Money & Policy

What Spouses Should Know About Pension Benefits

How to choose the payment option that works best for you

If you are married when you retire, and either you or your spouse are lucky enough to have had a traditional defined-benefit pension, you will face some choices when you apply for its benefits. The following information will help you understand the choices and how they will affect the amount you'll receive.

A defined-benefit pension, which promises a certain benefit at retirement usually calculated through a formula based on a combination of years of service and amount of pay, can be paid in several different ways. When you or your spouse retires, you will be asked to elect or choose the type of benefit that you want.

A defined-benefit pension with survivor's benefits lets you continue to receive monthly benefits for the rest of your life from your spouse’s pension if your spouse dies before you. If you choose not to receive survivor's benefits, you must complete a spousal consent form or waiver saying so.
2 Types of Pension Benefits
This article focuses on two types of benefits:
Single Life Benefit: Monthly payments based only on your expected lifetime, which means the benefits stop when you die.

Joint and Survivor Benefit: Monthly payments based on your lifetime and your spouse’s lifetime. This means that should your spouse die before you do, you will continue to receive survivor’s benefits from your spouse’s pension.
Why is There a Spousal Consent Form?
The spousal consent form or waiver is required by federal law as a way of letting you and your spouse know that the survivor would be left without any income from that pension if the benefit is waived.
Unfortunately, the law does not cover state and local government pensions. Be sure to read this form carefully. It can be confusing.

Once you have waived the benefit, the decision is final. Don’t sign away your rights unless you understand what you are giving up.
How Do My Choices Affect the Benefits?
If you choose the survivor’s benefit, it means that you will receive lower monthly benefits than the monthly benefits based on your lifetime alone. But it guarantees a steady stream of income for two lifetimes — yours and your spouses.

Sometimes you have a choice of whether the surviving spouse will receive 50 pecent or 75 percent of your pension benefit. There may be other choices. If so, make sure you understand what they are. Ask the pension plan administrator how much you would get under each option or type of benefit that you can choose.

People are often tempted to select the lifetime benefit because it pays the highest monthly benefit. But remember: it will be paid only while your spouse is alive. And if the pension includes retiree health benefits, these may stop too if you are widowed or a widower.

A Survivor's Benefit Example
Here's an example of how survivor's benefits can work, with the assumption that your husband will draw a pension based on his employment history: If you and your husband choose to receive his pension as a lifetime benefit while he is alive, you both might receive $1,600 a month in pension benefits. This income would stop when he dies.
Under a joint and survivor annuity, the benefit might be $1,300 a month while your husband is alive. However, when he dies, your benefit would be $650 a month for as long as you live.
How Do You Decide Which Benefit to Choose?
Start by adding up your sources of retirement income by using WISER’s worksheet, Get Your Ducks in a Row. This worksheet will help you and your spouse estimate what benefits will be available to each of you as a widow or widower and decide how important a survivor’s benefit is to each of you.

Think about your personal circumstances and decide how much each of you would need as a survivor. Consider also how that might change if your health or other circumstances might change.

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