Pension election is one of the largest single financial decisions retirees make. The choice — single life, joint and survivor, period certain, lump sum — is usually irrevocable and worth hundreds of thousands of dollars over decades.
This page covers the analysis.
Most pensions offer some combination of:
Highest monthly payment; ends when retiree dies.
Lower monthly payment while retiree lives; continues at some percentage (50%, 75%, 100%) for surviving spouse.
The reduction in monthly payment is the cost of the survivor benefit. Typical: 10-30% reduction depending on percentages elected and ages.
Payment for a fixed period (10, 15, 20 years) regardless of life. If retiree dies during the period, beneficiary gets remainder.
One-time payout instead of monthly. Retiree manages the money themselves.
Not all pensions offer all options.
The core decision for married retirees.
For most married retirees, J&S is the right default. The single life version is essentially uninsured against the retiree's early death.
Some advisors recommend: take single life pension; buy life insurance to replace income for spouse if retiree dies.
The math depends on:
When pension max wins:
When pension max loses:
For most retirees, the J&S election is more conservative and reliable.
If choosing J&S, what percentage?
The right percentage depends on:
For most: 100% J&S if spouse fully depends on pension; 50-75% if spouse has substantial own assets/income.
Some pensions offer lump sum — one-time cash instead of monthly payments.
Pensions calculate lump sum using a discount rate. When discount rates are low, lump sums are larger relative to monthly payments. When high, smaller.
In recent low-rate environments, lump sums were often disproportionately attractive.
For risk-averse retirees who lack investment expertise, the annuity is usually better. For sophisticated investors with sufficient other income, lump sum can be.
The single most important variable.
J&S makes sense. Life expectancies long; need extended income.
Single life may be reasonable (retiree's expected lifespan is short; spouse covered by other means).
Or: take lump sum; manage for spouse's longer expected lifespan.
Lump sum often makes sense; extract value before either dies.
But: longevity is hard to predict. Most retirees outlive their predictions.
Private pensions can fail. The Pension Benefit Guaranty Corporation (PBGC) insures most private pensions, but with caps.
Public pensions (state, local) generally are not federally insured. Some are well-funded; some are dramatically underfunded.
If your pension is underfunded:
Survivor Benefit Plan (SBP) is the J&S equivalent. Costs ~6.5% of pension; provides 55% to surviving spouse.
For most retirees: take SBP. Without it, surviving spouse has no military pension income.
See MilitaryRetirementBenefits.
FERS and CSRS pensions have their own election rules. Survivor benefits available; reductions apply.
Vary widely. Underfunded plans are a real concern. Some allow lump sum.
If retiree believes they'll likely die within 5 years, election math changes. Single life doesn't make sense; the J&S premium isn't worth it.
But: predictions of imminent death are usually wrong. Most retirees underestimate their longevity.
Get insurance quotes before deciding. Compare cost of replacing pension income via term insurance vs. the J&S reduction.
For young, healthy retirees, insurance may be cheaper. For older or unhealthy, J&S almost always wins.
If both spouses have pensions, coordinate elections. May not need J&S on both.
Major health diagnosis pre-retirement: revisit assumptions. Don't lock in elections based on outdated health information.
Picking single life "for higher income" without considering spouse. Catastrophic if retiree dies first.
Take single life; planned to buy insurance; never did. Worst of all worlds.
Take cash; don't have plan; spend it down or lose to bad investments.
Take low-payout election from underfunded plan. Plan fails; even reduced payment lost.
Pension election affects optimal Social Security claiming. Without coordination, leave money on the table.
For most married retirees: