I don’t remember if I brought this up before, but someone I know that is pretty financially savvy recommended that instead of taking a reduced pension with a survivor benefit, to merely buy a level term life insurance policy for the other person. I’m not sure how you do the numbers on that one, but it looks like you’d pay far less for a large amount of coverage out of the savings of a full pension,
Before anyone makes that irrevocable decision, they need to make sure (1) the pensioner is insurable and (2) the level-term policy annual cost is not prohibitive, among other things. I think they used to write about this approach as “Pension Max” but it’s been many years since I’ve read about it in the financial press.
Here’s a discussion of Pension Maximization that contains the life insurance consideration:
http://www.investopedia.com/articles/personal-finance/071813/pros-and-cons-pension-maximization.asp
Uhhhhhh… Yeah…that’s how many firms make markets now.
Did you read about virtu? The company is a hft firm. Trades 2 million shares of GE and makes $600 a day. I don’t think that is excessive. Of course, the company trades 11,000 other products or issues a day.
:).
It’s not a condo. 
We will never know.
I just googled Pension Max, and yes, that sounds like what you’re talking about. In our case, the pension difference would be approx. 30-40K (I don’t remember exactly), and I think the company or the union will continue our insurance if we pay for it. I haven’t heard about needing to be insurable, but that sounds like something we should confirm. I saw that one could get a million dollar policy for as low as $500 a month at age 60 (10 yr level term), but maybe that was a bait and switch offer.
@dstark , I’ve heard about it only here.
@busdriver11 , the worry is that the promoters of such Pension Max plans are the very people (insurance agents masquerading as financial planners) who stand to profit from the sale of the policies to people who like the sound of what they hear but haven’t the skill or time to examine the proposal critically.
What happens if the pensioner doesn’t die at 60+10 years, or 60+20 years?
Why wouldn’t it be necessary to be insurable? If the pensioner is in poor health, then that’s a real possibility or the premiums could be prohibitive.
“Why wouldn’t it be necessary to be insurable? If the pensioner is in poor health, then that’s a real possibility or the premiums could be prohibitive.”
I need to check this out, but I was under the impression that we can just continue our company paid insurance, out of our own pocket. We do not need to be insurable, nor do we have to medically qualify for this insurance. The union has also had some insurance offers where no medical exam or questions were required to be answered (besides the smoking question).
I wouldn’t consider buying a policy from the Pension Max promoters, but only from either company insurers/union/or reputable company.
As far as whether you continue the insurance, I guess it depends upon how much money the other person thinks they will need, and how much one spends. At age 70 1/2, you’ll be having to take RMD’s anyways.
Hey! I would never! 
Don’t you live in a townhouse? Out here they are pretty much the same thing in that they are all in condo associations.
Yes…it’s not the same thing out here. 
@busdriver11 , If you are relying on a company group life policy, then it may be “easier” to escape some of these other potential traps.
Have a good night, everyone, and thanks for the help!
The bottom line is what helps folks sleep well at night. At H’s current age of > 70, life insurance premiums on a new term or any policy is pretty high. I’d want to be careful about insurability and how long there is a guarantee of level premiums or what cap there is on increases. If you buy a policy which has premiums that go up very high, it could cramp the budget. When you have some chronic health conditions, you can become uninsurable for both life insurance and long term care coverage (we’ve looked into it).
In our case, H is the pensioner and is 15 years older than I am, and great longevity runs in my family. It cost a 10% reduction in H’s pension for me to get 55% of the pension as a widow, so we decided that provided pretty good financial security (much better than any insurance policy we could afford that H could qualify for at this time), combined with my minimal SS & our investments and retirement accounts, I will be fine.
@dstark, so your a bookie??
I love that movie.
@dadoftwingirls, There were some similarities.
Which movie are you talking about?
@AttorneyMother, I have 2 term life policies in an Irrevocable Life Insurance Trust (ILIT) that is also known as a Crummey trust because I can fund it by way of a weird approach laid out by the unfortunately named John (IIRC) Crummey. It is out of my estate. In some years the Trust had to pay no premium at all or very little. I believe these expire when I am 65 or 67 or something like that.
I also have a whole life policy in a DB plan. The life insurance industry had lobbied to use an artificially low interest rate on this kind of DB plan, so I could save a large sum annually before tax. It seems to have a life component and an annuity component. In addition I have equities in there. My FA and I considered getting rid of the insurance but a) it makes ShawWife happy and b) we are getting in effect a higher fixed income rate than we could get elsewhere. But, it will all be taxable as ordinary income and is part of the estate.
@dstark, Trading Places when the two old guys are explaining what they do to Eddie Murphy.
Whew! I was hoping you weren’t talking about the Wolf of Wall Street being your favorite movie. I’d have to question your mental fitness. Love Trading Places.
Dadoftwingirls, I wasn’t a broker. I was a floor trader…like Eddie Murphy and Dan Ackroyd in the final trading scene of the movie.
Trading Places is a fantastic movie. The bacon scene was great and the final trading scene was very well done.
@dstark, so I should have said a numbers runner to be more accurate. I knew I was stretching it, but had to try.
For the record, my goal is to retire at 56.
@Shawbridge , yes, I’m exploring putting H’s larger policy into an ILIT right now as part of the overall estate planning. As I recall, you are in a state that imposes estate taxes so your structure necessarily takes into account state taxation at lower thresholds. Unless we move, our decisions rests solely on Federal estate considerations and gives me some time to pick and choose assets to settle into any trust. Trusts can also be domiciled in other states providing favorable treatment.
Poor Clifford Crummey, at least he is immortalized: http://www.investopedia.com/terms/c/crummey-trust.asp
http://www.aicpa.org/publications/taxadviser/2014/november/pages/case_study_nov2014.aspx
For parents who want to make gifts to minors without the administrative headaches of a Crummey Trust, UTMA/UGMA accounts accomplish roughly the same thing. But the kids have full access at 18 or 21, depending on the state. Presumably, any parent contemplating giving large sums to a child has also prepared the young adult for financial responsibility.
@dstark @dadoftwingirls, Trading Places. Ralph Bellamy and Don Ameche as the Duke brothers! Thanks for reminding me of this movie. I will have to rewatch soon.
busdriver in N J the pension reduction for survivor benefits is directly tied to the cost of what insurance would cost to cover the continued benefit.
Why would your company pension charge more than that? What might be happening is your company is charging the “real cost” and the pension maximizers are providing a lower cost but putting the potential survivor at risk that the insurance will not cover the pensioner for the length of time the coverage might be needed. They are playing odds some people win some lose. I will not place my spouse in that position.