Pension decisions

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  #1  
Old 04-16-2011, 08:11 AM
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Default Pension decisions

When we take our pensions we will need to select from a range of choices such as single life, 50% joint, 10 year certain etc.
These amounts are based on the average life expectancy.
Is there a professional in TV area that will look at our medical history and give an opinion as what choice will likely give us the best payout?
One planner suggested that we buy life insurance to give the surviving spouse a payout and take the single life option. Paying the premium with the difference between joint and single life. This may be difficult due to our insurability.
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Old 04-16-2011, 08:24 AM
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For an accurate opinion on that, youll have to look skyward.
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Old 04-16-2011, 12:54 PM
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Is this a pension...it sounds more like an Annuity?
If an Annuity, you may want to check on something called Medical Underwriting.
From the Vanguard website:
Medical Underwriting

"Clients with medical conditions that may reduce their life expectancy may qualify for a rated age. A rated age is older than your actual age and based on your personal life expectancy as determined by a medical underwriter. A rated age applicant can either increase their income payments or reduce the premium amount needed to generate specific payment amounts.

If you choose to apply for a rated age, you can NOT lock in a quote with a rated age until the medical underwriting process is completed. Applying for a rated age will delay the time it takes to lock in a quote. For more information on Medical Underwriting, call 800-522-5555, Monday through Friday, 8 a.m. to 8 p.m., Eastern Time."
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Old 04-16-2011, 01:30 PM
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there is no shortage of professionals in Tv that will give you their opinion...gn
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Old 04-16-2011, 02:47 PM
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Default *****on Decisions

snowbirdtobe...What you have cited 10 year certain, etc are annuities. Determining life expectancy is one factor. Each annuity type will give you some help. for instance if you select single life then the annuity will pay you $XX amount until you die then the annuity ends. If you select 50% then you will receive $xx amount until you then then your annuity amount will be reduced by 50% and paid to your beneficiary, ususally your spouse. 10 year certain means you will get a higher amount for 10 years and if you are still alive paid at a reduced amount. Choosing the type of annuity is most important.

I based my life expectancy in part by genetics using the age of my longest living parent to be conservative. For my *****on I selected 50% because I based my decision on the fact that I would die before my wife and she would need additional money. In turn I asked her to take a single life annuity again because I believed I would die before her.. In essence look at the annuity has a whole pie and the type annuity how you would divide it. do you want a big piece in the beginning. do you want even slices throughout your life. do you want a smaller pience for you and some pie left over for your spouse?Find a mortlity table and answer each question being conservative. what I mean is overstate how long you believe you will live and will need money...Good luck
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Old 04-16-2011, 02:54 PM
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Yes, there are several agencies right in LSL that can help you. My two cents, don't go the Life Insurance route! Also annuties are full of hidden fees and taxes. Best is roll to a ROTH 1st choice or traditional IRA.

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Old 04-16-2011, 03:45 PM
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The company will buy an annuity for me as my pension and I cannot take a lump sum.
I must pick from a list of options and need to make that choice before I take any money.
My guess is that they get better tax or accounting results by getting the pension off the books.
If I had the option I would take the money and run.
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Old 04-16-2011, 04:50 PM
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Quote:
Originally Posted by Snowbirdtobe View Post
The company will buy an annuity for me as my pension and I cannot take a lump sum.
I must pick from a list of options and need to make that choice before I take any money.
My guess is that they get better tax or accounting results by getting the pension off the books.
If I had the option I would take the money and run.
I had the same thing. I think it's typical for companies to hand it off to a third-party, as you said, get it off the books. I don't think there is much difference between an annuity and a pension. Except, the employer-sponsored pension is guaranteed by the PBGC.

The option selection is usually a personal decision. For me it all came to financial. I had no good insight regarding health and life expectancy. Poor health or chronic illness could be a decision point. But if you consider average life expectancy and say maybe, maybe not, it's a useless factor. No one can predict terminal illness or accident. My wife has a small pension (25% of mine) so I selected 75% J&S on mine and single life on her's. The survivor will effectively have about 100% of mine.

Avoid the insurance option. I suspect your planner that suggested it sells insurance. Essentially, the discount for 100%, 50%, or anything other than individual life, is an insurance premium for J&S. There's no reason to think you can go elsewhere and do better. Unless you go with Term insurance, in which case it's not apples to apples.

Typically, if you're married, the default is 50% (the spouse has to sign-off for anything else). 50% is probably a bad choice for the survivor. Unless you're in the public sector, you likely don't have a COLA and the pension will be eaten away by inflation over the years anyway. But 50% will be a huge cut. Living cost won't be noticeably reduce and may even increase if there are everyday task that the survivor isn't capable of taking over.

It a tough decision. You only get one shot. Give it a lot of thought.
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Old 04-16-2011, 10:47 PM
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Hi Snowbirdtobe,

Here you are, facing that question all couples should ask as they enter retirement together. -- How do we plan financially for the eventual likelihood that one of us will survive the other?

I cannot answer your specific question, but I would like to offer a suggestion..

I keep a book on hand titled Making the Most of Your Money Now by Jane Bryant Quinn.

I have written about this book in different threads here on TOTV. It was published very late in 2009 so the information is relatively current.

The book is really thick, but it is very well-indexed and the writing style is clear and quick. The excellent index makes it easy to find just the parts you need to read. And the table of contents gives a good overview. This book is really well organized.

When I read your question, I pulled out the book and turned to the index where there is a long list of entries on pensions. Included in the information, there is an Appendix that might help you.

