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Question for the Money Doctors

Question submitted on Nov 16, 2011.

Question

I am 50 years of age and have been working at ups for 25 years.For contract reasons I am planning on leaving next November with partial pension and full benifits for myself, my wife and my 2, 14 year old children. My monthly pension would be around 3,000. I am undecided wheather to take a spouce deduction of app. 250.00 per month ,would give my wife half of that should I die. Or take full pension and open a term life insurance policy for 250,000 at 94.00 per month. 30 year term.Can you give advice?

Answer

Assuming your wife is your age and there is not a cost of living adjustment for your single or joint pension benefit, the life insurance appears to be the better option as it costs less over your expected lifetime.  Choosing the pension option that only pays through your lifetime will provide larger monthly payments and in the event you pre-decease your wife, the life insurance is payable immediately to her.  Assuming a reasonable mid single digit average return %, the life insurance proceeds should be able to cover half the remaining pension for her lifetime.

One thing you may want to consider is obtaining $500k of 30 year term in total life insurance while your children are younger so in the event you pass away while they are still in your household your full pension can be replaced with the proceeds.  Once they are no longer in your household you can always reduce the amount of life insurance carried on the policy to save on the premium at that time, since your wife would presumably be able to live on less income.


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