RETIREMENT BENEFITS

Once Art turned fifty five he started getting invitations to attend the retirement seminars at the Post Office. We attended our first seminar just to get an idea of the topics that were covered. For something like retirement, the questions you DON’T ask can be the ones that hurt you the most. We had no idea what questions we should ask, so we attended several seminars, learning something new each time.

For Art’s pension from the Post Office he was given three basic options: receive a full pension each month that would pay me nothing when he died, receive a greatly reduced pension that would pay by 100% of his benefits, or receive a reduced pension that would pay me 50% of his pension when he died.

There was no way we could afford to retire if we took the 100% survivor benefit. We thought we could manage on the monthly amount for the 50% survivor benefit, but it would cost us $200 each month, automatically deducted from his pension check. After taxes I would get (at today’s rate) about $900 per month. That didn’t seem like a very good return to me.

We began to do some research, and to ask other retirees what they had done. Amazingly, many people had simply taken the survivor benefits package without a second thought. Of course they had done this with the best of intentions…to provide for their spouse once they were gone. Unfortunately, this is a really bad investment, both now, and in the future.

I think that we assumed that whatever our representatives in personnel were telling us was what was best for us. Now we realize that these people are only passing on whatever information the company wants them to pass on. Not that they weren’t helpful. But if you don’t ask the question, they don’t give the answer. The real trick is to know what questions to ask.

First we needed to think about what our needs would be, both as a couple, and as singles. If I were to die first, Art would continue to collect his full postal pension, his racetrack pension, would inherit my IRA, and would have his own IRA as well. He would also be collecting about 85% of his Social Security benefits, due to the number of years he put in at the track. We decided that he would be in pretty good financial shape. For this reason we decided there was no need to carry life insurance on me.

If Art were to die first, I would have a small postal pension of my own, the larger of our two social security benefits, Art’s IRA, my IRA, and whatever other benefits we elected to take. Art continued a very small and short term life insurance with the Post Office to allow me to continue with the health insurance once he was gone. I think it’s something like $5000, which is the minimum. Additionally, if we elected to take the survivor benefits plan, I would receive the $900 per month. I would definitely have less money coming in.

As mentioned earlier, it would cost us $200 per month to be eligible for the survivor benefits. But did we have any other options? We started looking into term life insurance policies and discovered that we could buy a $250,000, twenty year term life insurance policy for about $93 per month. Not only would this give us an “additional” $107 each month, the benefit pays the same should he die on the first day of the policy or the last day. Additionally, since it’s a life insurance policy, it’s also tax free.

If you do the math, you’ll see that even if Art had died on the first day of this policy, the $250,000 would have paid me over $1000 per month for over 20 years. By investing all or part of this money, I would be able to make it stretch even further. This definitely seemed like the way to go.

Once Art applied for his pension from the racetrack union, we decided once again to take the full monthly amount with no survivor benefits. We decided that we want to have the most money while we’re both still here to enjoy it.

The point of this is that everyone needs to educate themselves, to take responsibility for their own destiny. Don’t blindly accept what others may recommend. There may be a better solution for your specific situation and needs. The secret to having enough money to retire when YOU want to is to start early, save as much as you can (even if it hurts!) and ask lots of questions. The only person who gets hurt by not being prepared is you.