Retirement/pension monthly payment options

[Knee Deep in Water Chloe]

DH has worked for the state government for the required amount of years + his age and is eligible for full retirement. 
I am 16.5 years younger than he is, so we're going to select an option that lets me have a check for the remainder of my life as opposed to the remainder of his. Here's what the handbook says. Thoughts?

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Option 1 (nonrefund). This benefit is paid for your lifetime. It provides you with the highest monthly benefit. No benefit of any kind is paid to anyone after you die. 
Amount for DH: $ 9,517.56


Survivorship options



Select one of these options if you want to provide a lifetime monthly payment to a beneficiary upon your death.

Under any of the survivorship options, you may name only one beneficiary. The beneficiary must be a living person, and you must provide age verification for your beneficiary.

Your monthly benefit payment is based upon the age difference between you and your beneficiary.

For example, if your beneficiary is a grandchild, your benefit will be substantially lower than if your beneficiary is someone closer to your age.

Option 2. This is a “joint and survivor” benefit and is paid for your lifetime. After you die, your surviving beneficiary will receive, for life, the same monthly benefits you received unless your surviving beneficiary is not your spouse and is more than 10 years younger than you. In this case, due to IRS limits, your beneficiary’s payment is pro-rated and decreased. The adjusted employee/beneficiary age difference is determined by first calculating the excess of the age of the employee over the age of the beneficiary based on their ages on their birthdays in a calendar year. Then, if the employee is younger than age 70, the age difference determined in the previous sentence is reduced by the number of years that the employee is younger than age 70 on the employee’s birthday in the calendar year that contains the annuity starting date. No change of beneficiary is permitted after 60 days from the date of your first benefit payment. If your beneficiary dies before you do, your benefit is not changed, and all benefits stop when you die.

Amount for DH: $ 7,756.81


Option 2A: Full survivorship with Option 1 contingency. Also a “joint and survivor” benefit as in Option 2 (see Option 2 for information regarding a nonspouse beneficiary who is more than 10 years younger than you). However, if your beneficiary should die before you, or your beneficiary is your spouse on your effective retirement date and you are divorced after you retire, you may then elect to receive the Option 1 benefit adjusted by any increases or decreases, which may have occurred since your retirement. Note: A change to the Option 1 benefit amount is not processed until PERS has been notified in writing.


Amount for DH: $ 7,728.26

[MN-Investor]

Is there a lump sum option?

[resolution]

I am doing our version of option 2. They used some actuarial calculation to determine the reduction amount based on our life expectancies. I was able to go on the website and look at how the reduction changed over time. In my case, the reduction was projected to go up every year. By retiring at 54 they are reducing my pension by around 10% to account for my spouse being younger, but if I waited until I was 65 they would be reducing it by around 20%.

If he is trying to decide whether or not to retire, he may be able to call his retirement plan and ask them how the reduction changes over time. My pension would have never stopped going up, but there was a curve where the increases started being mostly offset by the reduction.

If he has decided to retire right now, I am glad that you are choosing the option for it to continue for your lifetime. One of my coworkers had a spouse who passed away, and he took a lot of comfort in continuing to receive her pension, like she was still looking out for him every month.

[Rukh O'Rorke]

thoughts?

whose interests are we maximizing? DH's or yours?

If you, option 2, if DH, option 2A.

[minnesotapaintlady]

I'm not sure why anyone would choose 2 for just an extra $300/year?   I mean, I get that you're 16 years younger, but you could still get hit by a bus and per-decease him.

[The Walk of the Penguin Mich]

What does your own retirement look like, and how much of his income take home is the $9500 replacing?  How much are your current living expenses?  Will he receive SS too?  How much is his SS compared to your’s?  Are you planning on continuing to work, or are thinking of retiring early?  If you retire early, will his pension cover healthcare for you?  How long did your husband’s parents live?  

I don’t think that this is simple answer to this.  

[CCL]

2a seems like the best option to me. Of course everyone's situation is different. Like Mich, I'm also wondering about healthcare options. Hubby's pension includes healthcare, at least until we are both eligible for Medicare. It has saved us a lot of money.

I would caution against putting too much faith in life expectancies matching your parents'. We thought that, until our siblings started dying in their sixties. Now we are not so optimistic.

[soupandstew]

I am 8 years younger than DH.  When he retired at 62 in 2001, he chose the option that would give him full benefit until his death, and then 50% of that benefit for my lifetime.  His pension is not linked to any healthcare benefit, but his employer did offer coverage (at a healthy premium) until he was 65.  He asked me to retire with him, but I did make a bit from part-time work for a number of years.  Health insurance for me on the open market was about $1,000/mo which sucked but it was the cost of retiring together which he wanted. 

I think @mich1asked some really good questions about the overall budget/income picture for you  

[minnesotapaintlady]

Dec 14, 2023 23:23:47 GMT -5 MN-Investor said:

Is there a lump sum option?

[busymom]

Avoid Option 1.  My Dad had a coworker who took that option, who unexpectedly died not long after he retired.  His wife was scr#wed, as she got no pension money after his death.  

[MN-Investor]

I asked above whether there was a lump sum option.

I did that because when my husband retired in 2016, he had a lump sum option or a whole slew of pension options. He spent a lot of time thinking about it, and ultimately decided that he would get the lump sum, about $200K. We had been successfully managing our investments for years, and we knew that we would wisely invest this lump sum. My sweetie suddenly passed away less than two years after he retired. In hind sight, that lump sum option was exactly the right decision for us.

[bookkeeper]

I have not heard of anyone participating in a state sponsored retirement program being able to roll over a lump sum payout of their pension.  My brother and his wife taught in Iowa and retired the minute they were eligible.  They receive a monthly payment and were allowed to stay on the school district medical insurance, which they paid full premium for.

DH did have a lump sum option when he retired and it has worked out very well.  He had a serious car accident four years ago and could have been gone, along with his pension had we chosen another pension structure.

I would choose option 2A if no lump sum payout is available.

[Rukh O'Rorke]

Dec 15, 2023 12:56:36 GMT -5 minnesotapaintlady said:

I'm not sure why anyone would choose 2 for just an extra $300/year?   I mean, I get that you're 16 years younger, but you could still get hit by a bus and per-decease him.

It's kind of weird split on those two options. While a pre-decease situation seems reasonable, it's the revert to a single person situation in the event of a divorce. LOL, maybe they are just banking on some weirdos wanting that option but never using it, so they save a little bit over 1000s of vengeful-wannabe spouses?

What is the legality of that? With 401ks you have to split, and you can't make someone else a beneficiary instead without spouse's written ok. what about a pension that is for joint and survivor and you divorce and use the clause to exit joint and go to single? Would it involve paperwork via the divorce? or could they do on the sly, continue to mail X half the former joint amount, and have the X surprised if they die and the payments stop?

[soupandstew]

DH's pension is administered by a statewide group covering some 933 cities in Texas, and I found this on their website about how divorce affects the distribution of retirement benefits www.tmrs.com/down/pubs/Divorce_After_Retirement.pdf  Please bear in mind that Texas is a community property state which changes a lot of stuff, some good, some bad. 

Basically, as I understand it, the election he made upon retirement can't be changed except for a death certificate (mine) or a divorce decree which ain't happening because he's lazy and cheap, and I'm a stubborn biotch who's also too lazy to make the change after 50 years

[susana1954]

This doesn't answer your question but lets you see what another state's options are.  These were ours when I retired.  I don't remember the numbers.

1.  Maximum with no survivorship.  Pension disappears when you die.
2. A little less (maybe $30 a month) but it becomes a "draw" against your pension balance.  Your draw is about half of your pension check; mine lasts 10 years.  No survivorship once your pension balance is depleted, but it means there is something if you get hit by a bus in the first 10 years or so.
3.  Full benefits for your survivor calculated based on that person's age.  Since DH was 10 years older, there was very little difference.  However, to name a new beneficiary after he died meant my pension would be recalculated based on that person's age.  The advisor told me no one really does this. Pat Summitt made her son her full-pension beneficiary.  Some people were outraged because he is getting a substantial monthly check.  They don't give a flip when it is a teacher's salary.  Lol.
4.  Half benefits for your survivor with the same as above.  Your pension takes a lesser hit.

It is so confusing, but the Retirement System of Alabama does set up a meeting to discuss all of this with you to try to help you make a good decision.  Their advice to me, and I took it, was to take the second option, the draw against my pension balance given DH's age and poor health.  He lived 5 months after I retired.  For people who might wonder where the pension balance came from,  I paid in that pension balance; our pensions aren't simply free money.  Did you guys have to pay in for your pension?

