Which option to pick for pension payout

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flmayo

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I will be retiring soon from a government job here in the U.S. We will be returning to live in Ireland with our 2 young children (under 10). I have a traditional defined benefit pension plan with a 2% cost of living increase yearly. My wife is in her mid 40's and I am in my mid 50's. I have a choice of 7 different options, I can't figure which is best for us. I want my family to be taken care should anything happen to me. Most of the guys I work with pick one of the first 2 options and then get a term life insurance policy. The quote I got for a 30 year term $500000 policy is $3500 (after tax money) approx yearly. Here are the 7 options, the dollar amount are not my numbers but they give an example of the average payout that most people receive. Any advice will be greatly appreciated!
1. Modified Cash Refund Annuity : This option provides monthly of $5816, when you die the pension payment is finished.
2. Ten year Certain and life there after. This option provides monthly payments of $5688 for as long as you live. If you should die before your 120 monthly payments are made your beneficiary will receive $5688 a month until 120 monthly payments ahave been made in all.
3. 100% Survivor Annuity ; This option provides monthly payments of $4918 for as long as you or your beneficiary should live.
4. 66% Survivor Annuity : This option provides monthly payments of $5185 to you as long as you live. Your beneficiary, if living at the time of your death will receive monthly payments of $3457 for as long as she lives.
5. 50% Survivor Annuity : This option provides monthly payments of monthly payments of $5329 to you as long as you live. Your beneficiary will receive monthly payments of $2664 for as long as she lives.
6. 75% Joint and last survivor annuity: This option provides monthly payments of $5171 to you as long as you both are living. After the death of you or your beneficiary monthly payments of $3878 will continue for the life of the remaining person.
7. 50% Joint and Last survivor Annuity. This option provides monthly payments of $5450 as long as both you and your beneficiary are living. After the death of you or your beneficiary monthly payments of $2725 will continue for the life of the remaining person.
 
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The first thing that springs to my mind is the 10 year age difference. Added to that, women tend to live 3 to 4 years longer than men. So I guess whichever option you go for, you might want to make provision for a continuing income to your wife on your death (unless she will have her own pension?).
I think option 6 looks reasonable.
Option 1 plus the Term Assurance might be attractive, but you don’t say what the amount of the life cover would be. But remember that the life cover ceases at age 85, and your average life expectancy (based on age 55 now) is circa 30 years. So it’s a 50/50 chance that you might die after age 85 and thus no income or lump sum for your wife.
The other issue is the state of health/ family history of both parties. If you are in good health and you have a good family history, then the odds are that you may well live beyond age 85. Even though 10years younger, if say your wife’s family history was similar then there is a risk that the life cover is expired and if say you died at age 86, then your wife is 76 with no income and no life assurance.
I think it’s all about whether you want certainty (say option 6) or are prepared to take some level of risk.
 
2 young children under 10 would suggest you need the max now and less later. Between schooling and teenager clothes and other costs you will be glad you took the max now and less later. You just need to work out what that max is to be from your options and look to maximise any opportunities to get a partial Irish pension between now and the State Pension age.
 
Thanks for the input Conan and Nordkapp. I should have mentioned that my wife will return to nursing part time on our return.
The life insurance policy is for $500000. Our Health is good, both my parents lived into their 80's. My wife's side live for ever
We'd be living in the West of Ireland so not as expensive as other parts. The insurance policy expiring when my wife is still in her mid 70's is definitely concerning.
 
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