Advice wanted concerning retirement options! Please read

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Submitted by pertinazzio on November 1, 2007 - 8:33am


My wife and I are trying to think through a decision that we have to make very soon.

She is about to retire from the federal government. She has the option of receiving a full pension or a pension that is 10% less now but would provide for me if she were to die. If she takes the full pension I wouldn't get anything upon her demise. We have already decided that I could probably live well enough in the unlikely eventuality that she died before me so we are inclined to take the larger monthly payment.

But here is the rub. If we take the larger amount I wouldn't be eligible for insurance under her a plan if she died! I am currently 57 so the real danger period is between now and the time I turn 62 when presumably would be eligible for Medicaid (is that correct).

If we took the larger pension, here is the worst case scenario I can imagine:

1. She gets run over sometime soon.
2. Soon thereafter I come down with some illness requiring very expensive treatments.
3. I spend down all the money that I have on the expensive treatments.
4. I die penniless and a ward of the state.

Here is the best case scenario that I can imagine if we take the larger pension for her.

1. We invest the difference between what we are getting and what we would have gotten.
2. The investments do great and when we are 70 we have another 300K or so to pass on to our heirs.

It seems to me that this decision is like a BET.

If we take the smaller pension we are betting that she will die (within the next five years) and that I will become very sick.

Any thoughts ? We have to decide on this soon.

Submitted by Raybyrnes on November 1, 2007 - 8:50am.

My fatehr retired as a 15/ 10 IG and had the same decison. First thing is to point out that your missed the mark by not looking into this 10 or 15 years ago when you could have run the numbers to purchase a life insurance contract which would have allowed you to take the higher payout and would have covered you in the event of her death. I say this becaue if you ahve children and they elect to follow in mom's footsteps they may wnat this information.

The next thing is to look at the age disparity. If you are equal in ages the likelihood of you outliving her is statistically small unless you have family histories that would suggest otherwise.

The safe play is to simply accept the death benefit. The opportunist in me says that if you know that financially you can weather a storm in the event of her unforseen death then go for the higher payout. The difference is only going to effect how much wealth you leave to your children.

If you want a hedge find out what the difference would be between the full payout and the reduced payout and see how much whole life insurance that would buy you. If you die before her than she can reassign the policy to your children. In this scenario you wouldn't have wasted the reduced payout. Value of the poicy might also offset the higher cost of medical insurance for you.

Submitted by Borat on November 1, 2007 - 8:50am.

Unless you're worth millions, take the full pension and move to Canada ASAP. Any middle-class retiree who stays in the US hasn't been paying attention. Medicaid/SS are on the way out. They're going to be slashed to pay for more corporate welfare. The scam drug benefit was step 1. Next because of the huge drug payouts to big pharma, medicaid is gonna be in trouble and they'll have to "fix" it which of course means privatization. And of course that means your insurance "provider" is gonna deny any claims you make while cheerfully cashing your premium checks. These will likely be at least $1000 a month because you're getting up there in years. And that's if you're in perfect health! If you have diabetes, heart conditions, etc... forget it. No one will cover you at a price you can afford.

If you don't want to go to Canada, you could just get into holistic/alternative medicine and forget about ever going to the doctor again.

Sorry to be so harsh but it really is that bad.

Submitted by CBad on November 1, 2007 - 9:39am.

Coming from a different angle, does she like her job? I see merits with both plans so it would come down to whether or not she still wants to work for me. If she can retire now and do something that she loves, you can't put a price on that. But if she really enjoys her work that's a different story.

Submitted by sdduuuude on November 1, 2007 - 9:41am.

Just because you are ineligible for insurance under her plan doesn't mean you can't get insurance or a long-term care plan and just pay monthly for it.

Submitted by pertinazzio on November 1, 2007 - 11:57am.

Thanks for the comments, one and all.

SDuuude wrote:

Just because you are ineligible for insurance under her plan doesn't mean you can't get insurance or a long-term care plan and just pay monthly for it.

Yeahh.... I thought of that but I may be uninsurable if I ever loose coverage because of past medical history. What I am thinking is this. If the good lord takes her, I use cobra to extend my coverage and then as that runs out I convert the policy to an individual policy. This is what i am unsure about: If I have cobra coverage can I force the insurer to convert the policy??????? I am willing to pay a very high deductable (over $10,000).

