties! I

Also, your extra info on your finances:
At this point, when I consider the 10% hit from Option C, I feel like while it may just be a few thousand a year, over a period of 20-30+ years (hopefully), that could really add up, especially if we're reinvesting some. Her pension in retirement is likely to be around $80k in today's dollars. In a way it feels like Option C would be expensive insurance that we're not likely to need, given our genders and me having slightly more health concerns, and her being a couple years younger. Plus the fact that she has a Roth IRA and a rollover IRA from a previous employer, and I've got a 401k and Roth IRA, and we're contributing fairly well to the Roths and my 401k each year (15-20%-ish of combined gross incomes if you include her mandatory 11% pension contribution).
It still seems odd to me that losing 80k in yearly income wouldn't be an issue to you if she died first, while 72k instead of 80k per year of pension seems like a big deal. That seems inconsistent; I think you are simply positive you'll go first and basing your decision upon that. Something to hope for :-)?

I'll also note that any estimate you have now of your expenses 30 years from now, with even the number of children you'll have not finalized, is basically a total fantasy. That's not because of poor planning; it's because 30 years is a very long time and a lot of things can change. As is how much you will actually have in retirement accounts by that time (what if you get downsized and are unable to get as a good a job as you had before? What will the market returns be, etc).

You really have to decide on the pension survivor question now? Also, what happens to that pension money if she dies *before* she starts taking the pension?
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celia
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Re: Deciding on pension beneficiary options

Post by celia »

Ron Ronnerson wrote: Sun Jan 02, 2022 4:26 pm My choices include your Option A. I also have three additional options available where my wife could continue to receive 50%, 75%, or 100% of my benefit if I were to pre-decease her. The 100% option would mean that my pension benefit would be reduced around 9% from the member-only benefit (the 50% and 75% would reduce it less than 9%). I plan to choose the 100% option as I see a 9% reduction as fairly small. There is always the chance that she might outlive me by a long time and it’s good knowing that my pension will continue coming to her. If my wife were to predeceases me, my benefit would increase to the member-only benefit.
HD and I each have this too. So when one of us dies, the survivor will continue to get both pensions as well as their own will increase to the full amount. However, the lower SS will disappear. The relatively level income for the rest of our lives, no matter who dies first, made the decisions easier.


OP, Change your options to actual numbers instead of percentages to think of this better. For example, assume your wife would collect $1,000 a month using Option A.

Option B is just a guaranteed minimum 10-12 year payout, which could be good for those who are Single.

When she dies, with option C, you would get $600 a month instead of her $900 a month. This is the closest option for leveling out your joint income for the rest of your lives.

Then look at your other assets. Will you have a pension? Will either/both of you have SS? What will your RMDs be at age 72? Just check that all the numbers work for each of these circumstances:
1) She dies a month after retiring and he lives to 100.
2) He dies a month after retiring and she lives to 100.
3) Both of you live to 100.
SilverGuitar wrote: ...and we both have term insurance that should last us until close to retirement anyway.
What does the italicized mean? You are not about to retire but throw a thought exercise our way? The options could change, one of you could die, or your other incomes/assets could change between now and then. So, none of the numbers you are considering now are real!
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Re: Deciding on pension beneficiary options

Post by jeffyscott »

TN_Boy wrote: Mon Jan 10, 2022 10:12 pmDo you have to pick NOW, at ages 36 and 34? My spouse didn't have to decide until taking the pension .... Your assumption about who will die first seems a bit premature given your ages. A lot can go wrong before you two hit your sixties!
Yep, for starters, for a 36 and 34 year old couple, there is about a 20% chance that only one of the two is alive by the time the 34 year old female reaches 65 :( (using #Cruncher's longevity estimator, with cohort 1990 data):
http://eyebonds.info/downloads/index.html

By all means one can and probably should plan far ahead, in case things work out as hoped. I certainly did that 30 or more years ago and projected having enough to retire in early 50s, which I think we did have. My wife did so at 50, while I worked a few extra years just because it was too lucrative for me to pass up staying in the pension system for a few extra years. So for us things worked out as hoped, we're both alive and retired and I am collecting a pension that is larger than I had expected back then as well as a (currently) larger than expected portfolio and probably larger than planned SS benefits in our future.
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rterickson
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Re: Deciding on pension beneficiary options

Post by rterickson »

OP, you should confirm your questions with your wife's HR.

