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No. of Recommendations: 1
This is way out of my knowledge base but you might also want to consider how "safe" the company is financially. That pension benefit exceeds what it would be insured (by PBGC) for, so if the company goes under, your pension will be cut even though it is insured. The limit was around $6,000 a month and it is lower than that if you start your pension before age 65.

I'm guessing others here know this stuff.

good luck
Rich
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Devotoyou : I am retiring and the company annuity choices are:
Annuity 1, 50%, retirement pay $9,000 a month and if I die, my wife gets $4,500
or
Annuity 2, 100%, retirement pay $8,000 a month and if I die, my wife gets $8,000

Annuity 1, you are getting $1,000 more a month than Annuity 2, but if you die wife gets $4,500
Annuity 2, you are getting $1,000 less a month than Annuity 1, but if you die wife gets $8,000

Variables are health, life expectancy?
Which is the right choice?


Well, let's change the "if" to "when" and then ask you for some probabilities regarding your life expectancy vs your wife's. What (if anything) is the age difference? What are the different health factors between the two of you? Family histories?
It would not be too hard to put together a spreadsheet to model various "what-if?" scenarios.

But one would also want to add in some other considerations:
Such as: What other resources do you have?
In light of the answer to that question,
How important is the $1,000 difference now?
How important will the $3,500 difference be IF it should come into being?

One other question occurs to me: my company (nearly 20 years ago, so corporate practices may have changed) offered those alternatives; it also offered a "lump sum" option. They had software that figured out the present value of the future cash flow of whatever pension a retiree was entitled to, factoring in life expectancy--the actual algorithm for all of that is complicated and a bit beside the point here; if somebody wants to know, I did dig into it and can explain it-- Anyway, I ended up in my case taking that course of action and haven't regretted it. The downside, potentially, and what they warned about, is that getting a lump sum is somewhat akin to winning a lottery in that it puts a nice chunk of money at your disposal; it's easy to lose it, spend it recklessly, invest it (lower case) foolishly....d As I say, it's possible that companies no longer offer that, but if they do, it's worth considering.

mathetes
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No. of Recommendations: 5
Despite the math and variables involved, perhaps the most important question is does your wife need the extra $3500 a month?

Also, if your wife goes first, would annuity 2 revert to annuity 1 or are you stuck at the lower amount? In most cases, you are stuck at the lower amount but companies have been a bit more lucrative lately.

Assuming you are stuck at the lower amount, and since the age of death is a variable both of you must consider, one additional calculation I recommend is seeing how much life insurance (20 year term) you can get for $1000 a month. The goal of this would be to get enough life insurance on yourself so that you could take the higher amount and provide an insurance policy for your wife to cover the $3500 difference. Again, assuming you are locked into your choice, doing this would allow you to cancel the life insurance policy if your wife goes first and then keep the extra $1000 a month.

Absent all of the above, if you want to do a more indepth comparison, you are going to need to make a number of assumptions around mortality, inflation, and rate of return on the extra $1000 and then determine the Net Present Value of both income streams.

Regardless, good problem to have with a $100,000 pension.
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We were originally holding off to take the pension as an annuity at 65, but having worked in the Petroleum Refining Industry we were very concerned about the ability of the company to survive. Just yesterday XOM has announced major cuts to employment and benefits, and the company we worked for had already made significant job cuts.

Since we still had a choice, we decided to take a lump sum to invest inside an IRA. We won't have to worry about what happens to the pension plan and if one of us dies the other gets the whole amount, or if we both get hit by a truck the boys get it.

We also can now put off getting income from the pension until RMDs commence, rather than at 65, which was the latest we could put off taking the pension when retired, and the ability to control the income will have positive tax benefits.

The negative is that this does just leave us with social security as a back up for our own investments. We had considered taking the annuity as a hedge against doing something completely stupid with our funds, having learned from Dad's behavior that we have to learn to protect ourselves from ourselves. And now we have even more cash to figure out what to do with. Yes, a first world problem, but it is stressful to deal with given today's market.

