Here’s how to pick the most suitable payment option for you.
If you’re married at the time of your retirement, and either you or your partner is fortunate enough to have received a conventional defined-benefit pension, you’ll have to make a number of decisions when applying for their benefits.
The below information will guide you on the options available and the way they affect the amount of your pension.
A defined-benefit pension, also known as a traditional pension plan, which assures a specific retirement benefit, is usually estimated by considering both years of service and earnings and can be paid in some ways.
When you or your partner retires, you’ll be asked to choose or select the benefit type you want.
With a defined-benefit survivor’s pension, you’ll continue to get monthly benefits from your spouse’s pension for life in the event your spouse dies before you do.
If you decide not to accept survivor’s benefits, you have to fill a spouse’s agreement form or waiver.
2 Categories of Pension Benefits
In this article, we’ll be looking at two types of benefits — single life benefit and joint and survivor benefit.
Single Life Benefit: This is a payment received once-a-month depending on your life expectancy; that is, benefits end when you die.
Joint and Survivor Benefit: This is a once-a-month payment received according to the lifetime of you and your spouse. Meaning if your partner dies before you, you’ll keep receiving survivor’s benefits from his/her pension.
Why Use a Spousal Consent Form?
The consent form or waiver of the spouse is required under federal law to inform you and your partner that if the survivor waives the benefits, he/she will have no income from the pension.
Sadly, the law doesn’t apply to state and local government pensions. Read the form carefully as some terms can be confusing.
As soon as you’ve renounced the benefit, you can’t change your decision. Only waive your rights if you understand what you’re doing.
How Do My Decisions Influence the Benefits?
If you opt for the survivor’s benefit, this means that you’ll receive smaller monthly benefits than the one related to your life alone. Nevertheless, it assures a regular income for two lives — yours and your spouse’s.
Occasionally you get the choice of deciding if the surviving spouse receives 50 or 75% of your pension benefit.
Other options can be available. If so, ensure you understand them.
And ask the administrator of the pension plan the amount you’d receive for each option or benefit type of benefit you can select.
Most times, people find it enticing picking the life-long benefit since it pays the maximum monthly benefit. However, keep in mind that it’s only paid out while your spouse is still alive.
And if health benefits for retirees is included in the pension, they might stop if you’re a widow or widower.
Example of a Survivor’s Benefit
This is an example showing how a survivor’s benefits work:
Assuming that your husband receives a pension depending on his history of employment: If you both decide to collect his pension during his lifetime as a lifelong benefit, you could both receive $1,600 per month in pension benefits.
This income would cease upon the death of your husband.
For a joint and survivor pension, the allowance can amount to $1,300 monthly for the period your husband is alive. But, once he dies, it will be reduced to $650 monthly while you’re alive.
How to Decide the Benefit to Choose?
First, add up your retirement income sources by making use of the WISER’s worksheet, “Get Your Ducks in a Row”.
With this crucial tool, both you and your partner can estimate the available benefits for each person as a widow or a widower; and determine the level of importance of a survivor’s benefit to each individual.
Consider your personal situations and choose how much you’d need each as a survivor.
Also, think about how this could change if your health or other conditions change.
With Gratitude and Love