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Subject:  Re: Need help choosing pension option Date:  11/2/2007  11:37 AM
Author:  JAFO31 Number:  59976 of 103316

Rayvt: "I've been thinking about this a little bit more. One thing that has been going around my head is that in the financial arena, quite ofter the "obvious" best choice is almost always *not* the best, and is often actually the worst. So I thought I'd play around with some figures.

Life Only pays $1121/mo, and Joint&100% Survivor pays $902/mo. In essence, you are paying $219 a month to insure that the survivor continues to collect $902 when one of you dies.

Now, what's the worst and best cases (in financial terms)?
For LO, the worst case is that he dies 1 day after receiving the 1st pension payment. You will get nothing forever.
For J&S, the worst case is that YOU die 1 day after the 1st pension payment. He'll still be paying (i.e., missing out on) the $219/mo forever--paying insurance for somebody who is already dead.

For LO, the best case is that you die first. He'll continue to collect the full $1121 forever.
For J&S, the best case is everything. Every possible combination of 1st to die is the same.

In either case, when the 2nd of you dies there is no other beneficiary--your kids get nothing. So in both cases, the worst case for the family is that you BOTH die 1 day after the 1st payment.

So, how can things be structured to best avoid the worst cases at the lowest possible cost? We already know that your base cost is $219/mo. Perusal of online life insurance quotes told me that for $219/mo a 65 year old non-smoker male in average health can buy a 15 year term life policy that will pay $225,000 when he dies."

Only if he dies during the 15 year term of the policy. If he lives 15 years, than the price for a new term policy will be much higher. IMO, this scenario is one that calls for a permanent policy (which likely will buy considerably less than 225k of coverage).

"So, what if he takes LO and also this life insurance policy? Your net income is still $902/mo. When he dies, the pension stops, and the insurance policy pays $225,000."

Only if he dies during the term of the policy.

". . .

BUT!!!!! What about the situation from the entire family standpoint? When the second of you dies, your beneficiaries--presumably your kids--will get either the $225k insurance or the balance of the savings account. So the family income will be $902 a month for at least 20 years, and could conceivably be $902/month forever. Jointly by the two of you while you are both alive, individually by the survivor when the first of you dies, and then by the kids when the 2nd of you dies."

Only if he dies during the term of the policy.

Regards, JAFO
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