The Waiting Game

Kristine Hayes

I’M IN EXCELLENT health. I avoid overindulging on sugar and carbohydrates. I exercise every day. I hope to live well into my 90s, if not longer.

What if I don’t live nearly that long? From a financial perspective, it makes little difference if I pass away before I tap my retirement funds. The value of most of my accounts wouldn’t be affected by my premature demise. My husband would simply inherit my 403(b) and Roth IRA accounts.

My state pension, however, is a different beast. I became vested in the pension when I was in my 20s. It’s a lucrative benefit. The funds are guaranteed to earn a minimum 7% interest each year. Some retired employees end up receiving as much as 130% of their final salaries from their pension payouts.

My pension consists of two separate accounts. The employee account makes up about 40% of the overall value, while the employer account holds the balance of the funds.

My plan is to hold off taking any payout from my pension until I’m 70 years old, which is 14 years’ away. At that point, I’d be eligible to receive approximately $1,400 a month for the rest of my life. In lieu of a monthly payout, I could opt to take a lump sum benefit worth approximately $165,000. Those payouts are based on a complicated formula that includes the value of both the employee and employer accounts.

Here’s where things get tricky. What if I were to die before drawing any pension benefit? My husband would receive a survivor benefit. But as beneficiary, he’d be entitled to receive only those funds held in my employee account.

So how could I make the best of a situation that isn’t fun to contemplate? If I’m diagnosed with a terminal illness in the next 14 years, I’ll likely take a lump sum payment from my annuity. Doing so would guarantee that the full value of my pension would be passed along to my husband, instead of just the 40% employee portion.

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