Choosing between a single life and joint pension payout
This is the one decision in your retirement paperwork that cannot be undone. Not after a year, not after a week in most cases. You sign the election form, the payments start, and that is the shape of your income for the rest of your life and possibly your spouse's.
Everything else in a pension file can be corrected. This cannot.
What the two options mean
A single life annuity pays you the largest monthly amount available, for as long as you live. When you die, it stops. Your spouse receives nothing.
A joint and survivor annuity pays you less each month, and when you die a percentage continues to your spouse for the rest of their life. The common percentages are fifty, seventy-five and one hundred percent.
The reduction to your own check depends on the percentage you pick and the age difference between you. A younger spouse means a longer expected payout, which means a bigger reduction now.
Federal law requires that a married participant in most private pension plans gets at least a fifty percent joint and survivor option as the default, and your spouse must sign a notarised waiver for you to take the single life option instead. That requirement exists because of what used to happen without it.
The arithmetic people do wrong
The common mistake is comparing the two monthly figures and taking the bigger one because the gap looks large.
Do it the other way round. Work out what your spouse's total household income would be the month after you die, under each option.
Remember that when you die, one of your two Social Security payments stops as well. The survivor keeps the larger of the two, not both. So a widow is already losing a chunk of household income at that moment. If the pension also stops entirely, the drop can be brutal, and it lands on somebody who is in no condition to be rearranging their finances.
I have seen both outcomes in Erie. A colleague who took the single life option in 2011 and died in 2016 left his wife in a house she could not run. Another who took the seventy-five percent option grumbled about it for a decade and his widow is still in her home.
When single life genuinely makes sense
It is not always wrong. There are real cases.
If your spouse has a pension of their own that is comparable to yours, the survivor protection is worth much less.
If your spouse's health is poor and yours is good, the arithmetic changes.
If you have no spouse, the question does not arise, though you should check whether the plan allows a beneficiary for a guaranteed period.
And if the reduction your plan applies is unusually steep, which some are, the protection may be priced badly enough to reconsider. Ask for the figures for every option the plan offers, in writing, before you decide. Plans vary a great deal and yours may be generous or mean.
The insurance idea, and its catch
Somebody will suggest taking the single life payout and using the difference to buy a life insurance policy on yourself, with your spouse as beneficiary. It is called pension maximisation and it is sold hard.
It can work. It also fails in specific ways that the person selling it will move past quickly.
The policy has to be permanent, not term, because term expires and you probably will not. The premiums have to be paid for the rest of your life out of a fixed income, and if you ever miss them the protection disappears while the pension reduction you gave up is gone forever. And the death benefit is a lump sum, which is not the same thing as a guaranteed monthly income for a person in their eighties.
If you are seriously considering it, pay a fee only adviser for an hour of their time rather than taking the analysis from whoever is earning the commission.
Before you sign
Ask the administrator for a written statement of every payout option with the exact monthly figure for each. Not an estimate over the phone.
Ask whether the plan has a pop up provision, which restores your full single life amount if your spouse dies before you. Some plans have it and it changes the calculation.
Ask how long you have to change your mind after the forms go in. Some plans allow a short revocation window before the first payment. Most do not.
Then sit down with your spouse and go through it together, because it is at least as much their decision as yours. My wife and I did that over a kitchen table in 2019 with a printout and a pot of coffee, and it took about two hours. That was the cheapest two hours of financial planning either of us has ever done.
