1. Income requirements of the surviving spouse:
Financial planning theory suggests that the surviving spouse may need 70-80% of income if one spouse passes away, but this can vary greatly from couple to couple. Review your overall financial situation and consider future income, debts, investment assets, retirement savings and life insurance policies to come up with income plan that supports the surviving spouse’s standard of living.
A higher level of accessible assets can allow for more flexibility when choosing a benefit.
2. Life expectancy of the pensioner and spouse:
It is important to remember that you are planning for both spouses throughout their lifetime, and the health and longevity history of both spouses should be considered.
3. Inflation protection:
Most pensions do not allow for a cost-of-living increases and over time this can erode the purchasing power of the pension income. Make sure to confirm the cost-of-living adjustments if any with the company or government entity managing your pension.
4. Financial health of the pension:
A pension should provide an annual report that explains the overall financial health of the pension along with what percentage of the future benefits are funded. This changes year to year based on contributions, returns and longevity expectations.
It is important to remember that the pension is likely covered by and entity such as the Pension Benefit Guarantee Corporation so if the pension runs out of funds a portion or all of it may still be covered. Check into any coverage that your pension may have if it becomes insolvent.
5. Any special provisions:
Some pensions allow for pop-up provisions which may restore the pension to the single life benefit if the surviving spouse beneficiary passes away before the pensioner.
Some pensions offer a survivor benefit or a period certain benefit at no cost to the pensioner. If there is a survivor benefit that could pay to the pensioners beneficiaries other than the spouse, they should make sure the beneficiary is named and coordinate with their estate plan.
6. Tax considerations
Some states may not tax all or a portion of pensions. This can make the pension income stream more valuable than other income streams.
7. Lump Sum options:
Some pensions may offer a lump sum rather than a stream of payments. It is important to review the pros and cons of investing the lump sum versus using the pension income stream.I'm here to help you feel more confident about your financial future.
Learn more about me
Read more articles by Ryan Johnson