In my experience with pensions, they want you to select a beneficiary when initially enrolling in the plan, but they don't require you to elect the form of benefits until you actually file the retirement forms.
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Re: Deciding on pension beneficiary options

Post by TN_Boy »

jeffyscott wrote: Tue Jan 11, 2022 11:53 am
TN_Boy wrote: Mon Jan 10, 2022 10:12 pmDo you have to pick NOW, at ages 36 and 34? My spouse didn't have to decide until taking the pension .... Your assumption about who will die first seems a bit premature given your ages. A lot can go wrong before you two hit your sixties!
Yep, for starters, for a 36 and 34 year old couple, there is about a 20% chance that only one of the two is alive by the time the 34 year old female reaches 65 :( (using #Cruncher's longevity estimator, with cohort 1990 data):
http://eyebonds.info/downloads/index.html

By all means one can and probably should plan far ahead, in case things work out as hoped. I certainly did that 30 or more years ago and projected having enough to retire in early 50s, which I think we did have. My wife did so at 50, while I worked a few extra years just because it was too lucrative for me to pass up staying in the pension system for a few extra years. So for us things worked out as hoped, we're both alive and retired and I am collecting a pension that is larger than I had expected back then as well as a (currently) larger than expected portfolio and probably larger than planned SS benefits in our future.
Planning is good -- you can plug in *estimated* returns for your investments, and given $X per year contributions have an idea of what the investments will grow to. Over a 30 year horizon, that's more of a guess than an estimate, but you give ranges (2% real, 3% real, etc) and periodically reassess. What that would have done for me is probably spur me to start saving more aggressively sooner. I wouldn't have used that estimate as a planning number (in my 30s) due to the fact it's more of a guess than anything else. And it certainly is very important to work out the impact of a pension, because, assuming they don't change the pension rules on you, that can affect whether you stay at the company/state to collect that pension, versus quitting, losing the pension, and getting a job without it.

However, kudos to anyone that can estimate their retirement expenses while in their 30s! Any number I picked then would have been .... a total complete guess and more likely to confuse the issue than help me.

Once I hit my 50s I took estimates of SS, pensions, portfolio size, very seriously and also was able to make solid expense estimates. But in my 30s .... save a lot was sorta of my thinking.
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Re: Deciding on pension beneficiary options

Post by TN_Boy »

rterickson wrote: Tue Jan 11, 2022 1:22 pm OP, you should confirm your questions with your wife's HR.

In my experience with pensions, they want you to select a beneficiary when initially enrolling in the plan, but they don't require you to elect the form of benefits until you actually file the retirement forms.
Hence my question. I suspect you are 100% correct. I'd think all they want now is the beneficiary.
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Re: Deciding on pension beneficiary options

Post by Michael Patrick »

rterickson wrote: Tue Jan 11, 2022 1:22 pm OP, you should confirm your questions with your wife's HR.

In my experience with pensions, they want you to select a beneficiary when initially enrolling in the plan, but they don't require you to elect the form of benefits until you actually file the retirement forms.
I was going to say this exact thing.

In my plan, if the covered member dies before beginning to collect a pension, the beneficiary gets the cash value of the account. It's only when filing to collect the pension after retirement that I'll have to decide which option to choose.
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Re: Deciding on pension beneficiary options

Post by Cruise »

OP, you keep on talking about your wife outliving you given relative ages, sex, and health status. My father was five years older than my healthier mother, until she quickly died from pancreatic cancer. He lived thirteen years after her passing.

You take your chances, but realize there is a distinct longevity risk.

