100% 75% 50% Pension Joint and Survivor Choice

[Austhuds]

Due to 'restructuring' at my workplace I'm having to retire earlier than planned. I must decide quickly which pension choice to go with - lump sum was not enough to consider. Married, both about the same age @ 60 years old. Will only have this pension (No COLA) and both our SS for steady income. Have IRAs 401Ks etc. Spouse's SS is calculated at slightly more than half of mine. Planning Spouse start SS at 62 and me at 70.

Any pension choice will not totally cover our living expenses. Pension with SS will almost cover it. We have funds to backfill the necessary income until we both are collecting SS.

I'm having trouble deciding pension choices. Correct me if I'm wrong but the 75% Joint and Survivor seems like the wrong choice as the monthly pension is not significantly more than the 100% J&S monthly pension to warrant that choice. So I'm deciding between the 50% and 100% option. If choosing the 50% option can add on $500k 20 year term life for $3900/year. Worried about when term insurance runs out as wife would rely on assets to fill in the decrease in pension and SS if I die first but chances are it would be enough.

My choices are:
50% Survivor (subsidized by company to be same as Single Life Pension) = $6015 per month
75% Survivor = $5370
100% Survivor = $5180

Tempted to do 50% Survivor with 20 term insurance (no time to get whole life insurance approved before decision time even if wanted to go that route) or buy an annuity with the extra $835 (minus taxes) per month if choose the 50% over the 100% survivor.

Several people advise to do the scenario above but on the other hand I see lots and lots of professional advice to go with the 100%.

I keep thinking the $850 difference will not mean as much in 30 years due to inflation so why not go with the 100%? But it seems like a lot to give up in today's dollars.

Any thoughts would be appreciated as this decision has been suddenly and unexpectedly put before us with not much time to make a decision.

Thanks.

[jeffyscott]

Can you actually buy an annuity that would make up the difference for less than $835 monthly difference? The 20 years of insurance doesn't seem long enough, unless it's expected that the extra money would not really needed by your spouse after 20 years.

How does your spouse feel about the prospect of managing a (larger) pile of money vs. getting a larger monthly check? Mine strongly preferred the latter, so I chose 100% survivor.

All options were supposed to be actuarially equal, except that the retiree's sex was not considered, of course. That fact meant there was a small extra benefit when a male retiree with a female spouse chose the largest survivor benefit and small penalty for the opposite due to life expectancy differences.

[peteyboy]

I took a mix of 75% and 100% for the surviving spouse (had two separate DBPs since they changed the pension about half way thru my company tenure). I did this since no COLA.

[Stinky]

What if your wife dies first? Are you willing to live on 50% benefit?

I chose the joint and 100% option for my pension plan. And I’m happy that I did.

[#Cruncher]

What if your wife dies first? Are you willing to live on 50% benefit?

The original poster should check to see if this how the pension works; i.e., the 50% benefit kicks in when either spouse dies. With many pension plans the smaller benefit only kicks in when the primary pensioner dies. I evaluated both cases below with my Longevity Estimator Excel workbook. Here are the present values of the survival-weighted benefits for a man/woman couple both age 60 using the SSA 1960 Cohort Life Table.

Code: Select all

       ------- Alive ------
         Only   Only           --- Discount Rate ---
         Husb   Wife   Both      4%       5%     6%
        --- Benefit / Mo --    --- Present Value ---
100%    5,180  5,180  5,180    1,059K    946K   852K

75%-a   4,028  4,028  5,370    1,016K    912K   826K
50%-a   3,008  3,008  6,015    1,046K    946K   861K

75%-b   5,370  4,028  5,370    1,047K    939K   848K
50%-b   6,015  3,008  6,015    1,117K  1,005K   911K

If the larger benefit continues only while both are alive, the 50% option "a" has about the same survival-weighted present value as the 100% option. But if the larger benefit continues while the husband is alive, the 50% option "b" is noticeably higher.

