# Survivor Pension amount?



## dadaswell (Jan 6, 2016)

Scenerio: Female soon to be pensioner @ 57 yrs old, spouse 63 years old (also with DB pension of similar value).

~Defined benefit pension plan starting at 57 yrs old paying approx $65,000/yr, reduced to $58,665 at 65 yrs old.

~10 year guarantee @ cost of $59/yr for entirety of pension (If you die before receiving 10 years' worth of pension payments, this option provides 100% of your CPP-adjusted pension to your eligible spouse for the balance of the 10 years at a minimal cost)

~ Survivor pension option-- Annual PERMANENT reduction to pension-- Annual pension for survivor
50%-- $0.00---- $29,475.57
60%-- $256.63-- $35,370.69
65%-- $384.94-- $38,318.25
70%-- $513.26-- $41,265.80
75%-- $641.57-- $44,213.36

No matter which option is elected, when one spouse is widowed, the remaining spouse will be in OAS clawback territory due to collecting their own reduced pension, plus survivor pension, plus CPP.

Here is what I am thinking: Assuming no unexpected death for this female pensioner, chances are the older male spouse with poor family health history will die first. If that does in fact happen, there will be no one to collect the survivor pension, as kids will likely no longer be considered dependant (pension considers dependant children to be anyone under 25 and enrolled in fulltime schooling, or at any age if disabled and fully dependant at pension holder's death). 

So, pensioner is thinking to keep the 10 year guarantee, and opt for the 50% survivor pension. Then take the savings of approx $53/month and invest it in a 20 or 25 yr life insurance policy. That takes the female pensioner/policy holder to 77 - 82 years of age, with possibility of leaving $100,000 - $125,000 for the estate should death happen before that. 

Thoughts? Ideas? Missing anything?


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## AltaRed (Jun 8, 2009)

I would skip the life insurance. It is very expensive by the time one gets to be a senior and the survivor does not need it if the survivor hits OAS clawback territory anyway. In my view, retirees should never have any life insurance left.

I think given both retirees have DB pensions, the sweet spot is probably the 10 year guarantee and the 50% survivor benefit option. 

Retirees spend more in the first 10 years of retirement when they are still healthy and gung ho on doing new things. By the time retirees hit 75, interests and stamina wane and spending goes down. Just the way it is for the vast majority.


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## ian (Jun 18, 2016)

Does the pensioner have the option of no survivor amount with perhaps a 10 year gty payout?

Or a commuted value given that interest rates are low and commuted values high? IF you can take a commuted value will any portion of it be considered immediately taxable (as a good chunk of mine would have been).

Other income to consider, plus pension(s) and CPP to consider that, as mentioned above, may put you in OAS clawback territory (very pleasant situation).

You might want to consider getting some good profession tax and financial planning advice. The cost will be very low compared to the potential benefit. Make some realistic assumptions and run the various options to see what the best option(s) is.

I looked at going with no survivor pension and then funding an insurance policy for an equiv commuted value (less an amount to take into account the notional commuted value of the pension) from the savings. At the time my age was 61. The numbers did not work for me.


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## dadaswell (Jan 6, 2016)

Thanks for your thoughts AltaRed and Ian. There is no commuted option. (Actually, there was, but that had to happen by 50 years of age.) There is also no option for the no survivor amount.

There will definitely be more spending in the first 10 years. There are still children in public school. This is also the reason the life insurance is being considered. Should have mentioned that in my original post!


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## AltaRed (Jun 8, 2009)

Think you will find life tern insurance tremendously expensive for what you get. I dropped all life insurance by the time I retired in my late 50s. The bigger issue is actually disability where you, or your husband, become a financial burden on the other. With a 10 year guarantee, I believe the insurance is redundant. Presumably the kids will be long gone and earning their own keep before the 10 years is up.


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## dadaswell (Jan 6, 2016)

AltaRed said:


> Think you will find life tern insurance tremendously expensive for what you get. I dropped all life insurance by the time I retired in my late 50s. The bigger issue is actually disability where you, or your husband, become a financial burden on the other. With a 10 year guarantee, I believe the insurance is redundant. Presumably the kids will be long gone and earning their own keep before the 10 years is up.