Rukh O'Rorke, I suspect that pension benefits would be negotiated as part of the divorce.  I doubt it is mandatory that the survivorship goes away, but it maybe pension board-driven.  It may be their rule to reduce future pension costs.

[TheOtherMe]

One of my co-workers in Denver negotiated that his ex got none of his pension as part of their divorce.  In exchange, she got to keep the house free and clear and he started over in a small condo.

He said he earned the pension and he was keeping it.  They have both remarried now, but when it first started and their were kids at home, that was their legal agreement.

A lot of anger about Tyler Summit getting his mother's pension was that he is a total embarrassment to her.  He got fired from LA Tech for having an affair with one of his basketball players.  By then his mother didn't know what was happening which was the only good thing about her dementia.  

[schildi]

Wow, those are some impressive pension amounts.
May I ask for how long one needs to work for the government to get there?

[Knee Deep in Water Chloe]

Dec 14, 2023 23:23:47 GMT -5 MN-Investor said:

Is there a lump sum option?

There is , but DH is in the original retirement plan Tier that ceased to be offered in 1997. He made it in by 6 weeks and buying in with about a thousand dollars (that he had to get from his mom )

So, the guarantee is higher than the normal average. People (like me) in the tiers after that often take the lump sum because the pension payout is so different from Tier 1. 

[Knee Deep in Water Chloe]

Dec 15, 2023 8:36:57 GMT -5 resolution said:

I am doing our version of option 2. They used some actuarial calculation to determine the reduction amount based on our life expectancies. I was able to go on the website and look at how the reduction changed over time. In my case, the reduction was projected to go up every year. By retiring at 54 they are reducing my pension by around 10% to account for my spouse being younger, but if I waited until I was 65 they would be reducing it by around 20%.

If he is trying to decide whether or not to retire, he may be able to call his retirement plan and ask them how the reduction changes over time. My pension would have never stopped going up, but there was a curve where the increases started being mostly offset by the reduction.

If he has decided to retire right now, I am glad that you are choosing the option for it to continue for your lifetime. One of my coworkers had a spouse who passed away, and he took a lot of comfort in continuing to receive her pension, like she was still looking out for him every month.

He is not actually retiring right now. He is "retiring from the pension plan". I don't know if that's the correct phrase used outside of our state, but it's how it's referred to by public employees in our state.

A few years ago, two changes were made to the top tier plan.

(The original public retirement pension plan is called Tier 1; no one has been eligible for it since 1997; I, as someone who started teaching in 2004 am in what's called Tier 2; that plan ceased in 2010ish.)

1) A salary cap was added to the public retirement pension including Tier 1. It used to be un-capped. DH passed that cap 12 months ago. 
2) Public employees are now allowed to "retire" and keep working as public employees. This option was tested in a few forms before it was actually rolled out to all public employees. 

[Knee Deep in Water Chloe]

Dec 15, 2023 13:11:59 GMT -5 The Walk of the Penguin Mich said:

What does your own retirement look like, and how much of his income take home is the $9500 replacing?  How much are your current living expenses?  Will he receive SS too?  How much is his SS compared to your’s?  Are you planning on continuing to work, or are thinking of retiring early?  If you retire early, will his pension cover healthcare for you?  How long did your husband’s parents live?  

I don’t think that this is simple answer to this.  

He is not replacing income at this point because of a new allowance for public employees to continue working as public employees. Yes, in this state public employees still receive SS. However, we will not access that until the maximum age. Yes, I will continue working. I am only 44 and cannot justify not working. Part of the reason that I will continue to work is health insurance. 

[Knee Deep in Water Chloe]

Dec 15, 2023 17:37:49 GMT -5 soupandstew said:

I am 8 years younger than DH.  When he retired at 62 in 2001, he chose the option that would give him full benefit until his death, and then 50% of that benefit for my lifetime.  His pension is not linked to any healthcare benefit, but his employer did offer coverage (at a healthy premium) until he was 65.  He asked me to retire with him, but I did make a bit from part-time work for a number of years.  Health insurance for me on the open market was about $1,000/mo which sucked but it was the cost of retiring together which he wanted. 