[dknightd]

This is a decision where you will not know the "right" answer till it is too late to change your mind.
According to our calculations the survivor will need about 3/4 as much money as both of do.
When one of us dies, the smaller SS check will go away. The remaining SS check might be enough to live on, but probably not as comfortably as we'd like.
For this reason, we've decided to take all annuities and pensions dual life with 100% to survivor. That, plus the remaining SS check, should be enough to be reasonably comfortable. We'll probably have other money, but we are self insuring for long term care, so maybe not.
I'm not going to bet money on which one of lives longer, and how long that might be. I think we both sleep better knowing that the other will be taken care of financially no matter how long they live.
I guess we are essentially giving up current income just in case one of us lives a long time. That is a decision we are both comfortable with.

[dknightd]

@Austhuds, if you are still around, you might want to read McQ's "melancholy" thread.

viewtopic.php?t=397983

[Austhuds]

Cruncher - indeed the 50% Survivor option means the monthly amount stays the same while the pensioner is alive and only goes to 50% of the monthly amount if the pensioner passes away and the spouse is alive. i.e. the typical way these pension options work.

Thank you so much for your analysis. I think the reason the value in your calculator of the 50% option being higher than the other options is because the company doesn't offer a single life annuity to a married employee/pensioner but instead subsidizes the 50% option to be the amount a single life annuity would have been. A nice gesture from the company and probably the reason it makes it more enticing to chose than it would be if not subsidized. Hope that makes sense.

Can you help me understand the 'discount rate' in your chart? Is that how much the pensions would equal given a 4%, etc rate of return over the years?

I do indeed want to make sure my spouse is taken care of if I die first and not face a sudden hardship. I just want to do it the smartest way. I can't seem to figure out if the increased monthly payment of the 50% option, if saved not spent each month, over 20 years until the term life insurance is over and say I pass away at year 21 (just after the term ends so no payout) is equivalent or better than taking the 100% survivor option. The math seems difficult to wrap my head around.

My interest here is NOT that I can collect more money while alive on the 50% option and let my spouse deal with the sudden drop of income for her it if I die first. Not at all. I'm just thinking I may have left her MORE money by taking the 50% option with term life insurance. Either she gets the life insurance payout and life is good for her OR she never gets the life insurance payout but for at minimum 20 years maybe more we were collecting more money monthly and saved that for her.

This decision is agonizing....mostly because of the involuntary retirement several years before expected. A few more years at my company and it would have been a different story entirely as I had been expecting. Yes, I know I can look for a job again but not sure at my age what will happen with that and so not factoring it in as it may or may not happen.

Thoughts?

Thanks.

[Golf maniac]

My pension is a max 50% survivor but has an annual COLA. I used a spreadsheet to map out our expenses until 95 using a 3% inflation rate. I then mapped out my DW expenses if I die at 65, 70, 75, and 80. I found that there was an income “gap” for her from 65 to 75. I then took out a term policy to fill that gap. I would strongly suggest the OP similarly look at their expenses and any gap be filled with a term policy if you take anything less than a 100% survivor option. The OP has a tougher situation since there is no COLA for the pension. Filling the income gap as they age will have to come from investments.

[Austhuds]

True Golf Maniac - No COLA will mean making up gaps by using investments which is what I probably really need to focus on as it is a risk no doubt. Seems like we should be able to cover that with assets if the world stays fairly 'normal' - but that is a lot to bet on I guess.

dkneighted - thanks for the link to the story illustration.

[jeffyscott]

^No COLA probably means you should strongly favor TIPS over nominals.

Your employer offering the subsidy for the 50% option is nice. It's unfortunate that they take that away if you choose the 100% survivor benefit, though. Based on the 4% discount rate figures that #cruncher posted, it appears that it would effectively cost $58,000 to buy that extra protection.

[#Cruncher]

Can you help me understand the 'discount rate' in your chart?