The other thing I wonder about is if I lie about my former health condition whether the new insurers would find out. Glad this is anonymous.

If the worst case scenario ever did come about. I think I would just ask them to let me die (with lots of painkillers) without being treated. That way I can leave something to my middle son who is having serious problems "launching".

rebus meis solicitus

Submitted by pertinazzio on November 1, 2007 - 12:10pm.

I was just on AARPs page. They say I would be eligible for 36 months of cobra.

Now as the cobra expires, can the insured individual force the insurer to convert the policy to an individual policy ?

Submitted by bsrsharma on November 1, 2007 - 12:12pm.

What are your own assets - pensions/social security/401(k)/IRA/Medicare? I am sure you have an identity of your own and you are not just your wife's parasite! As a man, I would like to think you can take care of yourself. Help from wife is great, but to think you will die penniless as a ward of state without her babysitting you paints you as a big loser.

Submitted by 4plexowner on November 1, 2007 - 12:17pm.

have you priced COBRA? being available and making economic sense are two different things

Submitted by seattle-relo on November 1, 2007 - 12:58pm.

I have some knowledge regarding insurance changes and pre-exhisting conditions (I just had to deal with one in my new insurance - what a pain it was! ) Anyway, if you have "credible coverage", meaning group coverage that has no gap more than 60 days, the new insurance company can not withhold coverage for pre-exhisting conditions - as long as your had that type of coverage from your last insurance company. If your gap is longer than 60 days, you must wait 6 months ( I believe in CA) to have the pre-exhisting condition covered. Private indivdual and some government plans are different. And yes COBRA is VERY expensive - I think we had to pay 1200 per month for 2 months until the new insurance kicked in. OUCH!

Submitted by NYCLurker on November 1, 2007 - 1:49pm.

I happen to be an employee benefits manager at a large bank, so here goes:

1. You need to talk to a qualified financial planner -- this is a complicated issue.
2. If you dont want to do #1, then consider the following:

-- Read this summary (I snagged off the web) about the issue (deciding between a single life or "joint and survivor" pension):

**Retirees in traditional defined benefit (DB) plans generally choose between single life annuities, which provide regular payments until the death of the pension recipient, and joint and survivor annuities, which continue to make payments to the spouse after the death of the retired worker. For a given pension, a single life annuity generates higher monthly payments than a joint and survivor annuity, because it generally provides payments for a shorter period of time. Married retirees who select the joint and survivor option typically accept lower monthly payments when both they and their spouses are alive, in return for insurance against the risk that they will die before their spouses and leave them with insufficient income. Whether retirees are willing to accept this trade-off may depend on a number of factors, including their economic situation and desire for additional income to meet current consumption needs, the availability of other resources that could protect the surviving spouse in the event of widowhood, and the relative life expectancy of each spouse. Overall, 28 percent of married men and 69 percent of married women opt for single life annuities instead of joint and survivor annuities. Although this choice may jeopardize their spouses' economic security if they become widowed, most married retirees appear to make their pension payout decisions by rationally balancing the costs and benefits of each type of annuity. For example, retirees are more likely to reject survivor protection when:

the spouse has access to alternative sources of survivor protection, such as pension coverage in their own names;
they have limited pension wealth, increasing the financial pain of trading current pension income for survivor protection; they expect to outlive the spouse; and
the relationship with the spouse is weak.
After accounting for other sources of spousal survivor protection, the affordability of spousal protection, and health status, only 7 percent of married men and 3 percent of married women reject spousal survivor protection without evidence of potentially compelling reasons.**

Now, (back to me here), this whole issue is primarily concerned with RETIREMENT INCOME. You need to sit down and do some financial planning and figure out:
1. how much $ do you HAVE in retirement (with and without your wife) factoring in cash, real estate, other assets, current income, life insurance, etc etc.
2. how much $ do you NEED in retirement, considering all the possible variables here -- lifestyle, monthly expenses, life expectancy, etc etc

A SEPARATE issue is on the table here (part of #2 above) -- that of health insurance and its cost -- I assume you are referring to health insurance eligibility when you say "insurance"?

