Reply to Divorce and FERS- will you really not remarry?

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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous]Yes, you should trade it for something else.  Chances are the govt will renege on FERS, and the most unfair and expensive part of FERS to the American taxpayer are the spousal, survivor, and ex-spousal benefits.

What is that FERS worth today?  Let's assume your ex retired at 70 and you begin receiving $800/month at age 70, and your ex lives for 10 years.  That stream of monthly payments, at a 3 percent annual interest rate, is worth about $111,000.

But you have to wait 30 years to get those payments.  So what is the discounted (today, using a 3 percent interest rate) value of the $111,000 in the future?  About $46,000 today.

Want to use a different interest rate?  Try 10 percent.  The future flow of payments is larger--$164,000 from age 70-80, but the present value is even lower--$9,400.

In other words, if you want $800 a month from ages 70-80, invest $9,400 today at 10 percent interest.  That's what FERS is really worth.

In my case, ex doesn't get FERS until I retire.  I'm never going to retire.  Even if I did eventually retire, the FERS payments stop anyway the day I die.  
[/quote]

Very, very few people wait until age 70 to claim their pensions. Not saying that’s right, but it’s a fact. In fact, if your family dies young and your health isn’t great, it would be dumb to wait until age 70 if you want to maximize lifetime pension income.

So these calcs should look at a longer payment stream, from say age 65, and the discounting would start at a younger age.

10% is way too high a discount rate in this current interest rate environment.[/quote]

PS. [b]Also, average life expectancy at age 65 is, what, 86 or 88—not 80.[/b] Not sure what life expectancy is for a 30- or 40-year-old, but even life expectancy at birth for the cohort who are that age now is a lot higher than 80.

So really, the income stream will be a lot longer than 10 years. If the XDH retires at 65 and dies at 85, that’s 20 years of pension payments. This doesn’t translate directly into doubling your DPVs because the timing of payments is different. But given that the discounting starts at a younger age, DPV should be more than twice what you suggest.

Hope you didn’t persuade an ex-spouse to go along with your calculations. [/quote]

Life expectancy (according to ssa.gov) for a 40-year-old American male today is 38.54 additional years (78.54 years total).  Life expectancy for a 65-year-old American male today is 17.88 additional years (82.88 years total).  [u]Didn't OP say she was 40?  [/u]

None of these numbers take into account that divorced men have a higher mortality rate, and resulting lower life expectancy.

Life expectancy for an American male born today is 76.15 years (versus an American female, 80.97 years), in other words, almost 5 years difference.

I understand that FERS payments to a divorced woman stop when her ex-husband dies.  Taking and investing a lump sum is a better idea than relying on future payments which are not guaranteed by a government which may not even be around, and get cancelled the day the payer dies.  [/quote]

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