The "Alive" sheet of my my Longevity Estimator Excel workbook calculates the survival-weighted benefit every year. The discount rate is then applied to each of these yearly values to get a present value. For example, the PV of $100 in one year at 5% is $95.24 = 100 / 1.05; the PV of $100 in two years is $90.70 = 100 / 1.05 ^ 2; etc. The discount rate can also be considered as the rate money would grow if invested instead of being spent.

I can't seem to figure out if the increased monthly payment of the 50% option, if saved not spent each month, over 20 years until the term life insurance is over and say I pass away at year 21 (just after the term ends so no payout) is equivalent or better than taking the 100% survivor option.

Maybe the following table (using the Excel FV and NPER functions) will help. It shows how much the $850/mo difference would grow to after 20 years, and then how long that amount would last if $2,172 is withdrawn each month (to make up the difference between $5,180 and $3,008). For example, $835 would grow to $303,808 after 20 years if invested at 4%. $2,172 could then be withdrawn for 15.6 years before the balance is exhausted, if it continues to grow by 4%.

Code: Select all

Row                  Col A    Col B    Col C    Col D  Formula in Column B
  2                  Years       20
  3     Mo pmt 100% option    5,180
  4  Mo pmt 50% husb alive    6,015
  5  Mo pmt 50% wife alive    3,008
  6        Diff husb alive      835                    =B4-B3
  7        Diff wife alive    2,172                    =B3-B5
  8                   Rate       4%       5%       6%
  9               Grows to  303,808  338,847  378,621  =  FV((1+B8)^(1/12)-1, $B2*12, -$B6,   0,    0)
 10        Years will last     15.6     20.7     32.4  =NPER((1+B8)^(1/12)-1,          $B7, -B9, 0, 0)/12

Alternatively your wife could take the money and purchase an annuity. Immediate Annuities says that $303,808 would buy a life annuity of $2,848 per month for an 80-year old woman in NY. This is more than the $2,172 shortfall of the $3,008 50% she'll be getting after you die and the $5,180 she would have gotten if you'd elected the 100% survivor.

[Valuethinker]

Due to 'restructuring' at my workplace I'm having to retire earlier than planned. I must decide quickly which pension choice to go with - lump sum was not enough to consider. Married, both about the same age @ 60 years old. Will only have this pension (No COLA) and both our SS for steady income. Have IRAs 401Ks etc. Spouse's SS is calculated at slightly more than half of mine. Planning Spouse start SS at 62 and me at 70.

Any pension choice will not totally cover our living expenses. Pension with SS will almost cover it. We have funds to backfill the necessary income until we both are collecting SS.

I'm having trouble deciding pension choices. Correct me if I'm wrong but the 75% Joint and Survivor seems like the wrong choice as the monthly pension is not significantly more than the 100% J&S monthly pension to warrant that choice. So I'm deciding between the 50% and 100% option. If choosing the 50% option can add on $500k 20 year term life for $3900/year. Worried about when term insurance runs out as wife would rely on assets to fill in the decrease in pension and SS if I die first but chances are it would be enough.

My choices are:
50% Survivor (subsidized by company to be same as Single Life Pension) = $6015 per month
75% Survivor = $5370
100% Survivor = $5180

Tempted to do 50% Survivor with 20 term insurance (no time to get whole life insurance approved before decision time even if wanted to go that route) or buy an annuity with the extra $835 (minus taxes) per month if choose the 50% over the 100% survivor.

Several people advise to do the scenario above but on the other hand I see lots and lots of professional advice to go with the 100%.

I keep thinking the $850 difference will not mean as much in 30 years due to inflation so why not go with the 100%? But it seems like a lot to give up in today's dollars.

Any thoughts would be appreciated as this decision has been suddenly and unexpectedly put before us with not much time to make a decision.

Thanks.

Start with the presumption that you should default to the highest Survivor benefit.

Work backwards as to what you can do that that difference between that and 50%? How material is that to your standard of living and what you want to do in retirement.