Health insurance is important (and expensive), but remember, the key age here is 65 NOT 62 because that is when you are eligible for MEDICARE (NOT Medicaid -- Medicaid is for the INDIGENT, i.e. poor people with little or no assets and is primarily a state-based "program").

So, step one, identify your eligibility for Medicare -- here's a summary (Check the Web or call Social Security):

People age 65 and older who are citizens or legal residents of the United States and who have worked (or their spouse has worked) for at least 10 years (or 40 quarters) in Medicare-covered employment.

People who have worked 30 to 39 quarters are eligible and can enroll in Medicare, but they will pay a monthly premium for Part A ($226 in 2007), as well as the Part B premium ($93.50 in 2007).

Understand what Medicare covers: Medicare covers hospital costs (Part A) and some medical costs (Part B) and some drug costs (Part D). Check the Web.

Decide if you need or can afford medicare-supplemental coverage after age 65. Many many people >65 have Medicare with no supplemental coverage to fill in the gaps -- it's not the end of the world.

Decide how you can go about securing coverage between now (you are 57 right?) and when you will turn 65. Identify how much this coverage will cost (individual plans are MUCH more expensive than your wife's group plan). If you lose employer-sponsored coverage, COBRA will get you 3 years of coverage at 100% of your wife's employer's cost -- depending upon the medical plan design that could be around $400 a month (if your employer treats employees and retirees <65 as a single risk pool). $600-800/month if they price <65 retirees as a self-supporting pool. Then do the math and compare to the pension decrement.

But what to do after 3 years when COBRA runs out? An individual policy -- IF you can get one, would cost many times more than employer-provided coverage. So think carefully about whether you are willing to "self-insure" your health risk between age 60 and age 65 (years when your statistical "morbidity rate" is quite high!).

I could go on and on, but I get paid to give this info to our employees not on real estate boards. :-)

Submitted by zk on November 1, 2007 - 2:06pm.

I'm a federal government employee, and the way it's been explained to me is that you're not required to choose either all the death benefit or none of it. You can choose a percentage. And as long as you choose more than 2% death benefit, the government will continue to pay its share of your (the spouse's) health insurance premiums if your spouse (the employee) dies first.

Not sure if health insurance premiums are what you were asking about (or even if the information I gave above is 100% correct), but the spousal health insurance premium payments are an enormous benefit of federal employment and should not be passed up, especially if you can get it by only taking (and paying for) a small percentage of the death benefit.

Submitted by seattle-relo on November 1, 2007 - 2:36pm.

Does you wife's insurance continue after the age of 65? The cost of medicare part A and B being around 300 dollars isn't cheap given the average quality of coverage. I don't know what type of physical condition you are in now, but one major medical issue can be terribly expensive. Currently open heart surgery (the surgery and hospitalization alone) is roughly $140,000. I think zk makes an important point when thinking closely about not giving up your wife's health insurnace benefit. I'll tell you, when an unexpected medical issue comes up, it sure is nice to have good insurance and not to have to worry about paying the medical bills. I'm only 35 years old, young, healthy, exercised and ate right, and had open heart surgery 5 months ago. A sudden medical illness can show up at anytime without warning. After my experience, I will never take good health for granted and would ant the best coverage I can have. Just my two cents...

Submitted by pertinazzio on November 1, 2007 - 5:48pm.

Once again, thanks for all the thoughtful comments. I will reread them all carefully. Visiting a qualified financial planner may be advisable.

Thanks again !

meis rebus ocupatus!

Submitted by pertinazzio on November 1, 2007 - 6:15pm.

bsharma wrote
but to think you will die penniless as a ward of state without her babysitting you paints you as a big loser.

Maybe so ... dunno a big looser who has made a lot of mistakes but even so has managed to stay at the same job for 25 years, raise three kids and put two of them through college, and acquire a nest egg somewhat shy of a million (jointly). Dying penniless and as a ward of the state was a hypothetical worst case scenario. At this point it looks like an unlikely eventuality..... but you never know because fortune is fickle and it is treacherous out there. It was precisely because of the uncertainties linked to this decision that I sought out your sage advice.

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