Have a Pension? You May Want to Pursue This Option to Make Sure Your Family Is Secure

For many Americans, retirement is a team sport between spouses. Managing expenses, collecting benefits, and optimizing retirement savings, such as in an IRA, are all pieces of the post-retirement puzzle. And when a cornerstone of your retirement plan is your spouse's monthly pension payment, it can be vital to protect that income. Here's what you need to know about the joint and survivor annuity option, and how it can be an important part of your post-retirement income plan.

What is a joint and survivor benefit?

Typically, when we think about pensions, we think about a recipient getting payments each month until they die. But if a loved one also relies on that income, the stopping of pension payments due to the premature death of a spouse could be devastating. Fortunately, pensions often offer alternative ways to collect benefits.

Many pensions offer another payment option, known as the joint and survivor annuity. Instead of paying benefits to only one person, the pension will pay out a monthly benefit to the annuitant (the person receiving the annuity), plus a benefit to a survivor once the annuitant dies. Typically, the survivor must be the spouse of the annuitant to qualify.

When selecting a pension benefit option, retirees should take stock of the other retirement benefits available to their spouses. If your spouse is counting on part of your pension to fund their basic expenses, it may be a good idea to consider a joint and survivor annuity.

Why is this option important?

The joint and survivor annuity option on a pension can be a vital part of protecting a surviving spouse's standard of living. As such, qualified pension plans are required to have the payment option, and many insurance companies offer private annuities with survivorship benefits.

Historically, heterosexual single-income families relied on a male breadwinner, who may have had a pension in his name. Because men generally have shorter life expectancies than women, a wife who relied on her husband's pension payments may have had to make do without that monthly income for years following his death. A joint and survivor annuity could prevent such a situation from happening.

Today, the joint and survivor annuity payment option is just as important. While the gap in life expectancy by gender is narrowing, it is still very common for one spouse to live longer than the other. And even if a pension is not the sole retirement asset of a married couple, losing an income source in retirement can greatly reduce the financial security of a surviving spouse.

What are the drawbacks?

It should be made clear that a joint and survivor annuity will typically pay less each month than a single-life payout. Additionally, a survivor will not necessarily receive the same benefit amount as the original annuitant.

A joint and survivor annuity guarantees monthly payments over the span of two lives instead of just one. Generally, this will increase the number of monthly payments over the lives of the annuitant and their spouse, which reduces the monthly benefit amount. Additionally, many pensions only offer a percentage of that reduced amount to a surviving spouse after the death of the annuitant.

The joint and survivor annuity option can help preserve the income of a surviving spouse, especially in a single-income household. And while you may see a lower monthly benefit, in many cases protecting post-retirement income can be a higher priority than taking a chance on longevity.