And don't forget tax if you are figuring on investing the difference.

I don't think a term life assurance strategy is likely to be economic. Life insurance rates rise *a lot* after you get into your 50s. And that medical underwriting can unearth something that can make it prohibitive.

My bottom line is opt for the 100% survivor benefit unless you can really persuade yourself otherwise. Safety first. And your partner (without you) first.

[eddot98]

Back in 2021 in response to another post similar to the OP’s here, I posted the following:

“When I retired from NY State in 2010 at 59, DW was 58, I had the same decision on the payout from a retirement plan with no COLA. I chose the joint full option, 100% to DW if I die first. DW doesn’t have a pension of her own and didn’t have enough quarters for Social Security, so she gets spousal SS. Besides Medicare, DW will be able to get secondary health insurance through Empire Plan at the single retired employee price (Empire Plan also reimburses cost of Medicare). There are so many State employees in Albany where I worked, that John Hancock had a plan for using insurance products to “maximize” benefits. At my age, their plan said that I should take the Single option (where payments cease at my death) and purchase specific amounts of Whole Life Insurance plus Term Life Policies of 5, 10, 15, and 20 years, if memory serves me well. We decided that even though there was a slight financial advantage in using the insurance products, dumping a lump sum on DW at the time of my demise and making her find a way to convert that to lifetime income was just too complicated to make it worth it. Eleven plus years later, we haven’t regretted the decision at all.”

The life insurance choice is not as simple as taking one 20 year term policy, but a combination of whole life and different length term policies. As I said in the post, that was not the best choice for us.

[Cruise]

Spouse and I took 100% option because we wanted the survivor to be as comfortable as possible. We decided that there was simplicity and security in this decision which far outweighed the % difference we were missing out on. Good luck in your decision.

[clip651]

What does your wife think? She is the one that may need to navigate this without your help someday.

[WhiteMaxima]

pension is am longevity insurance. So 70% survival benefit is mid of 100% 50%. I will tak it if I were you.

[capran]

I took a reduced pension (with 3% COLA) that would provide her 100% of that reduced amount. So instead of a $2000 pension, I got $1666, but it will continue as long as she lives. If she were to pre-decease me, my pension would revert back to my higher original plan. We did not, however, do the same with her pension. When she passes her pension goes away. She is 3 years younger and has longevity on her family side, so the odds are I will pass first. We did screw up on the SS side. Our incomes were pretty close to each other, but I did take mine at 64 (because at that point her pension was our only "income" per se, and had a same aged friend die suddenly). and she is waiting till 70 to start her SS. At the time I did a rough value of annual pension income going forward in excel which left me feeling OK that she will be in great shape. (Perhaps too good, because of IRMAA and RMD's). I had not considered annuities or life insurance, but if the coverage would be better, might be a good option.

[Valuethinker]

Can you help me understand the 'discount rate' in your chart?

The "Alive" sheet of my my Longevity Estimator Excel workbook calculates the survival-weighted benefit every year. The discount rate is then applied to each of these yearly values to get a present value. For example, the PV of $100 in one year at 5% is $95.24 = 100 / 1.05; the PV of $100 in two years is $90.70 = 100 / 1.05 ^ 2; etc. The discount rate can also be considered as the rate money would grow if invested instead of being spent.

I can't seem to figure out if the increased monthly payment of the 50% option, if saved not spent each month, over 20 years until the term life insurance is over and say I pass away at year 21 (just after the term ends so no payout) is equivalent or better than taking the 100% survivor option.

Maybe the following table (using the Excel FV and NPER functions) will help. It shows how much the $850/mo difference would grow to after 20 years, and then how long that amount would last if $2,172 is withdrawn each month (to make up the difference between $5,180 and $3,008). For example, $835 would grow to $303,808 after 20 years if invested at 4%. $2,172 could then be withdrawn for 15.6 years before the balance is exhausted, if it continues to grow by 4%.

Code: Select all

Row                  Col A    Col B    Col C    Col D  Formula in Column B
  2                  Years       20
  3     Mo pmt 100% option    5,180
  4  Mo pmt 50% husb alive    6,015
  5  Mo pmt 50% wife alive    3,008
  6        Diff husb alive      835                    =B4-B3
  7        Diff wife alive    2,172                    =B3-B5
  8                   Rate       4%       5%       6%
  9               Grows to  303,808  338,847  378,621  =  FV((1+B8)^(1/12)-1, $B2*12, -$B6,   0,    0)
 10        Years will last     15.6     20.7     32.4  =NPER((1+B8)^(1/12)-1,          $B7, -B9, 0, 0)/12

Alternatively your wife could take the money and purchase an annuity. Immediate Annuities says that $303,808 would buy a life annuity of $2,848 per month for an 80-year old woman in NY. This is more than the $2,172 shortfall of the $3,008 50% she'll be getting after you die and the $5,180 she would have gotten if you'd elected the 100% survivor.

Do these calculations adjust for tax?

[bsteiner]

Back in 2021 in response to another post similar to the OP’s here, I posted the following:

“When I retired from NY State in 2010 at 59, DW was 58, I had the same decision on the payout from a retirement plan with no COLA. I chose the joint full option, 100% to DW if I die first. DW doesn’t have a pension of her own and didn’t have enough quarters for Social Security, so she gets spousal SS. Besides Medicare, DW will be able to get secondary health insurance through Empire Plan at the single retired employee price (Empire Plan also reimburses cost of Medicare). There are so many State employees in Albany where I worked, that John Hancock had a plan for using insurance products to “maximize” benefits. At my age, their plan said that I should take the Single option (where payments cease at my death) and purchase specific amounts of Whole Life Insurance plus Term Life Policies of 5, 10, 15, and 20 years, if memory serves me well. We decided that even though there was a slight financial advantage in using the insurance products, dumping a lump sum on DW at the time of my demise and making her find a way to convert that to lifetime income was just too complicated to make it worth it. Eleven plus years later, we haven’t regretted the decision at all.”

The life insurance choice is not as simple as taking one 20 year term policy, but a combination of whole life and different length term policies. As I said in the post, that was not the best choice for us.

Of course it was an insurance company or agent who suggested life insurance.

[Austhuds]

Thanks Cruncher for the annuity calculation it was helpful. My initial thoughts are it's a lot of work saving up for that annuity for 20 yrs. It probably works out financially better to do the annuity but a lot of effort to get there. IDK.

After all the comments (thank you so much) I'm leaning towards the 100% Jt & Survivor. I think I'm leaving some money on the table as there may be a way via life insurance and/or annuities to get similar (but not exactly the same) coverage for cheaper then the $835 monthly I'm giving up if I went with the 50% Jt & Survivor which kind of bothers me. Why pay more for similar coverage? But in the end it is maybe more trouble and possible pitfalls with an annuity or life insurance product than it's worth. Especially since I only have approval for term insurance right now and no time to get approval for universal life products.

Those of you that have pensions with COLA - Wow - what a huge difference that makes! Wish more Megacorps offered that or even the 'pop-up' feature. Mine offers neither - nor healthcare - I have to buy healthcare coverage on the open market and it is quite expensive with very high deductibles.

Hope I'm making the best decision!

Thanks again for past comments. Any additional comments are welcome as I have a week or so to make final decision.

Thanks, Bogleheads, you are a great group!

[Stinky]

Thanks Cruncher for the annuity calculation it was helpful. My initial thoughts are it's a lot of work saving up for that annuity for 20 yrs. It probably works out financially better to do the annuity but a lot of effort to get there. IDK.

