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Hello All...

I will be making some choices soon concerning spousal benefits relative to pension payments from a defined benefit retirement program from my years with the old Bendix Corporation.

I can elect for a certain percentage of my pension payments to continue for my wife after my death. If I choose this option, my pension will be paid at a reduced rate. The monthly amount I receive is dependent upon the percentage I elect for my wife after I die.

I have heard somewhere that it is most prudent to take the full pension payment and ignore the death benefit for my wife. I recall that the logic in the argument was beneficial to both myself and my wife. Trouble is, I can't remember what the logic was.

Could anyone enlighten me?

Thanks ... Jim
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Greetings, Jim, and welcome. You asked:

<<I have heard somewhere that it is most prudent to take the full pension payment and ignore the death benefit for my wife. I recall that the logic in the argument was beneficial to both myself and my wife. Trouble is, I can't remember what the logic was.>>

It is the logic of the life insurance salesman who wants to sell you a policy which has your wife as the beneficiary. In essence, it says spend up to the difference of a full pension versus what you would receive if you took a joint pension. (i.e., the one that would pay your wife a benefit when you die). Then, if you die, your spouse could use the life insurance to generate at least enough income to pay her what she would have received had you taken the joint pension, and hopefully more.

If you wish to provide your spouse an income after you die, then beware of that logic. You must run a number of alternative comparisons to see if it makes sense in your situation. Often, it does not, and is used simply to generate an income for the salesman.

Regards..Pixy
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My husband and I are in a similar situation and have decided to take the option where I get one half of his pension if he dies. We rejected the life insurance option for several reasons. At my husband's age of 65 the premiums are high. What happens to me if later on the insurance company drops my husband because of his age or health? What happens if we cannot afford the premiums later on? What happens if the insurance company goes out of business or is taken over by another company? If my husband dies, what happens if the insurance money I receive is lost because of bad investments? My husband's pension is from a city government and has a cost of living provision so we feel that his pension will be there for many years to come.
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Pixy says:

It is the logic of the life insurance salesman who wants to sell you a policy which has your wife as the beneficiary. In essence, it says spend up to the difference of a full pension versus what you would receive if you took a joint pension. (i.e., the one that would pay your wife a benefit when you die). Then, if you die, your spouse could use the life insurance to generate at least enough income to pay her what she would have received had you taken the joint pension, and hopefully more.

In my former life, I tried to sell a few of these deals, and found it was a difficult thing to do...Age, company underwriting, cost, etc. The biggest problem, its a gamble that the pensioner is going to outlive the spouse, as that is the only good reason to seriously consider it if you are going to spend the same amount for insurance as the reduction in pension would be. Unless the spouse is in very bad health, not a smart gamble.

Also, it is my understanding that a spouse has to sign off on all these elections, so it is his or her final decision.

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I can elect for a certain percentage of my pension payments to continue for my wife after my death. If I choose this option, my pension will be paid at a reduced rate. The monthly amount I receive is dependent upon the percentage I elect for my wife after I die.
I have heard somewhere that it is most prudent to take the full pension payment and ignore the death benefit for my wife. I recall that the logic in the argument was beneficial to both myself and my wife. Trouble is, I can't remember what the logic was.


As a surviving spouse myself, I wonder how your wife would feel about getting nothing of your pension should you die. Certainly, your company might think it prudent as in that case they would not have to pay out any more of your pension.

Please discuss this with your wife before making this decision.

follydolly
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I believe ERISA requires that the spouse sign a waiver if the survival benefits are waived.

Look at the total picture, not just the pension.

What happens with Social Security? If both spouses worked, but with different pay, it's possible that the spouse will receive higher benefits as survivor than as retiree. Also, do existing life insurance polices make up for the difference, with earnings from the proceeds (interest, or as an annuity)?
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