I think @mich1asked some really good questions about the overall budget/income picture for you  

Oooh, that's an interesting option! 

[Knee Deep in Water Chloe]

Dec 16, 2023 18:37:52 GMT -5 susana1954 said:

This doesn't answer your question but lets you see what another state's options are.  These were ours when I retired.  I don't remember the numbers.

1.  Maximum with no survivorship.  Pension disappears when you die.
2. A little less (maybe $30 a month) but it becomes a "draw" against your pension balance.  Your draw is about half of your pension check; mine lasts 10 years.  No survivorship once your pension balance is depleted, but it means there is something if you get hit by a bus in the first 10 years or so.
3.  Full benefits for your survivor calculated based on that person's age.  Since DH was 10 years older, there was very little difference.  However, to name a new beneficiary after he died meant my pension would be recalculated based on that person's age.  The advisor told me no one really does this. Pat Summitt made her son her full-pension beneficiary.  Some people were outraged because he is getting a substantial monthly check.  They don't give a flip when it is a teacher's salary.  Lol.
4.  Half benefits for your survivor with the same as above.  Your pension takes a lesser hit.

It is so confusing, but the Retirement System of Alabama does set up a meeting to discuss all of this with you to try to help you make a good decision.  Their advice to me, and I took it, was to take the second option, the draw against my pension balance given DH's age and poor health.  He lived 5 months after I retired.  For people who might wonder where the pension balance came from,  I paid in that pension balance; our pensions aren't simply free money.  Did you guys have to pay in for your pension?

Rukh O'Rorke , I suspect that pension benefits would be negotiated as part of the divorce.  I doubt it is mandatory that the survivorship goes away, but it maybe pension board-driven.  It may be their rule to reduce future pension costs.

Our state put a cap on payouts after a newspaper article showed that a college football coach (not as famous as Pat) had a several million dollar a year public retirement check. 

Each state/local agency has a different rule about whether or not the 6% of the salary that is paid into the pension account is covered by the employee or the employer. 

[Knee Deep in Water Chloe]

Dec 17, 2023 22:58:34 GMT -5 schildi said:

Wow, those are some impressive pension amounts.
May I ask for how long one needs to work for the government to get there?

It's not simply about working for the government; it's about the salary level of the employee and the tier the employee is in. DH is in the original state public employee retirement plan. He just barely made it in 1997. I will work just as many years as he does but I'm in Tier 2 because I didn't start working as a public employee until 2004. I will get about 60% of my top three years of public salary compared to the 100% DH gets. DH is in a specialized role that pays more than I make. I'm not interested in (and wouldn't be successful in) his type of role, so I will not likely make as much as he does. Right now I make 63% of what he does. I also will change jobs this summer and will likely take a pay cut.  

[TheOtherMe]

Federal pensions on are based on the top 3 years of salary also.  

One of my "young" managers who everyone thought was just coming to Denver as a short stop before returning to DC, is still working.  

His wife became ill with a mental illness which has meant he can not travel and leave her.  They have full time help to care for her and since he can't go anywhere, he is still working.    He says the only good thing is that he has so many years in that if he gets really upset or disagrees with something he is told to do, he can walk out the same day.  

They were a young world traveling couple looking forward to children when they came to Denver.  She got sick within about 2 years and had to go on disability.  Their plan was to make Denver a short stop on his way up.  

As hard as it has been for them, he is still there and still caring for her.  He needs that break of going to work.

[Happy prose]

Although our rules are a little different than your husband's, I took Option 1, with full pension being paid to me. My husband and I are 3 yrs apart, but he also has a pension. His is not PERS. We'd both be fine without the other's pension. Just something to note- in my Option 2, if I named a beneficiary and they die before me, tough luck. I would still get the reduced money, and no beneficiary being paid. Sounded like quite a gamble to me.

[Rukh O'Rorke]

Dec 30, 2023 17:22:36 GMT -5 Happy prose said:

Although our rules are a little different than your husband's, I took Option 1, with full pension being paid to me. My husband and I are 3 yrs apart, but he also has a pension. His is not PERS. We'd both be fine without the other's pension. Just something to note- in my Option 2, if I named a beneficiary and they die before me, tough luck. I would still get the reduced money, and no beneficiary being paid. Sounded like quite a gamble to me.

that seems good if you both have your own!  I think Chloe has her own too, so something to consider.