After all the comments (thank you so much) I'm leaning towards the 100% Jt & Survivor. I think I'm leaving some money on the table as there may be a way via life insurance and/or annuities to get similar (but not exactly the same) coverage for cheaper then the $835 monthly I'm giving up if I went with the 50% Jt & Survivor which kind of bothers me. Why pay more for similar coverage? But in the end it is maybe more trouble and possible pitfalls with an annuity or life insurance product than it's worth. Especially since I only have approval for term insurance right now and no time to get approval for universal life products.

Those of you that have pensions with COLA - Wow - what a huge difference that makes! Wish more Megacorps offered that or even the 'pop-up' feature. Mine offers neither - nor healthcare - I have to buy healthcare coverage on the open market and it is quite expensive with very high deductibles.

Hope I'm making the best decision!

Thanks again for past comments. Any additional comments are welcome as I have a week or so to make final decision.

Thanks, Bogleheads, you are a great group!

Sounds like a good plan to me.

[bltn]

Thanks Cruncher for the annuity calculation it was helpful. My initial thoughts are it's a lot of work saving up for that annuity for 20 yrs. It probably works out financially better to do the annuity but a lot of effort to get there. IDK.

After all the comments (thank you so much) I'm leaning towards the 100% Jt & Survivor. I think I'm leaving some money on the table as there may be a way via life insurance and/or annuities to get similar (but not exactly the same) coverage for cheaper then the $835 monthly I'm giving up if I went with the 50% Jt & Survivor which kind of bothers me. Why pay more for similar coverage? But in the end it is maybe more trouble and possible pitfalls with an annuity or life insurance product than it's worth. Especially since I only have approval for term insurance right now and no time to get approval for universal life products.

Those of you that have pensions with COLA - Wow - what a huge difference that makes! Wish more Megacorps offered that or even the 'pop-up' feature. Mine offers neither - nor healthcare - I have to buy healthcare coverage on the open market and it is quite expensive with very high deductibles.

Hope I'm making the best decision!

Thanks again for past comments. Any additional comments are welcome as I have a week or so to make final decision.

Thanks, Bogleheads, you are a great group!

I think you re making a good choice with the 100% survivor benefit. Especially since one Social Security check will disappear with the first to die.

[Mike Scott]

Since my pension will be our primary income for life after retirement, we have defaulted to the 100% survivor option. There would have to be a significant advantage to even consider one of the other options. The pension with survivor option does have a "pop up" feature but that is not part of the decision; just a happy little feature if spouse unexpectedly dies first.

[busdriver]

My interest here is NOT that I can collect more money while alive on the 50% option and let my spouse deal with the sudden drop of income for her it if I die first. Not at all. I'm just thinking I may have left her MORE money by taking the 50% option with term life insurance. Either she gets the life insurance payout and life is good for her OR she never gets the life insurance payout but for at minimum 20 years maybe more we were collecting more money monthly and saved that for her.

This decision is agonizing....mostly because of the involuntary retirement several years before expected. A few more years at my company and it would have been a different story entirely as I had been expecting. Yes, I know I can look for a job again but not sure at my age what will happen with that and so not factoring it in as it may or may not happen.

Thoughts?

If you were able to find work to help smooth things out, is there an option to delay taking the pension allowing it to increase the monthly amount?

I retired at 65 and by delaying my non-cola pension to 70 nearly doubles the monthly amount.

In "How to Make Your Money Last" Jane Bryant Quinn advises:

Take the full 100 percent joint-and-survivor payments if they’re offered. At least take the version that leaves your spouse with 50 percent of what you received as a couple and ensure that there are plenty of other assets for his or her support.

[Free to Choose]

Austhuds, you may want to see what SPIA you can get for the company's lump sum payout. I am hearing about results that are better than the pension.

Any time I looked at it, the company's pension was better than what I could get on the outside when turning the lump sum into a SPIA. I guess with the rapid change in inflation, corporate rates and IRS segment rates, this has reversed.

I don't have any specific data to share. This is what I have been hearing from others going thru Fidelity for a SPIA with their lump sum and with the same criteria the company used for lifetime and spousal payouts.