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~How to Protect your Partner in Retirement~

 

If you are a member of the Maine Public Employees Retirement System (MainePERS), you face 9 options when you retire.  According to MePERS, most people choose the maximum monthly benefit.  After the retiree passes away, the benefit ends completely though.  That may be the best way to go for many, but it is not necessarily best for everyone.  There are 8 other MePERS options to consider.  If you have a partner, it's critical to make decisions jointly, whether it's about which MePERS option to take, when to take Social Security, etc..

 

 

One risk to school employees who may have chosen the maximum monthly MePERS benefit, is that they pass away before their spouse does.  In this case, that monthly pension check evaporates.  This can put the surviving spouse in a difficult financial situation, and in a higher, single tax bracket.

 

Here's a brief summary of the nine options under MePERS:

 

• “Full benefit”:  This is the highest total payment, but all benefits end after your death

• #1: a lump sum payment goes to your beneficiary when you die, if any contributions are left in your MePERS account

• #2, #3, #4:  some % of your benefits continue to your beneficiary after your death

• #5:  you and your beneficiary both get a payment during life and the larger payment continues upon one person’s death.  This is the only option that provides both spouses a benefit while living.

• #6, #7, #8:  some % of your benefits continues to your beneficiary after your death (like in options 2-4) but your benefit goes to the full amount if your beneficiary dies before you do.

 

What follows below is not financial advice, but financial information and education.  Each person's situation is different and depends on many factors including life expectancy, retirement savings, Social Security benefits, legacy plans, etc.  Consult a true fiduciary when considering your investing and retirement plans.

 

There are so many different permutations, but here are just a few hypothetical scenarios to help you see the possibilities of protecting your partner in retirement:

 

1. The school employee takes the "full benefit" under MePERS, but decides to claim Social Security as early as possible (if they are eligible) and invests those S.S. funds for their partner's future needs should the employee outlive their partner.  The partner delays Social Security until 70 to maximize their benefit in case they outlive the school employee and thus lose the MePERS pension.

2. The retiring school employee is in poor health, or has a short life expectancy, so they claim Social Security as soon as possible, and choose MePERS "option 1," which pays out any remaining balance in the school employee's MePERS account upon their passing.

3. Both partners are teachers, and one has a lot more MePERS credit than the other.  The teacher with less credit chooses the "full benefit" but the teacher with more credit chooses option #5 (a smaller benefit than their "full benefit").  The teacher with less credit gets their own, full monthly benefit, and also gets some predetermined portion of their partner's MePERS benefit (say 20% of the partner's benefit amount).  If the partner with more credit dies first, the spouse continues to get their "full benefit" payment, loses the 20% of their partner's benefit, but continues to get the 80% benefit payment their partner was getting while alive.  Since my wife is also a teacher, we may consider this option since she has less credit in the MePERS system than I do.  This could help protect her against the risk that I die before she does (which is statistically likely) and thus loses my larger pension check.

4. Lastly, consider the scenario in which, although you expect to outlive your partner because they are older or in poor health, you are still worried about the off-chance that they outlive you.  You might choose option 6, 7, or 8, which pays less to you during retirement, but provides a death benefit to your spouse if you die.  However, if your spouse dies before you, your benefit goes up to the full benefit amount.

 

Again, any approach can be combined with various Social Security strategies and/or life insurance policies to provide the appropriate protection for your partner.  

 

And if your retirement portfolio is large enough, the difference between the various MePERS permutations becomes less critical.  This is another reason to save for retirement with a low-cost 403b provider in appropriate investments.  Be cognizant of the fact that many of the 403b providers that the school departments offer employees are very poorly rated.  So choose wisely, or get help from a fiduciary, not from someone who works at one of these 403b providers.