Evaluating Pension Options

Summary

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Podcast Summary: Jill on Money with Jill Schlesinger

Episode: Evaluating Pension Options
Date: August 25, 2025
Host: Jill Schlesinger, CFP®
Guest Caller: Heather from Colorado

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Episode Overview

In this episode, Jill Schlesinger answers a listener call from Heather in Colorado, who—along with her husband—is approaching early retirement with the enviable dilemma of choosing between several pension payout options. The conversation walks step-by-step through evaluating those options, taking into account their financial position, life expectancy, health, and other crucial factors. Jill provides pragmatic, jargon-free advice to help Heather make a sound choice, with broader insights applicable to anyone navigating pension decisions.

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Key Discussion Points and Insights

1. Setting the Scene: Heather's Situation

• Heather (48) & husband (49) are both public sector workers (teacher & local government) planning to retire in 1.5 years.
  • Jill marvels at their youth:
    • "You're so young." (03:13)

2. Pension Option Details

Heather's Teacher Pension:

• Options:
  • 50% survivor benefit: $4,600/month (03:27)
  • 100% survivor benefit: $4,469/month (04:23)
  • Single life: $4,768/month (04:04)
  • Small difference between 50% and 100% survivor options.
  • COLA is minimal (“a weak one at best,” 0.5-2%). (04:51)

Husband's Local Government Pension:

• Options:
  • 50% joint & survivor: $5,187.87/month (05:18)
  • 50% joint & survivor with 2.5% annual COLA: $3,840/month (05:25)
  • Jill notes the significant drop for the COLA option:
    • "Ooh, okay, I see. That's a big difference." (05:31)

3. Broader Financial Picture

• Savings: $800,000 in retirement accounts (60% Roth, 40% pre-tax) (05:58, 06:06)
• Non-retirement assets: $15,000 brokerage, $30,000 emergency fund (06:16, 06:21)
• College fund: $80,000 for daughter plus extra brokerage left by Heather's mom (06:26, 06:39)
• No mortgage, house valued at $385,000 (06:58)
• Social Security: Husband eligible for $2,279/month at 67, Heather is not eligible (07:16, 07:23)

4. Retirement Spending Needs

• Target spending: $8,000/month, intentionally on the higher side due to “living it up” before their daughter leaves for college (07:46–08:19)
  • Not currently spending more even at this high-water mark.
  • Jill notes this is below their current household income ($195K/yr).

5. Health & Longevity Considerations

• Heather: moderate health, parents died in their 70s.
• Jill weighs this into her pension recommendations:
  • “Just because you said you don’t have great…I mean, you might be healthy, but you don’t have great family history.” (14:24)

6. Pension Election Strategy

• Jill’s advice: Skip the COLA option for husband (cut in payout is too steep for just a 2.5% inflation hedge).
  • “I am less inclined to do the cola on your husband's pension. It's such a huge haircut for that. Do you agree with that?” (09:00)
• Optimize survivorship:
  • Heather should take 100% joint & survivor option (“not that big of a reduction to give him a little bit more”) (14:00–14:24)
  • Husband should take 50% joint & survivor without COLA, as the monthly cut for a COLA isn’t worth it, especially with other assets as a buffer.

7. Bridging the Retirement Funding Gap

• Pensions (Heather + husband) total: $9,656/month (before Social Security, taxes) (09:56)
• Spending need: $8,000/month (top end)
• Jill calculates a possible shortfall before Social Security kicks in, especially after accounting for taxes (09:56–10:56)
  • Advises using the 457 account (which allows early withdrawal) to make up any difference until Social Security begins (11:15–13:18)
  • Suggests they stop contributing to retirement accounts for the next 1.5 years, and let those funds accumulate in liquid accounts (10:58–11:11)
• Potential part-time work: Even just $1,000/month in side income would shore up any gaps easily (10:15–10:35)

8. Estate Planning and Family Considerations

• Heather’s estate documents are complete. Will redo them when daughter turns 18 (13:33)
• Discussion about how and when the daughter should access inherited funds. Heather feels confident her daughter will manage responsibly (13:47–14:00)

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Notable Quotes & Memorable Moments

• On the COLA trade-off:

  • Jill: "For 2, 2.5%. It's hard for me to justify that, especially since they have so much money saved." (09:03)

• On risk and health:

  • Jill: "I think the only reason I’m saying...for your benefit, that your pension benefit, you do the joint and 100%, it's not that big of a reduction to give him a little bit more of that income..." (14:00)

• On early retirement readiness:

  • Jill: "You guys are in great shape. I'm going to just guess that.” (07:03)

• On enjoying life:

  • Heather: "We're trying to do all the things before the kid goes to college." (08:12)
  • Jill humorously: "That's when you can retire early, babe." (06:47)

• Heather’s confidence:

  • "You know, I know all parents think their kids are amazing, but I definitely think that I can talk to her, talk her through..." (13:47)

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Timestamps for Important Segments

• [02:36] — Heather introduces her question about pension options.
• [03:13–04:23] — Heather's pension choices explained.
• [04:51–05:31] — Husband's pension and COLA options discussed.
• [05:58–06:39] — Walkthrough of retirement and non-retirement assets.
• [07:46–08:19] — Household spending and lifestyle context.
• [09:00–09:03] — Jill and Mark debate the COLA trade-off.
• [10:06–10:35] — Health insurance and possibility of continued income addressed.
• [11:15–13:18] — 457 account access and retirement funding plan.
• [13:33–14:00] — Estate documents and plans for their daughter.
• [14:00–14:24] — Rationale for choosing a higher survivor benefit.
• [14:52] — Episode wrap-up.

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Summary Conclusion

Jill guides Heather to select pension options that balance adequate survivor benefits with maximum monthly income—skipping costly COLAs given their strong savings and overall financial position. The show underscores the importance of weighing health, liquidity, and both partners’ potential to generate income in early retirement. Jill’s tone is as always direct, practical, and reassuring—a model for tackling major pension decisions.

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Transcript

[A]

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[B]

I'm great. How are you Jill?

[A]

Doing great. How can we help you out Today?

[B]

Well, my husband and I both have pension options for when we retire and we'd like to retire in about a year and a half, but my husband has some new pension options and I don't know what to pick.

[A]

Okay, are you like, where do you work? Are you like teachers, government workers, private industry, what do we got?

[B]

I work as a teacher and my husband works for local government.

[A]

Okay, so in your situation, let's do one at a time. So you're going to retire in a year and a half. How old are you, Heather?

[B]

I'm 48.

[A]

You're so young.

[B]

What Teaching is exhausting and I love the kids, but I need to be done, I think.

[A]

Okay, so you'll be 50 years old, you're going to retire and what will you be entitled to in a pension?

[B]

If I go with the 50% survivor benefit, which is what we were kind of thinking, it would be $4,600 a month.

[A]

Will you continue to work just doing something else?

[B]

I will continue to do a lot of things. I just don't know that any of them will bring in money.

[A]

I will be productive and yet no money. Okay, so if I looked at the pension that was just your life, not a 50% of pension where it's like yours. Pl 50%. Do you, what's the amount there? What are the other choices that we have?

[B]

For 100 or for just me it would be $4,768.

[A]

And what about that's it? That's the only difference, $100?

[B]

Well, I, I rounded a little so it's like 115.

[A]

Yeah, but what about if 100% benefit to your husband? What's that? What's the haircut there?

[B]

4469.

[A]

That's great. Fantastic. Now your husband, tell us about what his pension options are. These new ones.

[B]

Oh yes. It got a little overwhelming. So he has all sorts of pop ups and things like that. Ten years certain in life. But the new one that really threw me off was that now they have an option with a COLA built in of two and a half percent.

[A]

Oh, I like that. Your pension has a cola, right?

[B]

A weak one at best. So anywhere from a half a percent to 2%. That will never happen.

[A]

Okay, a small cola. Okay. So he's got one that you can opt in and be like, okay, I'm going to take a bet on inflation and get a COLA. Two and a half percent. I don't know why these COLAs don't just go with the inflation. Right. With the CPI, but whatever. Okay. Two and a half percent. So what are the options there when it comes to your husband's pension, Heather?

[B]

All right, if we do the 50% joint and Survivor, it's 5187.87.

[A]

Okay.

[B]

And if we do the 50% joint in Survivor, with the annual increase, it's 3840.

[A]

Ooh, okay, I see. That's a big difference.

[B]

Yeah.

[A]

Okay, so now those are the basic options. Right. Okay, let's go back a second. So you are 48. How old is your husband?

