Question

John is age 65 and his spouse is age 62. He can commence a pension of $2,000 per month payable in a single life form. He also has the option of $1,900 per month payable in a 50% joint & survivor form or a $250,000 one-time lump sum payment. John is qualified for Social Security and estimates that he can receive $2,200 per month at age 66. He earned a median US wage for his lifetime. John has modest lifetime savings and no pension from any other employer. Discuss the pros/cons for each of John’s pension options ($2,000 single vs $1,900 J&S vs. $250,000 lump sum). Consider how each option affects the maintenance of a standard of living, lifetime security and death benefits.

Answer 1

Since john and his spouse both are old and john has no other employer that pays the pension, he should also think about his spouse benefit.

When john retires, he will get pension and will continue to get the pension till he survives but after he dies, pension will stop coming if he has opted for single life form.

He should also think about the spouse and should take the joint survivor form, so that spouse can get benefit even after john dies.

Pros

If he takes single life pension form the amount of pension that he will receive monthly will be high as compared to joint life form since in joint life spouse is also covered and this increases the tenure of pension.

If he takes single life he can have a better life style as the pension will be higher as compared to the pension that he might get if he takes joint pension.

If he accepts lumpsum amount of pension than he can start a new business or can help his household.

Cons.

If he takes single life pension, spouse will not get any pension after john death.

If he takes single life pension than future livelihood is uncertain.

If he takes lump sum than the chances of over expenditure is high and he is not sure if he will be able to pass his life by this money as he will not get any amount above lump sum once paid.