Pension choice when spouse is younger

Ask NJMoneyHelp

Photo: GaborFromHungary/morguefile.com

Q. My husband will be retiring next year and we have his pension payout options but we’re unsure of which to choose. My husband is 15 years older than me so I am sure that makes a difference. What do you think?
— Pension-getters

A. To give you a precise answer, we’d need to see all the payout options, your expenses, your other income and more.

So instead, let’s discuss generally the common pension payout options and what you should consider.

The basic decision evolves around how long you want to have a guaranteed income for the household, said Steven Gallo, a certified public accountant with U.S. Financial Services in Fairfield.

He said you are probably being offered options such as a single life benefit, which is a fixed payment for as long as your husband lives, or his life with a “period certain,” usually 10 or 15 years. Or there may be a joint benefit for as long as either your husband or you are alive. A lump sum may also be an option.

“In a situation where the pension recipient is significantly older than their spouse, we usually suggest seriously considering the joint benefit,” Gallo said. “Although this will reduce the monthly benefit, it will most likely provide a larger overall benefit since the payment in most cases will be paid for a much longer period.”

Gallo said that choice would result in a continuity of income to the household in the event of the death of the pension recipient, in this case your husband.

The emotional loss is tough enough without suffering a financial loss when a spouse passes, Gallo said.

He said if the plan provides for a joint benefit with what is called a ”pop up” provision — common in New Jersey with the state pension plan — he’d recommend going that route.

“This provides for the consistent payment throughout both your husband and your lifetimes, however, in the event that you should predecease your husband, his monthly benefit would `pop up’ to the higher single life benefit for the remainder of his life,” Gallo said.

Before you choose, he recommends you meet with a financial professional with all the actual numbers. Or consider a free money makeover with NJMoneyHelp.com.

Email your questions to moc.p1511326926leHye1511326926noMJN1511326926@ksA1511326926.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.