IP
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The following is only looking at total payout. While this is an important factor, it is not the only factor to consider.

If you anticipate outliving your wife, clearly the 50% option will yield more money over the payout period.

If you anticipate that your wife will outlive you (and I've done this correctly): Assume that x is the total months that you live and y is the number of months longer that your wife lives. Total payout for the 50% option is 9000x + 4500y. Total payout for the 100% option is 8000(x+y).
* If your wife lives for [(the number of months you lived) x .285714] months beyond your death, the payout for the two options is equal.
* If your wife lives for greater than [(the number of months you lived) x .285714] months beyond your death, then the 100% option will yield more over the payout period.
* If your wife lives for less than [(the number of months you lived) x .285714] months beyond your death, the 50% option will yield more over the payout period.

Kathleen
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This is way out of my knowledge base but you might also want to consider how "safe" the company is financially. That pension benefit exceeds what it would be insured (by PBGC) for, so if the company goes under, your pension will be cut even though it is insured. The limit was around $6,000 a month and it is lower than that if you start your pension before age 65.

I'm guessing others here know this stuff.

good luck
Rich
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No. of Recommendations: 0
Annuity 1, you are getting $1,000 more a month than Annuity 2, but if you die wife gets $4,500
Annuity 2, you are getting $1,000 less a month than Annuity 1, but if you die wife gets $8,000


To take a stab at that, we also need to consider your and your wife's social security benefits, especially if your wife will be getting SS based on her own earnings or based on yours as a spouse. If the latter, while you're both alive and drawing SS, you'll be getting 1.5 times the main breadwinner's benefit. (That actually can change based on you and her taking SS before Full Retirement Age, at FRA, delaying to 70, or a mix between the two of you.)

Worth considering: If wife dies first, you get the pension plus only your own SS (two thirds of what you'd been getting together). Your expenses will go down some, but your taxes will go up because of a lower standard deduction and worse tax brackets due to filing single. BUT,
if you die first, your wife gets the pension plus only your own SS (two thirds of what you'd been getting together, because as survivor she will get your amount and lose hers that's half as much as yours). Her expenses will go down some, but again, taxes will go up because of a lower standard deduction and worse tax bracket due to filing single. Here's the question--Can she withstand getting $4500 a month instead of $8000?

One might be able to show that getting the extra $1000 a month from the 50% option and then banking it for years is good financially if she goes first *or* if you go first. In my case, I wouldn't want my wife to get less from the pension because she'll already be getting less from Social Security.

One way to solve the question of "Where will money come from if I die?" is via life insurance. One way of looking at the choice of taking the 100% survivor pension is that it's life insurance for your life to benefit your wife and it costs you $1000 a month. There may be cheaper policies, but I can't guess what the rates might be for your age.

Also, if your wife is going to take SS based on her own earnings, a lot of what I wrote is moot, but maybe run through my thought process as an intellectual exercise.
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Annuity 1, you are getting $1,000 more a month than Annuity 2, but if you die wife gets $4,500
Annuity 2, you are getting $1,000 less a month than Annuity 1, but if you die wife gets $8,000


How large is your investment portfolio? Could she comfortably live on that and the $4500?

We went with #1.

You know, a lot of people manage to get by on only $4,500 a month. Plus whatever her SS would be.
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My approach would be to put both plans into a spreadsheet and calculate the break even point.

Then decide which fits better with your longevity expectations.

If you live longer than the break even point one becomes the clear winner.
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Another way to look at this is:
Option 1 you get $4500 each for as long as each of you live.
Option 2 you get $4000 each for as long as you live, then your wife gets $8000 for as long as she lives.

Personally I would take option 1 in the hope that we both have a long life, and at least die at a similar time. That extra $500 dollars each a month while we are both alive could be invested and make a nice nest egg for the surviving partner.
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