Length of pension

stoveguyyJune 11, 2012

My dad is 85. Retired 20 yrs ago with pension. Think he gets 50% of salary but he has survivor benefits so it continues on for spouse. What was his expected life span when he retired? 10yrs or less? So he has lived 2x longer than expected?

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The length of Pension depends on what you have paid for. mostly, it is until you die.

    Bookmark   June 11, 2012 at 10:42PM
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my point was you retire, get pension for 5 yrs and die. company is happy they dont have to pay you anymore. actuary says you will live for XX yrs. same as govt SS money. but govt has no piggy bank. they pay with money coming in. maybe companies do the same thing. pay pension with operating income.

    Bookmark   June 12, 2012 at 8:17AM
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I would bet that there's a lot of variation in how employers handle their pensions, and you are not going to get a one-size-fits-all answer. You'll have to go to the specific plan. Note that plans can and do change how plans are administered as they go along, too.

    Bookmark   June 12, 2012 at 10:04AM
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In 1992 the average life expectancy for a white male was 72.3 years.

>>The length of Pension depends on what you have paid for>>

A true "old fashioned" pension did not require employee contributions; it was funded entirely by company funds. IRS rules are quite specific on how a pension fund is set up and managed. There are many restrictions on what the funds can be invested in.

When 401k accounts were instituted, companies saw the opportunity to terminate these pension accounts, which required them to set aside considerable cash reserves that couldn't be utilized for anything else.

IBM was the test case for employees who felt they had been scr$wed by the pension fund terminations (which was true). The company won, and now less than 30% of US businesses offer a pension plan.

What most companies offer is a combination of 401k accounts (funded by employees, sometimes matched by a small percentage from employers) and insurance purchased on the employee's behalf by the company. Because the latter are simply the purchase of a standard deferred payment annuity (usually payable starting at age 65), the company has no requirement to set aside funds.

However....the fact that your father's pension is 'assignable' argues that it is in fact one of the actual pensions, not an annuity policy. Both work on the same basic principles: aggregation (of premiums) and compounding (which grows exponentially greater over time).

Yes, your father has lived a longer than expected life. But when a retirement plan or insurance policy is aggregated over thousands of employees, the math changes. A great many people leave a job before they are vested, either voluntarily or through termination, which frees up those funds. Of the approximately 20% remaining: some will take a lump sum (much less costly for the company), some will not. Some will choose a reduced benefit (assignable) and some won't.

And of that 20%, half will die before age 73 and half will live longer. How much longer, and how many of them will still be alive after 5, 10, 15, 20 years? That's the "X" factor - the unknown that actuaries can only guess at, and why they pay attention to short-term statistical studies that show how mortality/morbidity is trending.

The factor of COLA/non-COLA also needs to be considered (annuities, for example, are almost always non-COLA). Even a generous COLA is considered to be 2-3% maximum - usually well under what most institutional accounts earn through investments.

    Bookmark   June 14, 2012 at 1:28AM
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He did work for IBM. 33yrs. Mom worked for mayo clinic for 40 yrs and still complains about feeble medical benefits. Dad has health issues but mom is rock solid. Never been sick a day in her life. I went to mayo clinic a lot. Talk about a machine. School buddy was CFO for a bit. He left to head some hospital system in another state.

    Bookmark   June 14, 2012 at 10:20AM
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My husbands pension was until he died, then it was transferred to me. He took a loss to do that for me.

    Bookmark   June 14, 2012 at 2:12PM
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Interesting discussion--especially since my DH just retired this past Thursday (at age 62).

From what I've seen, yes, the set up can vary from company to company. Dsis worked for a company that went out of business (it was actually bought up and bankrupted by a very large national company so they could take a tax loss). She was in her 40s when that happened, had worked there since she was 17. Thanks to a class action suit, she got a one-time payout of about $16,000 in lieu of the pension she should have gotten (she was in management, at one point she was the highest placed woman in the entire company). So she gets no pension from them. She works at the Post office now. And will get only 1% of her salary for each year she's worked there. Since she's only going to be able to put in 10-15 years before retirement age, that's going to be next to nothing.

