If you have a pension offered to you at retirement, and you have decided that it is the best option over a lump sum (or you don’t have a choice in the matter), one of the critical decision-making points is how to take the pension in terms of survivorship options, if you are married.
The most common survivorship options provide 100% of the monthly payment to the survivor, 75% of the monthly payment to the survivor, and 50% of the monthly payments to the survivor should the pension owner die. These are called 100% Joint and Survivor, 75% Joint and Survivor, and 50% Joint and Survivor pension options.
Which one of these is the most appropriate to choose?
Assuming that both spouses are roughly the same age, and they can live comfortably on the 100% Joint and Survivor pension option, I will generally recommend this to my clients. In this way, the surviving spouse can fully buffer themselves from the impending loss of Social Security benefits from the deceased spouse.
It’s critical, though, to stress test the impact of each survivorship option for the surviving spouse using financial planning software. For example, I look for at least a 90% probability of success after plugging in each pension survivorship option.
At the end of the day, a survivor’s total income from all sources needs to be sufficient so that they do not need to take more out of investment assets each year than is sustainable.
If you have any questions please feel free to contact me.
