Retirement

Dear Liz: I have a question about my late husband’s pension. He was with a company for 25 years and retired early with a defined benefit pension of about $3,700 per month. When he died four years ago, the pension stopped. The company said it was a “single life” pension, but when I tried to get records proving that, they said they had no records. Do you think I have any recourse to petition for some kind of pension? Should I find a lawyer and if so, what kind of lawyer handles this type of thing?

Answer: Traditional pensions typically give workers two options: a single life annuity, whose payments are higher but cease when the recipient dies, or a joint-and-survivor annuity that continues for a surviving spouse’s lifetime. When someone is married, the default option is supposed to be the joint-and-survivor annuity unless the spouse signs a waiver giving up rights to lifetime income. If the company can’t or won’t provide proof of such a waiver, then you’d be smart to get legal help to pursue the issue.

You may be able to get free legal assistance through the U.S. Administration on Aging’s Pension Counseling and Information Program, which currently serves 30 states. If you live in one of the states that isn’t served, you may be able to get help by visiting PensionHelp America, a site run by the nonprofit Pension Rights Center.

Dear Liz: I am 63, recently retired and have a choice. I can take a lump sum from my pension at age 65 or a monthly annuity. I am strongly leaning toward the lump sum. I know the pitfalls (I won’t be an aggressive investor, I don’t gamble, I won’t loan to family or friends, etc). My reasoning is that if my spouse and I both die before our early 80s, “they win.”

I do have relatives who live a long time, however. I am financially very careful and believe interest rates in five years will be several points higher and I can invest the lump sum conservatively and get a 5% to 7% return, and that will work for me.

Finally, I could take the monthly annuity now with no survivor benefit and at the same time buy term life insurance to cover my wife if I go. Am I missing anything significant in my favoring the lump sum?

Answer: Yes. Quite a bit.

Calculating break-even points can be an interesting math exercise, but you’re making assumptions about inflation rates and market returns, as well as life expectancies, that you can’t actually know in advance. A better approach might be to consider what could possibly go wrong. The answer: a lot.

Technically, you might do better investing the money than collecting the annuity, but there are so many ways you could wind up losing. You could pick the wrong investments, or the markets could turn south for an extended period. You could be defrauded or become the victim of an unethical advisor.

(Sure, you’ve got all your marbles now, but who says you’ll keep them? Even the smartest people can get fleeced, and any cognitive decline over the years could make you a sitting duck.)

The fact that you have longevity in your family is another big factor in favor of taking the annuity, because you can’t outlive the money. That should be a concern, in any case, because according to the Society of Actuaries there’s a 72% chance that one member of a couple will live to age 85 and a 45% chance that one will live to age 90.

If your spouse is a woman and not several years older than you, she’s likely to outlive you. Does she want to inherit the responsibility of managing this money?
Speaking of your spouse, get an independent, fee-only advisor’s opinion before you consider waiving the survivor’s benefit on any annuity.

A term life insurance policy may not last as long as you need it to, and will be expensive at your age. It will be vastly more expensive if you try to renew it down the road.
If you don’t or can’t renew it, your spouse could face a drastic drop in income at your death as one of your two Social Security checks goes away and the pension income stops. Surely, your partner deserves better than that.