Good luck in your decision.
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SilverGuitar
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Re: Deciding on pension beneficiary options

Post by SilverGuitar »

Thanks everyone for the excellent input. Your questions and responses have been really helpful in clarifying what my next steps are, and particularly how much there is to learn!
TN_Boy wrote: Mon Jan 10, 2022 10:12 pm Do you have to pick NOW, at ages 36 and 34? My spouse didn't have to decide until taking the pension .... Your assumption about who will die first seems a bit premature given your ages. A lot can go wrong before you two hit your sixties!
I could be totally wrong about this, but we received beneficiary paperwork from the MTRS in the mail, and I think it's important we do it in case my wife were to pass prematurely. We're also about to do estate planning for the first time and I figured we'd need a plan for this to be set in place. Maybe my next step is to ask the MTRS if we can choose one option for now, and potentially change it closer to retirement, so we at least have something in place.
TN_Boy wrote: Mon Jan 10, 2022 10:12 pm It still seems odd to me that losing 80k in yearly income wouldn't be an issue to you if she died first, while 72k instead of 80k per year of pension seems like a big deal. That seems inconsistent; I think you are simply positive you'll go first and basing your decision upon that. Something to hope for :-)?
That is an excellent, excellent point haha, I guess the whole “I’ll likely die first” thing has become the lens through which I’ve been viewing all of this. Might be worth not putting every egg in that basket. I also really appreciate your points about how a lot can happen in 30 years. Another reason perhaps to choose an option now (without worrying too much about it) then reassess closer to retirement. As you also noted, I should find out what happens by default if my wife passes before retirement, and whether any of these options even apply in that circumstance.
celia wrote: Tue Jan 11, 2022 12:00 am OP, Change your options to actual numbers instead of percentages to think of this better.
Awesome idea, thank you! Following what TN_Boy said, I’m thinking I may need to hold off on some of these calculations for the time being, given how long it’s going to be until retirement.
celia wrote: Tue Jan 11, 2022 12:00 am What does the italicized mean? You are not about to retire but throw a thought exercise our way? The options could change, one of you could die, or your other incomes/assets could change between now and then. So, none of the numbers you are considering now are real!
Oops, didn’t mean to italicize that. You make a great point that so much could change between now and then. My next step is probably to see if I can push this off - I may just need to select something for estate planning purposes, depending on what they require in case my wife passes before retirement. Also appreciate your idea of trying out the scenarios in which we die at different ages, or both of us end up living to 100. Hopefully that final one will be how it pans out :)
jeffyscott wrote: Tue Jan 11, 2022 11:53 am Yep, for starters, for a 36 and 34 year old couple, there is about a 20% chance that only one of the two is alive by the time the 34 year old female reaches 65 :(
Ack that’s not a pleasant statistic :( I’m glad to hear things panned out as you hoped, and that your plan ended up working out well. With all the excellent insights here, I’m confident that we’ll arrive at a plan with a decent chance of success, but understanding anything can happen.
rterickson wrote: Tue Jan 11, 2022 1:22 pm OP, you should confirm your questions with your wife's HR.

In my experience with pensions, they want you to select a beneficiary when initially enrolling in the plan, but they don't require you to elect the form of benefits until you actually file the retirement forms.
Thanks! This scenario seems likely, given that we have the paperwork now but also given that so much could change before retirement. We’ll check with her HR.
TN_Boy wrote: Tue Jan 11, 2022 7:37 pm But in my 30s .... save a lot was sorta of my thinking.
Words to live by! I’ve been trying to get more into that mindset. Not sweating the details too much when possible, and rather just focus on saving as much as possible. We just received an inheritance from a grandparent and it’s all going to either investing or saving for un-glamorous needs. We’re using most of it to max out our retirement accounts this year for the first time, which we can’t afford with our current salaries. Hopefully we can get to that point on our own in the coming years!
Cruise wrote: Wed Jan 12, 2022 2:43 am OP, you keep on talking about your wife outliving you given relative ages, sex, and health status. My father was five years older than my healthier mother, until she quickly died from pancreatic cancer. He lived thirteen years after her passing.