Ten years from now the oldest will be 25, and the youngest will be 22 years old. 

Term life insurance quote is $519/yr for a 20 year term for $100,000 of coverage. Just thinking about making sure the kids are able to get finished univ/college etc.


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## AltaRed (Jun 8, 2009)

dadaswell said:


> Ten years from now the oldest will be 25, and the youngest will be 22 years old.
> 
> Term life insurance quote is $519/yr for a 20 year term for $100,000 of coverage. Just thinking about making sure the kids are able to get finished univ/college etc.


That is what a 10 year guarantee on the DB pensions gives you. Why does one need more? If adult children cannot stand on their own feet by age 22, there is not much a parent should be doing other than applying the boot. Advanced degrees are their problem, not yours.

Added: Seems like $519/yr for each of 2 seniors is a steep price to pay for what? A $100k buffer? For what purpose? If you want term life, why not a 10 year policy then at a lower rate?


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## ian (Jun 18, 2016)

I understand your feeling about insurance while your children are young. Have you considered a 10 year term life? If the premium delta is considerably lower, pump that money into a self administered RESP for your children. You might also consider a will that has, as a first cut on distribution, a certain amount of monies going to your children for post secondary education. We both did this for our grandchildren.

Surprised that you do not have a 'no survivor' option. Sometimes you have to dig a little deeper with the pension admin folks. My DB pension admin was outsourced and to make matters worse there had been two mergers. It took many months of back and forth including my accessing the actual pension documents and amendments to resolve the issue to my satisfaction. 

My experience was just because someone works in pension administration does not mean that they truly understand the plan or can accurately interpret the provisions of the plan. Under your plan, what happens with single unattached employees who retire?


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## dadaswell (Jan 6, 2016)

ian said:


> I understand your feeling about insurance while your children are young. Have you considered a 10 year term life? If the premium delta is considerably lower, pump that money into a self administered RESP for your children. You might also consider a will that has, as a first cut on distribution, a certain amount of monies going to your children for post secondary education. We both did this for our grandchildren.
> 
> Surprised that you do not have a 'no survivor' option. Sometimes you have to dig a little deeper with the pension admin folks. My DB pension admin was outsourced and to make matters worse there had been two mergers. It took many months of back and forth including my accessing the actual pension documents and amendments to resolve the issue to my satisfaction. Under your plan, what happens with single unattached employees who retire?


Some good points, Ian.
We already have a good amount of life insurance that will cover us to end of 2026 when youngest will be 20. Wish we had selected a 25 year term at the time.
RESP's are already in good shape. We only invest the amount necessary to draw the Government money. 
Kids are both very, very bright...want to be prepared for possibility of grad degrees.

Here is what I can find about the surivior pension in the FAQ section of the website:

"I'm single and my children are no longer eligible for a survivor pension. Will my estate receive something instead?
If don't have an eligible spouse when you start your pension, you're automatically entitled to the 10-year guarantee at no cost. If you die before you've collected a pension for 10 years, we'll pay the balance of the 10 years to your estate in one lump sum.

If you die before retirement with no eligible survivors, your contributions plus interest before 1987 are paid to your estate together with a lump-sum payment representing the commuted value of the pension you accumulated from 1987 until your death."


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## dadaswell (Jan 6, 2016)

AltaRed said:


> That is what a 10 year guarantee on the DB pensions gives you. Why does one need more? If adult children cannot stand on their own feet by age 22, there is not much a parent should be doing other than applying the boot. Advanced degrees are their problem, not yours.
> 
> Added: Seems like $519/yr for each of 2 seniors is a steep price to pay for what? A $100k buffer? For what purpose? If you want term life, why not a 10 year policy then at a lower rate?


We already have a good amount of life insurance that will cover us to end of 2026 when youngest will be 20. That was originally a 20 year term...wish we had taken 25 at the time.
If we purchase more, it would just be for this pension holder, not both. And yes, it would serve as a buffer for either the kids who remain, or older spouse who remains and would be getting 50% survivor instead of higher. And, the money to pay the premiums would be the same money that would be held back to pay for a higher survivor pension if elected.


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## ian (Jun 18, 2016)

dadaswell....I would be digging a little deeper, past the FAQ section, and into the actual T's and C's pf the plan. Ask some specific questions of your pension admin folks and then determine if their responses make sense or agree with your understanding of the plan. You will at least satisfy yourself. My case was somewhat unique but the result was a 33 percent increase in the original pension entitlement calculation that the pension admin folks steadfastly stuck to.

The FAQ`s on my plan were silent on some issues and ambiguous from my perspective on others. That is what caused me to dig a little deeper into the plan.


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## dadaswell (Jan 6, 2016)

ian said:


> dadaswell....I would be digging a little deeper, past the FAQ section, and into the actual T's and C's pf the plan. Ask some specific questions of your pension admin folks and then determine if their responses make sense or agree with your understanding of the plan. You will at least satisfy yourself. My case was somewhat unique but the result was a 33 percent increase in the original pension entitlement calculation that the pension admin folks steadfastly stuck to.
> 
> The FAQ`s on my plan were silent on some issues and ambiguous from my perspective on others. That is what caused me to dig a little deeper into the plan.


Wow! 33% is a lot! I will look into this. Thank you!


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## OhGreatGuru (May 24, 2009)

AltaRed said:


> ... I think given both retirees have DB pensions, the sweet spot is probably the 10 year guarantee and the 50% survivor benefit option. ...


I agree. I disagree with the OP's aversion to the survivor being "in OAS clawback range". It would be a nice problem to have. Clawback limits go up with inflation; and as you get older the survivor is likely to acquire more tax deductions for disability; medical expenses; etc. The idea of having an option of no survivor benefit as Ian suggested is nuts. The survivor would not thank you for it; and the public would not thank you for having to provide more income support to the survivor. If the survivor has more income than they need, their taxes will help the less fortunate. That (survivor) benefit is, effectively, the "income insurance plan" for the survivor. It also ensures that the survivor gets a life-time benefit from all the pension contributions made.

But I agree with altered that, with both spouses having DB Pensions, it's not worth buying more than a 50% option. Put the money saved into TFSA's and enjoying retirement life.


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## ian (Jun 18, 2016)

I (married) certainly had the option of no survivor benefit. It would have required sign off by my spouse. My spouse would have signed off on no survivor or on taking the commuted value had either option been financially or otherwise beneficial to us. This is an option that singles would obviously want. Those with partners would want if the deemed survivor has an anticipated short life span for one reason or another. Could be that the surviving spouse has a life threatening medical issue or a couple who each have very attractive DB pensions. In these situations, there could be a significant financial benefit attached to the no survivor option if favour of higher monthly pension amounts. 

This option does not have to be about OAS pension claw back (though it could). My understanding is that OAS claw back impacts only five percent of taxpayers, total claw back one or two percent.


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## AltaRed (Jun 8, 2009)

Singles by definition don't have a survivor option, so it is a moot point. From my perspective, it would be extremely selfish for an individual to want to go for a zero (or low) survivor benefit option unless the surviving spouse actually is terminal and about to die shortly anyway. Otherwise, no one knows which spouse is really going to die first. It's a random generator. That same survivor who no longer has a survivor benefit option also loses the partner's CPP (mostly) and certainly all the OAS. That is a severe pay cut. Hence a reason why law requires spousal sign off for survivor benefit less than 60%.

Anecdote: A close 'friend' talked his wife into signing a 'zero' survivor benefit option because he wanted them to have more money while HE was still alive. She signed to keep the peace. I told him he was the most selfish ******* I'd ever met. We don't talk any more.