[B]

He's 49.

[A]

You guys are so young, it's incredible. Okay, what about other money that you've saved? Because maybe we don't have to get so freaked out about the pension choices if you've got other assets. So what have you done in terms of saving?

[B]

For our retirement savings alone, we have about $800,000.

[A]

And that's not been taxed yet. It's all before tax contributions.

[B]

60% of that is Roth and 40% is pre tax.

[A]

Okay, that's great. Any non retirement assets, like a brokerage account?

[B]

We have 15,000 in a brokerage account.

[A]

Okay, good.

[B]

30,000 in an emergency fund.

[A]

Okay.

[B]

80,000 in our college fund for our daughter. She's going to be going to college in a year, and that should cover it with scholarships and the brokerage account that was left for her from my mom, which has 65 in it.

[A]

Wow. Okay. And so she's. How old's your daughter? Like, 16? 17.

[B]

17.

[A]

17. And that's it? One kid?

[B]

That's it.

[A]

That's when you can retire early, babe.

[B]

That's right.

[A]

Yeah. Like six kids. She'd be working till she was 68. All right, tell us about the house.

[B]

Our house is worth about $385,000 and we don't have a mortgage on it.

[A]

Okay, you guys are in great shape. I'm going to just guess that. Do we know. Do we have everything that we need here? Just in terms of, like, where we are, in terms of the assets that you've recounted?

[B]

We have all the assets. My husband is entitled to Social Security as well. I am not.

[A]

Okay, so his Social Security will be at his. Let's do his full retirement age at 67, just for fun. All right.

[B]

And this is. If he doesn't work at all after retirement, it'll be 2279.

[A]

Okay. And you'll get half that. Yeah. Okay, you ready for the most important question? Heather, that's your drum roll. How much do you guys spend once.

[B]

We exclude all of the retirement Savings and college savings and things like that. It's $8,000 tops.

[A]

$8,000 tops. How much was your. You guys were making good money together. So how much were you guys make? How much you make, like for this past year? So 20, 24. What did you, what did you make together?

[B]

About 195.

[A]

But 8,000amonth is kind of awesome because we got it. We're done, basically. Right.

[B]

That's why I'm saying tops, because we've been, we've been living it up. We go to a lot of concerts. We're trying to do all the things before the kid goes to college.

[A]

So you guys each have good health. Is there anything that would maybe give us a different picture here?

[B]

I have moderate health. I'd say my husband has good health. My parents both died in their 70s. And so I guess that's probably the other reason that we're just trying to do all the things.

[A]

Mark, are you inclined? So let's just talk about this. So I am less inclined to do the cola on your husband's pension. It's such a huge haircut for that. Do you agree with that? Yeah, 100%. For 2, 2.5%. It's hard for me to justify that, especially since they have so much money saved. Right. Okay. So if we take your husband's 5187 and that will be payable literally, like in a year and a half. You don't have to wait for any time period. Right. And immediately payable. Okay. And the same thing with you, right? Yes. Let's say that we did like, we hedged our bets because you just said, oh, you know, your health isn't so good. And so let's say that we did a joint 100% joint and Survivor for yours, but for him the 50% just for heck of it. Right. So then we have what did you say? 4469 and then 5187. And that's 9656amonth. And you said you need 8000amonth and that's even before Social Security. So this is all taxable. Which means, I think this is how I would consider looking at this. You know, they're so young, Mark, that we can't pull the money out of the retirement account. What do you want to do to fund the differential? Because the $8,000 a month is not going to. They're not going to quite make it. They're going to have to pull money from somewhere. So what do you want to do. Mark, one other question. I'm assuming health care is covered.

[B]

It's completely covered for my husband. Mine will be slightly subsidized, but we're budgeting about 500, which would be part of that 8,000.

[A]

And there's no trigger that you have to like you have to retire. You just want to. Right, Right. Can you. But do you think between the two of you that one of you or both of you could make somewhere around 1000 bucks a month doing something or not?

[B]

We probably could. My husband is probably more likely the one to get antsy and want to wander and do things.

[A]

If you do that, then I feel a little bit better. Like the reason is that, you know, you have. Your needs are basically covered, but it's not quite. And you're very young. Even if it's just like five or 10 years where you're just have a little bit of money coming in, you'll be fine. Right now, are you putting any money into retirement accounts for the next year and a half?