You take your chances, but realize there is a distinct longevity risk.

Good luck in your decision.
Point well taken, thank you. Sorry to hear about your mother - my grandmother had pancreatic cancer as well. As others have echoed, hopefully all we need to do at this point is elect a beneficiary, and can worry about the option selection as we near retirement and have a clearer picture of what it will look like.
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Re: Deciding on pension beneficiary options

Post by UpsetRaptor »

I'm pretty sure you're thinking of this wrong. We're in another state's teacher retirement system, and we don't have to select what type of survivor plan until actual retirement. Having to do so now in your 30s would be fairly non-sensical. We did have to pick a beneficiary upon enrolling, and that's probably what your paperwork is for. That's for if the enrollee dies before retiring, their contributions up to that point and some interest gets paid out to the beneficiary.
Last edited by UpsetRaptor on Wed Jan 12, 2022 4:44 pm, edited 1 time in total.
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Re: Deciding on pension beneficiary options

Post by Admiral »

It seems unlikely that any choice you make now (if indeed you have to make it now) will be binding. It's more typical for survivorship options to be chosen when the pension is claimed. The reason is because the pension board (or whomever) bases your actual payment (and the reduction, based on what option you choose) on the age of the spouse.

For example, your spouse might be age X now. But when you claim the pension you might have a different spouse that's age X-10. That would obviously affect your pension payment (and any choice you might make), because if you chose Option C the survivorship benefit would be more likely to be paid out longer, so the reduction would be greater.

FWIW, I am 2 years younger than my spouse, who has the pension. It's still a few years away but we intend to choose what's similar to your option C: an 8% reduction in benefit in exchange for a 50% survivorship benefit. The 8% figure is not set, it's based on the age of the survivor. 8% is what they recommend for planning purposes.
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Re: Deciding on pension beneficiary options

Post by SilverGuitar »

UpsetRaptor wrote: Wed Jan 12, 2022 4:42 pm I'm pretty sure you're thinking of this wrong. We're in another state's teacher retirement system, and we don't have to select what type of survivor plan until actual retirement. Having to do so now in your 30s would be fairly non-sensical. We did have to pick a beneficiary upon enrolling, and that's probably what your paperwork is for. That's for if the enrollee dies before retiring, their contributions up to that point and some interest gets paid out to the beneficiary.
Ack thank you, you could be right about this. I need to follow up with her HR.
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Re: Deciding on pension beneficiary options

Post by SilverGuitar »

Admiral wrote: Wed Jan 12, 2022 4:44 pm It seems unlikely that any choice you make now (if indeed you have to make it now) will be binding. It's more typical for survivorship options to be chosen when the pension is claimed. The reason is because the pension board (or whomever) bases your actual payment (and the reduction, based on what option you choose) on the age of the spouse.

For example, your spouse might be age X now. But when you claim the pension you might have a different spouse that's age X-10. That would obviously affect your pension payment (and any choice you might make), because if you chose Option C the survivorship benefit would be more likely to be paid out longer, so the reduction would be greater.

FWIW, I am 2 years younger than my spouse, who has the pension. It's still a few years away but we intend to choose what's similar to your option C: an 8% reduction in benefit in exchange for a 50% survivorship benefit. The 8% figure is not set, it's based on the age of the survivor. 8% is what they recommend for planning purposes.
This thread has been a real eye opener for me. It's allowed me to take a bit of a breath, realizing there's likely plenty of time to make this decision, whereas initially I felt like it needed to be decided soon. It's also been helpful to hear what other folks like yourself have been electing to do, and it seems like the 50% survivorship benefit appeals to several people and is worth the percentage reduction. Even if we may not actually need to make that decision now, it's helpful to think ahead and hear how other people weigh these sorts of things. Thanks for your input.
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Re: Deciding on pension beneficiary options

Post by Cruise »

SilverGuitar wrote: Thu Jan 13, 2022 8:21 pm
Admiral wrote: Wed Jan 12, 2022 4:44 pm It seems unlikely that any choice you make now (if indeed you have to make it now) will be binding. It's more typical for survivorship options to be chosen when the pension is claimed. The reason is because the pension board (or whomever) bases your actual payment (and the reduction, based on what option you choose) on the age of the spouse.

