If you receive a pension from your employer, you have a few options to leave money for your spouse. Some options are required by law, however, beyond that, plans may differ on what they offer, and each option will not necessarily be available under every plan. If you choose an option that will continue benefits to your spouse after your death, it will permanently decrease the amount you receive during your lifetime, so it is important to consider these options carefully.
A lump sum is the present value of what you would receive over your lifetime if you took a single life annuity. The lump sum option gives you full control over your benefit payments. You will have to invest the proceeds yourself to generate an income for you and your spouse after your death. You may purchase a life insurance policy with some of the pension funds to secure an income if you die before your spouse does, or you may simply set aside a dollar amount for your spouse.
Certain and Continuous Annuity
A certain and continuous annuity is a benefit option that allows you to set aside some money for your spouse if you predecease her. The pension option gives you a lifetime benefit payment, but also provides for limited beneficiary payments to your spouse. You choose a benefit payment option for your spouse that ranges from five to 15 years. This beneficiary payment option is called a "period certain annuity." Your spouse receives the beneficiary payment for the remaining number of years to make up the difference if you die within this time period. For example, if you select a period certain option of 15 years for your spouse, and you die after 10 years of receiving your pension benefits, then your spouse receives annuity payments for another five years. If you live beyond the 15 years you selected for your spouse, then you continue to receive payments for the rest of your life, but your spouse receives nothing when you die.
Joint and Survivor
Selecting the joint and survivor benefit option lets you set aside some money for your spouse, similar to the certain and continuous annuity option. The difference is that your spouse receives 50, 75 or 100 percent of your pension benefit for her lifetime when you die. If your spouse predeceases you, you do not get back the money you set aside for your spouse, and your benefit payments do not change. The higher the percentage that continues to your spouse, the lower your lifetime benefit. If you are married and do not elect another option, the joint and 50 percent survivor option is the default option as required by law.
Joint And Survivor Pop-Up
The joint and survivor pop-up option works similar to the joint and survivor option. You set aside some money for your spouse, and your spouse receives a lifetime benefit payment when you die. If she predeceases you, your benefits "pop up." In other words, you get the money back that you set aside for your spouse.
- "Practicing Financial Planning for Professionals (Practitioners' Edition), 10th Edition"; Sid Mittra, Anandi P. Sahu, Robert A Crane; 2007
- Pension Benefit Guarantee Corporation: Your PBGC Benefit Options
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