Daunt, on the other hand, worked for a company that ended up going belly-up, too. It changed hands a few times before that happened. In her case, each 'company' she worked for (even though she held the same job, management just changed every few years) took out an annuity for her. She ended up with 4 of them. 3 died with her, one was bequeathable--so I'll be receiving $100 a month for the rest of MY life (since I doubt I'll make it to 2042) and can bequeath it to someone of my choosing.

Now, DH is getting the standard, old-fashioned company pension. He contributed nothing to it--it was part of his salary/benefits. There were 4 tiers--one where he'd get a larger amount, but I'd get nothing if he died before me. Then there were 3 choices where he'd take a lower amount, and I'd get something after he died. I think we decided upon the 75% option (I get 75% of his pension, if I'm left behind).

Of course, we have to see exactly what the final #'s are from his pension and SS, but it looks as if, between his SS, mine, my annuity and his pension, we'll be making the same amount with him retired, as he was making working! Does't pay for him to keep working! (and spending close to $100/week to commute).

As I understand it, there are regulations that insure that the money is appropriately invested and secure. DH's company is one that has traditionally had their pentions OVERfunded--which is fortunate.

Yes, it's a bit of a gamble that the company takes--like insurance. When their former employees (or their spouses) live long lives, they take a bit more of a hit than if they die young, but that's the deal. And I'm sure the numbers still work out in the company's favor.

The sad, sad thing is that our children won't get to collect pensions. Most of them will have to continue working until they physically cannot get out of bed in the morning. It's a shame.

    Bookmark   July 7, 2012 at 7:29PM
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Interesting subject.

Right now I'm close to retirement and I am trying to decide on my pension choice. Should I take the lump sum or the monthly annuity? What did retirees do and are you happy with your choice?

    Bookmark   September 18, 2012 at 7:18AM
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We didn't have a lump sum option. We had 4 levels of pension--one where the payments were highest, and would die with DH (I'd get nothing if he predeceased me). Next step down, he'd get a lower amount, and I'd get half of that. 3rd step, lower payout still, I'd get 75%. Lowest payment for him would mean payments would stay the same after his death. We chose the 75% option.

Does your employer offer instructional seminars that explain your options? Or a dept. you can contact to discuss the various opportunities, their advantages/disadvantages? HR was extremely helpful in answering all our questions--both while we were in the planning stages, and while we were actually filling out all the reams of paperwork required.

I don't think it's easy to answer your question--not without numbers. How large is the lump sum? How many years of pension payments would it represent? How would you be investing the lump sum? How would getting a lump sum affect your tax liability at the end of the year (if you have to pay income taxes on it when you get it, that's going to significantly reduce the amount right away).

    Bookmark   September 19, 2012 at 2:01PM
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"(In 1992 the average life expectancy for a white male was 72.3 years."

But that was the life expectancy for a male born that year. The life expectancy for someone of retirement age (65) back in 1992 would have been something like 14 or 15 more years. It's around 20 years right now.

    Bookmark   October 4, 2012 at 6:04PM
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If you take a lump sum, can you roll all of it into a personal retirement account with no or minimal income tax consequences? Or can you roll a major portion into such a personal retirement account and take out some with low level of tax?

If it would be putting it into an annuity, whether to begin paying soon or delayed, I'm somewhat unhappy with that option, given the current economic situation, for the rate of payout on annuities is usually related to current interest rates on invested money, and interest rates these days are lousy. That's causing a major reduction in lifestyle of many seniors who'd followed the usual financial advice to invest in bonds, GICs, etc. when one is older and can't afford to have one's asset eroded by drops in the equity markets.

I've written posts elsewhere on this and other forums about some ways that one should view one's non-pension related assets at 65 or so.

Good wishes for some skilled information available (lacking the inherent conflict of interest involved when one is counselled by a salesperson who depends for income on commissions on sales of financial products) available as you make your decision(s).

ole joyful ... who, over 80, is pleased that he has assets that he doesn't plan to use till 95 or so still invested in quality equities, that he expects to maintain their value, given a time horizon of 10 years or more

    Bookmark   December 12, 2013 at 4:12PM
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