For example, your spouse might be age X now. But when you claim the pension you might have a different spouse that's age X-10. That would obviously affect your pension payment (and any choice you might make), because if you chose Option C the survivorship benefit would be more likely to be paid out longer, so the reduction would be greater.

FWIW, I am 2 years younger than my spouse, who has the pension. It's still a few years away but we intend to choose what's similar to your option C: an 8% reduction in benefit in exchange for a 50% survivorship benefit. The 8% figure is not set, it's based on the age of the survivor. 8% is what they recommend for planning purposes.
This thread has been a real eye opener for me. It's allowed me to take a bit of a breath, realizing there's likely plenty of time to make this decision, whereas initially I felt like it needed to be decided soon. It's also been helpful to hear what other folks like yourself have been electing to do, and it seems like the 50% survivorship benefit appeals to several people and is worth the percentage reduction. Even if we may not actually need to make that decision now, it's helpful to think ahead and hear how other people weigh these sorts of things. Thanks for your input.
An alternate voice: My wife and I just decided on a 100% survivor option for her pension, which is quite substantial. While we can live fine with or without the pension, knowing that a large amount will be there for me in perpetuity is very comforting. Even more comforting than the 15% we are forgoing now. If I die first, she will get a bump up to the index amount.
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Re: Deciding on pension beneficiary options

Post by delamer »

Cruise wrote: Thu Jan 13, 2022 8:56 pm
SilverGuitar wrote: Thu Jan 13, 2022 8:21 pm
Admiral wrote: Wed Jan 12, 2022 4:44 pm It seems unlikely that any choice you make now (if indeed you have to make it now) will be binding. It's more typical for survivorship options to be chosen when the pension is claimed. The reason is because the pension board (or whomever) bases your actual payment (and the reduction, based on what option you choose) on the age of the spouse.

For example, your spouse might be age X now. But when you claim the pension you might have a different spouse that's age X-10. That would obviously affect your pension payment (and any choice you might make), because if you chose Option C the survivorship benefit would be more likely to be paid out longer, so the reduction would be greater.

FWIW, I am 2 years younger than my spouse, who has the pension. It's still a few years away but we intend to choose what's similar to your option C: an 8% reduction in benefit in exchange for a 50% survivorship benefit. The 8% figure is not set, it's based on the age of the survivor. 8% is what they recommend for planning purposes.
This thread has been a real eye opener for me. It's allowed me to take a bit of a breath, realizing there's likely plenty of time to make this decision, whereas initially I felt like it needed to be decided soon. It's also been helpful to hear what other folks like yourself have been electing to do, and it seems like the 50% survivorship benefit appeals to several people and is worth the percentage reduction. Even if we may not actually need to make that decision now, it's helpful to think ahead and hear how other people weigh these sorts of things. Thanks for your input.
An alternate voice: My wife and I just decided on a 100% survivor option for her pension, which is quite substantial. While we can live fine with or without the pension, knowing that a large amount will be there for me in perpetuity is very comforting. Even more comforting than the 15% we are forgoing now. If I die first, she will get a bump up to the index amount.
I can understand that choice.

My pension didn’t have 100% survivor option but my husband’s did. However, I have an additional source of income that my husband won’t have if I die first. So I don’t need the higher 100% amount (from his pension), and we went with 50%.

People get too hung up on the smallish reduction needed in the initial pension to fund a survivor’s benefit. Life is too unpredictable to leave a spouse without some protection.

