Which PG&E Pension Option Should I Choose?

Approaching retirement, PG&E employees naturally focus on the size of their pension.

Then they receive their actual pension choices.

Single life, joint and survivor, 25%, 50%, 75%, 100%, special pop-up.

But suddenly, the focus becomes how much they want today versus how much protection they want for someone else tomorrow. 

For married couples, this can be one of the most important retirement decisions they ever make.

Why the Single-Life Pension Looks Attractive

The single-life pension generally provides the largest monthly benefit because PG&E is only promising to make payments for the employee's lifetime.

But if you're married, choosing Single Life generally requires your spouse's written consent because no pension continues to the spouse after your passing.

Which can make it tempting.

Let’s suppose the single-life pension is $5,000 per month while a 100% joint-and-survivor benefit is $4,600.

That's a $400 monthly difference. It's easy to look at that and think:

"Why should I give up $4,800 every year? My spouse will probably be fine."

Maybe they will, maybe they won't.

But that's not the only question we need to ask.

If both spouses are sitting in my office, I'll often turn to the non-PG&E spouse and ask:

"How important would that $400 be to you if your spouse weren't here?"

The room usually gets silent for a second and that's fine. Quiet is where most of the good planning finally starts happening. See, at least now we're having the right conversation.

When You're Planning For Retirement, You're Planning For Two People

If you're married, I'm planning for both spouses, I’ll never view pension planning as representing only the PG&E employee.

The surviving spouse could eventually become the only person sitting across the table from me. In 15 years, I don't want to explain that because we increased the household income by $400 a month while both spouses are alive, we sacrificed thousands of dollars of future income for the surviving spouse.

When one spouse passes, household expenses don't suddenly fall in half.

Housing costs may be similar, property taxes don't disappear, utilities, insurance, home maintenance and many other expenses remain.

At the same time, the household generally loses one Social Security benefit, and that's why survivor income needs serious consideration.

Understanding the Survivor Options

PG&E pensions may offer several survivor percentages, including options such as:

• 25%
• 50%
• 75%
• 100%

The percentage chosen pretty well determines how much of the applicable pension benefit continues on to the survivor after the employee passes, subject to the terms of the pension.

Greater survivor protection generally means a lower monthly benefit while both people are alive. 

For married employees, certain lower-survivor elections require the spouse's written, notarized consent.

That’s what creates the trade-off.

Do you take more today?

Or do you insure more of the surviving spouse's income?

I typically start by looking carefully at the 100% joint and survivor options for most of the married couples we work with.

But that doesn't make it the correct answer. It just means that I want a good reason before taking income away from the surviving spouse.

When Might a Lower Survivor Percentage Make Sense?

There are circumstances where 50%, 25%, or another option deserve consideration.

Perhaps the spouse has a substantial pension of their own.

Or maybe the couple has significant life insurance.

They could have a large 401(k), IRA or other assets capable of replacing the lost pension income.

There may be a significant inheritance that's highly likely to occur.

Age and health can matter too. A large age difference between spouses can completely change the analysis.

The key is to have something concrete behind the decision.

Saying "we'll probably be fine" isn't a good retirement income strategy.

If we're reducing survivor protection, I want to know where the replacement income comes from.

The Special Pop-Up Option

Another option that can be valuable in the right circumstances is the special pop-up. No, not like a pop-up donut shop, but it can be a useful tool nonetheless.

Imagine yourself selecting a joint-and-survivor pension because you want to protect your spouse.

The joint benefit is lower than the single-life benefit because PG&E may have to make payments over two lives.

But what happens if your spouse passes first?

A special pop-up provision can allow the employee's benefit to increase toward the applicable single-life amount after the spouse's passing, subject to the plan's terms.

This can give you added protection, but you generally start with a slightly lower monthly benefit because of it.

I've encountered a situation where this really mattered.

A PG&E employee retired to care for his wife, who had stage-four cancer. They had good reason to expect that she would pass first, and she lived for only about two months after his retirement.

The special pop-up made the most sense because he could provide survivor protection if circumstances didn't unfold as expected, while retaining the ability for his pension to increase after her passing.

The majority of couples don't face circumstances nearly that clear, and that’s precisely the point.

No one knows with certainty who will outlive the other.

Don't Treat the Pension Election Like a Bet

I sometimes think people unintentionally approach survivor elections like they're betting on who will pass first.

But instead of asking “who will live longer”, we should ask “what happens financially under either outcome.”

If the PG&E employee passes first, can the surviving spouse maintain their lifestyle? If the spouse passes first, what happens to the PG&E employee?

What other assets are available?

How much Social Security remains?

Is there life insurance?

Does either spouse have another pension?

How much is in the 401(k)?

Those questions are way more important than trying to predict life expectancy perfectly.

The Largest Check Isn't Necessarily the Best Pension

There's nothing wrong with wanting more retirement income, but trying to squeeze every possible dollar out of today's payment isn't good pension planning.

You want to create dependable income under circumstances that you can’t predict.

Sometimes that means taking the 100% survivor benefit, whereas sometimes another option could make more sense.

But sometimes the special pop-up can provide a useful middle ground.

Once your pension date has passed, your payment election is generally permanent, which means no undo button. Which is why it is important to understand that this decision deserves careful review before your retirement.

But I would be very cautious about sacrificing meaningful survivor income simply to increase today's pension by a few hundred dollars.

Especially when the surviving spouse is sitting right beside you.

Your pension decision affects both of you, and you should treat it that way.