@busdriver11 we have a similar pension situation, and if we both live into our 90s or something that plan would be great for us, but if either one of us dies younger, we think we’re better off with the 50% spousal benefit option.
We’d both get slightly reduced pension amounts initially. If I die first, for instance, his pension would then pop back up to what he would have gotten if he had chosen the single life annuity option (going forward only, no retroactive adjustment), plus he’d get 50% of my pension amount.
So it’s slightly lower while we’re both alive, but much higher if one of us dies younger. Since we have enough either way, we chose the 50% option. Think about your family health history, roll the dice, make a decision and move on.
That’s an interesting pension option, @MomofJandL. I don’t think we have that sort of choice, though it’s surprisingly more complicated than I’d expected. Our family health history is fairly similar, so it definitely is a roll of the dice.
We chose me to get 55% of H’s pension for a 10% reduction in current annuity. If I die before H, his payments increase to full 100% monthly payouts instead.
I have elected the 50% for my spouse in the event of my death. But if he dies first, my pension mount will pop up to the full amount…because there no longer is a spouse!
I’ve got DH getting 50% of my little TRS pension if I die; if he dies first, mine pops up to 100%. We are going to do 0% for spouse on my city retirement when I retire in August, as I will only recieve 24% of my salary and so the money is not significant. When DH retires, we will likely do 75 or 100% to spouse, with the pop up provision to him if I die first, since inflation will seriously impact the fixed benefit pension as time goes on and we want the survivor to have enough money. Regarding the original question; I think that if the retiree is eligible to retire (even if they have not retired) the beneficiary can have the choice of pension or a lump sum of individual’s pension contributions plus the organization’s contribution. I could be wrong…
I would definitely check with your HR. My husband is able to take a one time lump sum instead of the monthly pension. He intends to roll it into an IRA. That way if we both die the kids get something…
It’s best to always check with HR and read the terms of any pension so there are no bad financial surprises at time of death. One of my friends was sadly surprised to get no survivor benefit when her MD Husband died. Thankfully, she was entitled to get SS as a widow but the pension would have really helped her as well.
H is able to pick a lump sum option for his pension also. Every single retiree we have talked to has discouraged that option. I only know two people who picked the lump sum. One being H’s uncle, according to my MIL he has no money left and is living in subsidized housing. This was a long term union employee with I know is a good pension.
Wondering what others opinions are on lump sum vs annuity? We also have a 401k
This happened to a friend here. When she retired…she elected to take the full benefit herself and not a reduced amount so her husband would have a portion. He agrees to this (god knows why) and singled whatever he needed to sign to basically sign away the rights to any of her pension money.
If you have a pension benefit and a 401k, my feeling is to take the pension as an annuity and do not annuitize the 401k. This way you can keep the 401k as somewhat liquid assets for major expenses (property taxes, car, roof, appliances) or to pass on to the next generation. When I worked as a plan administrator, if someone wanted to take a lump sum, the plan documents sets the terms of how that amount is calculated. The discount rate is hefty. It is seldom to your benefit. The advantage (to the employee) in a traditional defined benefit pension plan is that the investment risk falls on the EMPLOYER, not the employee. Take a lump sum and you have to do pretty well to make that lump equal the amount of annuity payments you would have received over the rest of your life – especially if you live many, many years after retirement. For the plans we ran, that meant about 8% return annually after tax.
^ But, once one hits 70.5 those pesky RMDs hit for 401ks (and IRAs)… it’s not like one can just leave them sitting around gathering tax-deferred interest forever…(sure wish we could.)
It also depends on the relative amount of the pension vs the monthly income a couple will have during retirement. My teacher pension will be about 10% of what we will be living on. If I die early, DH would probably not notice the difference. OTOH, we are protected by the same thing others have mentioned…if he dies first, my retirement bumps back up to 100%.
Yeah, but the larger point is that most people can’t make get the lump sum amount to make enough $$ to pay the monthly annuity and survivor benefit. The lump sum is the present value of the benefit earned to date. If you have an accrued benefit of $2,000/mo at retirement and take a lump sum (let’s say it’s $400,000), you have no guarantee that you will be able to draw $2,000/mo for life and $1,000/mo to your surviving spouse. It will completely depend on your (or your broker’s) investment skills. Some people are willing to take that risk. Depends on how much savings you’ll have at retirement from other sources.
Thanks so much @CountingDown, that was really, really helpful. The pension lump sum and our 401k will be valued (?) at approximately the same amount at retirement. The amount of the monthly payment in the pension should be more than enough for our monthly expenses. That plus social security once that kicks in, we should have to only draw our RMD for the 401k. That’s what the plan is at least.
The monthly difference to pick the 100% spousal benefits is not great so that’s the one we are going with.
We had the option of taking 50% as an annuity. We did and feel we would never starve even if the other 50% was to fail. It still was a tough decision and the company stopped offering it two years later. Sometimes it is good to be the old employees. Of course the new employees are getting a sweet deal but it will never offer the feeling of security the annuity offers.