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Seven
WHEN YOU NEAR RETIREMENT, you get a letter from the University outlining certain options for how you want your pension delivered: Life plus 5, Life only, Joint survivor 60%, etc.
The definitions of these are fairly well spelled out in the information that the University gives you. But what is not clear is that these are not the only choices, and a little thought given to your own situation may come up with a better plan.
Let us take, for instance, the joint survivor 60% option. Assuming the retiring employee is male, this option gives a certain sum each month to the couple, as long as the male is living; upon death of the male, the widow then receives an amount equal to 60% of the original amount. (Of course these amounts are supposed to increase a bit each year due to inflation, but let's ignore the inflation for the sake of argument).
NOTE THAT IF THE WIFE DIES BEFORE THE HUSBAND, then the husband continues to receive 100% of the original amount! The logical conclusion is that males, or at least ex-professors, need a lot of money to get by; females, or spouses of professors, can do with a lot less.
Now it is very easy for Mercer to come up with a variation on this theme: let's say you want a certain amount to come in as long as both of you are alive, and then upon the death of either spouse the surviving spouse would get 60% of that original amount.
THIS MEANS THAT IF THE EX-PROFESSOR IS WIDOWED, then he/she would take a 40% cut in pension money. That, of course, is bad for the ex-professor. But it all comes out in the wash, and the way it does is that the original amount is actually higher for the couple (while they're both alive) if the couple takes this option.
An example that is made up of whole cloth, but is probably not far off the mark, is the following:
PROFESSOR GREEDMONEY and his wife are offered the option of $3,000 per month with the following conditions: upon the death of Prof. Greedmoney, his wife would receive $1,800 per month. If, however, Mrs. Greedmoney dies first, Prof. Greedmoney would continue to receive $3,000 monthly until his death. It seems that Mr. Greedmoney needs 100% to survive, but his spouse needs only 60% upon her widowhood.
THE OPTION I'M PROPOSING would have roughly the same monthly pension for the couple while they both survive, but more than $3,000. You'll have to ask Mercer exactly how much; but if Mr. and Mrs. Greedmoney are about the same age, then that $3,000 may become $3,150 (ballpark figure). If Mrs.Greedmoney is considerably older than Mr. Greedmoney, it would be even more.
Upon the death of either spouse, the surviving spouse would then receive 60% of $3,150, which is $1,890. (Note that $1,890, too, is more than the $1,800 that Mrs. Greedmoney would have received).
THE ONLY DOWNSIDE of this variation is that if Mrs. Greedmoney dies first, poor old Mr. Greedmoney has to make do with a mere 60%.
Fair is fair, though.
Neil Wigley: wigley@server.uwindsor.ca