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## Mukhang pera (Feb 26, 2016)

ian said:


> Those with partners would want if the deemed survivor has an anticipated short life span for one reason or another. Could be that the surviving spouse has a life threatening medical issue or a couple who each have very attractive DB pensions. In these situations, there could be a significant financial benefit attached to the no survivor option if favour of higher monthly pension amounts.
> 
> This option does not have to be about OAS pension claw back (though it could). My understanding is that OAS claw back impacts only five percent of taxpayers, total claw back one or two percent.


Waiving the survivor option might also make sense where the surviving spouse might live a lot longer than the pensioner. See my response to AR, below.



AltaRed said:


> Anecdote: A close 'friend' talked his wife into signing a 'zero' survivor benefit option because he wanted them to have more money while HE was still alive. She signed to keep the peace. I told him he was the most selfish ******* I'd ever met. We don't talk any more.


Maybe a selfish *******. Maybe not.

Let's posit a scenario where the pensioner contributed to a DB pension for 20 years, ending at age 50. Said pensioner was eligible to draw a pension at age 55, but deferred to age 60 to receive a larger monthly cheque (with no benefit to deferring longer). Now let's suppose that pensioner asks the pension administrator for a pension estimate. The estimate is $3,000/mo. single life pension, guaranteed 5 years. Let's next suppose our pensioner robbed the cradle and has a wife some 30 years his junior. So the pension plan might have to pay out every month to the wife for at least 30 years after the old lech has been recalled by the manufacturer. The administrator says, in that case, the pension will be only $1,700/mo. on a joint life and last survivor basis. 

Next in our hypothetical, we posit that the pensioner has arranged his affairs so that his income, for whatever time he has left, will be sufficient to see that he'll never see a dime of OAS (hard to believe that simply clawing one's way up to the total clawback zone puts one into the 1 or 2% category suggested by Ian). And let's say that, of that income (including the increased single life pension monies), he deploys a significant amount each year into investments for the wife, who has been duped into signing away her entitlement to $1,700 a month. 

To round out our hypothetical scenario, let's say that if the miserly old pensioner goes gently into that good night tomorrow, the wife will, yes, be bereft of his princely pension, or any portion thereof, but will have assets of not less than $2.5 million (not including the matrimonial home), with one of those assets producing a net monthly income of not less than $7,000, an income that should keep pace with inflation. If our hypothetical pensioner lives longer, he plans to keep increasing net worth and investments, to provide even more for his widow. Has our pensioner, for whatever else may be his faults, fallen into the abyss of greed, hence deserving the "selfish *******" calumny? I wonder.


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## AltaRed (Jun 8, 2009)

There are always 'one offs' but for the typical retired couple, they need 2 CPPs and 2 OASs plus that DB pension to have a middle class retirement. They might even have $300k in their RRSPs/TFSAs. If a surviving spouse suddenly just has 1 CPP (maximum), 1 OAS and the $300k, that is getting pretty thin. What a world of a difference it would be if that surviving spouse still had 60% of that DB to supplement about $2k/month in CPP+OAS.

It is even worse in my '*******' case where his wife did not work (stayed home and raised the kids). All she will have when the ******* dies is the CPP survivor's benefit, 1 OAS, and whatever investment income there might be. That ******* has a pretty darn good DB pension from a multi-national oil company and it will go to zero if he dies first. It would be a bit different had she worked, had her own CPP, maybe her own DB pension, and had retirement savings of her own.

Retired couples who have $1+ million stashed away should never get into a hardship position and the survivor benefit is not nearly as important.


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## Mukhang pera (Feb 26, 2016)

AR, I agree that 1 CPP + OAS + $300K is running a bit lean, unless we are overlooking the $16 million house on The Bridle Path, or some more modest abode in the British Properties which the '*******'s' wife will take under JTWROS (see, I have adopted the long, redundant, form, to be a good sport).

Perhaps we should arrange a public flogging for your '*******'.


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## AltaRed (Jun 8, 2009)

Mukhang pera said:


> Perhaps we should arrange a public flogging for your '*******'.


Wish we could. Public shaming likely wouldn't be good enough. However, we have also flogged this discussion to death too... Whether one defaults to the standard survivor benefit of 60% or not is obviously situational depending on importance of that revenue stream.


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