Upon retirement, deciding how to select a pension plan payout for your pension funds can be tricky. You will be presented with a number of choices for receiving pension funds. Note that pension funds in this post apply to the narrow meaning of the term--payments that you will receive over time from your ex-employer.
If you're married, we will presume for simplicity that you need to select between 2 hypothetical monthly pension plan payout choices:
• Take $1,000 per month but no payments to go to your spouse once you pass away, or
• Take $800 per month while you live, with $400 monthly paid to your spouse after your death
First know that the employer has already calculated that the present value, the expected monetary payout in today's dollars, is identical. So the decisions is not based on calculations but rather, which choice is most suitable for your situation. It may also be based on your knowledge of using life insurance to make the best decision.
Rather than take the pension fund choice that gives benefits yo your spouse, another option would be to take the greater pension plan payout and buy life insurance coverage on you for your surviving spouse's benefit. Assuming you pass before her, she can invest the insurance death benefit after you are gone to generate a monthly income. She'd need the capability to manage that investment or find a professional to do so.
In case you have some twenty years of life span (see life expectancy in retirement)and are in good health, that $200 monthly may purchase sufficient death benefit to more than cover your spouse if you pre-decease her.
If purchasing life insurance at your older age is too pricey for you and your pension funds, then it might be more affordable if you currently possess a policy in force. In that situation, maintain that policy for the benefit of one's spouse as it will act in place of pension plan payments.
The benefit to this life insurance strategy becomes obvious in the case where your wife pre-deceases you. Had you take the pension fund payout option where you sacrificed $200 monthly for life in order to provide benefits to your spouse upon your death, that sacrifice becomes worthless if she pre-deceases you! But with the life insurance, you can cancel the policy (and pocket the premium) or just change the beneficiary to one of your heirs.