[B]

Yeah, about $3,000 a month.

[A]

I wouldn't do that. I really. What now? Because you got plenty of money in retirement. I need. You need liquidity. I would save all that money in the emergency reserve slash brokerage accounts.

[B]

Now ours are 457, which we'll have access to. So that's why.

[A]

Oh, okay. You're right. You're right. OK. That's right. I'm sorry. I was doing 403 because you said teacher. Okay, so the $457,000 you could pull out. So of that $800,000 that's in retirement, $400,000 is pre tax. Some of that is $457,000 is yours 403 or 457?

[B]

I have a 401 and a $457,000.

[A]

So what is the 457 total amount that you have?

[B]

Probably about $200,000.

[A]

So that's what we'll use. Okay, so now I feel much better. I was doing 403B because you were a teacher. So what we're going to have to do is when I say we, you, you're going to have to pull money out of that account. That 457. You're going to pull money out of that 457 and that's going to give you like your differential. The only reason I don't think it's going to be terrible, but I do think there's going to be a little slush fund you're going to need and it wouldn't surprise me if you needed, like, I don't know, $1,1500amonth from the 457 to pay your taxes that are due on the income that you're receiving and you go from there. And I think that's fine. I still wouldn't, I guess I wouldn't go crazy putting tons of money away. I guess you want the tax deduction for the next year and a half. I wouldn't like, make myself nuts. If you like to have some money in the emergency reserve brokerage account, not have a little bit of more fluff there, fine. And if for some reason you end up spending more like 9,000 or 10,000amonth, you might have to go a little more aggressive and pull money out of that 457. All of this is just to say that it's a, it's like a five or eight year problem, right? It won't matter. I mean, yeah, you could wait till you're 59 and a half for the rest of the money and you'll have money and it won't be a problem. And then, of course, once he collects his Social Security, you collect yours, then you're really going to have no problem. Any money that hasn't been taxed, we kind of want to get that out before, you know, on the way, I would say. And if you get that money out of the 457, then I think you're gold. Okay. But I'm still not convinced that he's not going to work.

[B]

I'm not either. I just, I'm giving him every opportunity to say that he doesn't want to because he's more burned out than. Than I am.

[A]

So. All right, well, let's, let's do that. So I think that this works. Do you have your estate documents done?

[B]

Yes. And I'm so excited. When my daughter turns 18, we get to redo them.

[A]

Oh, yeah, well, you're gonna redo them. And then how do you feel about that? Do you wanna try to give her money outright? Are you gonna limit how she gets the money? Like, what do you think?

[B]

You know, I know all parents think their kids are amazing, but I definitely think that I can talk to her, talk her through. Like, here's what this money is set aside for, and here's what you can spend. And I think she would really follow through with it.

[A]

Okay. I mean, that's good as long as that's the case. All right, So I feel good. I think that you should feel good. I think the only reason I'M saying for you, for your benefit, that your pension benefit, you do the joint and 100%, it's not that big of a reduction to give him a little bit more of that income. Okay. You know what I mean?

[B]

Yeah.

[A]

Because just because you said you don't have great. I mean, you might be healthy, but you don't have great family history. So. Yeah, I don't know. I just feel like that might be something to keep in mind. And so if you do that, then I think you're good. I think you're so good. 48. 48. That means you're retiring right now, Mark. Yeah, I would be retiring in 2026. Yeah. All right. Well, you might be. Hey, thank you so much for joining us, Heather. We really appreciate it.

[B]

Thank you.

[A]

You like Heather, have pension options? Oh my God, what a lovely thing to have a pension option. Give us a Holler. Go to jillonmoney.com, click that contact us button, write us a note, let us know if you want to join us on the air. This is when it's good to have you on the air with us, when we can ask follow up questions like, oh, tell us about your health. And those are the kinds of things I think are important. So that's where we'd like to follow up with you. But go to Jill on money.com and also sign up for the free weekly newsletter because there it is every Friday, right for you. Mark does such a good job. You can subscribe to us on the Odyssey app or wherever you find your favorite podcast. Please leave us a rating and review wherever you listen and of course, lift someone up. Change your work, change your wealth, change your life. Thank you for listening and we'll talk to you tomorrow.

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