In the federal employee’s system, the spouse can’t continue retiree health insurance unless s/he receives a survivor’s pension. So that tends to seal the decision.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. | | Alexandre Dumas, fils
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celia
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Re: Deciding on pension beneficiary options

Post by celia »

SilverGuitar wrote: Wed Jan 12, 2022 3:37 pm
jeffyscott wrote: Tue Jan 11, 2022 11:53 am Yep, for starters, for a 36 and 34 year old couple, there is about a 20% chance that only one of the two is alive by the time the 34 year old female reaches 65 :(
Ack that’s not a pleasant statistic
Another way of saying this is that there is an 80% that you’ll still be living when you both get into your mid-60s. And every year you live from now on, the odds get more favorable. For example when you are both 55, the odds are about 90% you will both get to 65 and when you are both 64, the odds are 99%.

Another reason it doesn’t make sense to make a choice now, is that some teachers have not yet even met their future spouse at the time they are hired in. You know, teachers are allowed to marry (and divorce).

My dad had a smallish pension when he retired at 60 or so. He put mom down as 100% beneficiary then she died a year later. Don’t recall if his pension increased or not but when he re-married, he wanted to protect his new wife in case he died first. So be changed the beneficiary to wife #2. She died 10 years later. In his late 70s he found wife #3 and made her the beneficiary. Since he died at 99, she is now collecting it. This is just to say that life happens.
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SilverGuitar
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Re: Deciding on pension beneficiary options

Post by SilverGuitar »

celia wrote: Fri Jan 14, 2022 12:58 pm
SilverGuitar wrote: Wed Jan 12, 2022 3:37 pm
jeffyscott wrote: Tue Jan 11, 2022 11:53 am Yep, for starters, for a 36 and 34 year old couple, there is about a 20% chance that only one of the two is alive by the time the 34 year old female reaches 65 :(
Ack that’s not a pleasant statistic
Another way of saying this is that there is an 80% that you’ll still be living when you both get into your mid-60s. And every year you live from now on, the odds get more favorable. For example when you are both 55, the odds are about 90% you will both get to 65 and when you are both 64, the odds are 99%.

Another reason it doesn’t make sense to make a choice now, is that some teachers have not yet even met their future spouse at the time they are hired in. You know, teachers are allowed to marry (and divorce).

My dad had a smallish pension when he retired at 60 or so. He put mom down as 100% beneficiary then she died a year later. Don’t recall if his pension increased or not but when he re-married, he wanted to protect his new wife in case he died first. So be changed the beneficiary to wife #2. She died 10 years later. In his late 70s he found wife #3 and made her the beneficiary. Since he died at 99, she is now collecting it. This is just to say that life happens.
Wow quite the journey! A great illustration of how much things can change over the course of one's life.
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SilverGuitar
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Re: Deciding on pension beneficiary options

Post by SilverGuitar »

Cruise wrote: Thu Jan 13, 2022 8:56 pm An alternate voice: My wife and I just decided on a 100% survivor option for her pension, which is quite substantial. While we can live fine with or without the pension, knowing that a large amount will be there for me in perpetuity is very comforting. Even more comforting than the 15% we are forgoing now. If I die first, she will get a bump up to the index amount.
This has been very interesting to think about. I think I'm subconsciously always multiplying things out in my mind as a 30-something, where a small amount saved today can multiple more than 10x in the stock market by the time I'm 65. But in this question about pension benefits, a 10-15% reduction in my 60s has much less of a drastic impact on my lifetime financial picture than it would in my 30s. I think I can see how the added security would be worth that reduction in retirement.
capran
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Re: Deciding on pension beneficiary options

Post by capran »

I sure like our teacher pensions, as it's like having a guaranteed stock fund that pays a substantial dividend every month, and even if the market goes south like it did in 2001 and 2009, the "dividend" is going to be relatively stable going forward. (In Washington state, the COLA is maxed out at 3%, so this year going to lose a little ground to CPI.) We had a close to C alternative. I am 3 years older, and elected to take 83% of my monthly benefit in exchange for 100% of my pension going to my spouse if I pass first. So instead of starting at $2007 I started at %1666. Her mom made it to 92. My parents both passed at 83. If she passes early, my pension will revert to the original plus past COLAS, but Her's will stop.
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