Appendix 3, on pages 1201-1204 is titled Pension Maximization: Will It Work for You?" Therein, you will find a worksheet, followed by Quinn's commentary on both the risks and advantages.

Appendix 4 is the Group Annuity Table -- the assumed life expectancy ages used by insurers that sell annuities.

Getting your hands on this book might help as you work some things through. It could be a start anyway, as you sort things out. The information might help you to come up with some further questions to ask an adviser.

I wish you the best.

This is the book....

[ame]http://www.amazon.com/Making-Most-Your-Money-Now/dp/B0048ELE4U/ref=sr_1_1?ie=UTF8&qid=1302988861&sr=8-1-spell[/ame]


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Old 04-17-2011, 06:30 AM
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Have you talked to your own HR about the choices and the ramifications?

Also, have you talked to others at your company to see what they thought the best choice was?

We had lot of similar choices at my company and by talking to HR and some of the retirees at that time, I was able to pick what I think was the best choice for me and the missus.
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Old 04-17-2011, 08:16 AM
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Default It is simple, I made the choice

You simple determine who will live longer you or your spouse. If you can not determine this easily take the reduced benefit. The life insurance policy seems easy now but gets harder as you age especially into your 80's or 90's. It gives money to your planner up front and they can show how it pays off like magic. Stay away from this game for it is not one you can win without dieing quickly. Just take the reduced benefit and concentrate on living a long and happy life.
  #12  
Old 04-17-2011, 10:50 AM
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Quote:
Originally Posted by Snowbirdtobe View Post
When we take our pensions we will need to select from a range of choices such as single life, 50% joint, 10 year certain etc.
These amounts are based on the average life expectancy.
Is there a professional in TV area that will look at our medical history and give an opinion as what choice will likely give us the best payout?
One planner suggested that we buy life insurance to give the surviving spouse a payout and take the single life option. Paying the premium with the difference between joint and single life. This may be difficult due to our insurability.
Just some general thoughts.
Stay away from pension "maximization" by using life insurance.
10 year certain is beneficial to any heirs...not to you or your spouse.
Joint life would be a better choice, if the 50% reduction is NOT for the death of either spouse.
You may be better off with the single or joint life then with a graded payment, unless you live longer than 17 - 18 years.

Do you have a choice of provider for the annuity/pension? Or is this only with their contracted insurance company?
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Old 04-17-2011, 02:15 PM
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Hey Kayaker,

Jane Bryant Quinn agrees with you about the pension max. So much so, in fact, that in her book she has a section titled, "Beware Pension Max!" That section is found on pages 1122-1124. It is there that she directs the reader to the Appendix with the worksheet, after she has her say.

Quinn takes to task what she calls "an army of insurance agents and financial planners."

She talks about "Slick computer-generated presentations." And says those presentations "usually mislead."

In that section she lays out the ways the misleading can happen.

Quinn says, "When I aired this opinion in a newspaper column, angry insurance reps peppered me with dissenting letters."

She goes on to say, ""I invited them to prove the glories of a pension max program started at retirement age. All told, 10 of them took up the challenge; their work was analyzed by two financial planners using two different systems."

The result as reported by Quinn? -- "Only one proposal worked passably well, and it turned out to be a ringer." -- And she goes on to explain how that happened.

After a quick slice and dice of the different aspects of the pension max, she invites those who have heard a pitch to fill out the worksheet in the Appendix. (referred to in my earlier post) Quinn says the worksheet is designed for you to "check what the agent is saying."

I know that from time to time, I run around TOTV, touting Quinn's book. And I know I am not a financial planner or adviser or anything of the sort. In fact, rumor has it, I could even be an English major.

But I really like this book because Quinn communicates so clearly and provides info in a way that leads people to being able to make well-informed financial decisions.

I have bought this book several times because I keep giving it away. When it first came out, I had given my copy away within a couple of weeks. Bought another one. Gave that one away. A few months back, I found copies on a bargain table for $5.99. (Remainders in non-fiction can go to the bargain tables fairly fast.) So I bought 3 more copies.

No, I do not go around foisting the book on random people. But if I am asked a question, and I sometimes am, I will say, "Let's see what Jane Bryant Quinn has to say in this enormous, heavy book, and I bet that can give you a start." And, of course, sometimes I throw in my own opinion, too -- when I just can't help it.

So Kayaker -- you and Jane, huh.-- Well...... I am not surprised. I have always thought you have provided us with some sensible information on matters financial.

Well, I guess what I am really saying in this long post -- that has turned into an ode to Jane Bryant Quinn's book -- is that for those of you who have questions about different aspects of financial planning, as you make those individual decisions on what you hope works out best for you --hey -- just go ahead and buy yourself a copy of Making the Most of Your Money Now. Might even find a deal on the price. And I guarantee you will get an excellent ROI.

Boomer

Last edited by Boomer; 04-17-2011 at 05:58 PM. Reason: punc.
  #14  
Old 04-17-2011, 02:22 PM
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Quote:
Originally Posted by Army Guy View Post
.....Also annuties are full of hidden fees and taxes...
While that may be true for variable annuities, it doesnt apply to fixed immediate annuities. The latter can be an excellent choice for some individuals such as those with no dependants other than a spouse who can be jointly tied to the annuity.

Its also an interesting choice for someone that is worried that their surviving spouse might be flim-flamed by a gigolo. The principle in a fixed annuity can never be touched.
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