The Most Agonizing Decision in Retirement
For many MSRB members, the hardest check box on their retirement application isn't the retirement date—it's the Option Selection. Specifically, the choice between Option A (Maximum Benefit, no survivor protection) and Option C (Reduced Benefit, 66% survivor protection).
A common strategy pitched by financial salespeople is "Pension Maximization": Take Option A (the highest amount) and use the difference to buy a Term Life Insurance policy. But does the math actually hold up?
The Cost of Option C: Your "Internal Premium"
To make a fair comparison, you first need to calculate the "cost" of Option C. This is simply the difference between your Option A and Option C monthly amounts.
- Option A Estimate: $5,000 / month
- Option C Estimate: $4,400 / month
- Cost of Protection: $600 / month ($7,200 / year)
The question then becomes: Can you buy a permanent life insurance policy that provides equivalent income protection for less than $600/month?
Why "Term Life" is often a Trap
Term life insurance is cheap because it expires. If you buy a 20-year term policy at age 60, it vanishes at age 80. If you pass away at age 81, your spouse gets zero from the insurance and zero from your Option A pension.
Option C, however, is permanent. It protects your spouse whether you pass away at age 61 or age 101. It essentially functions as "Whole Life" insurance, which is significantly more expensive to purchase privately.
The "Pop-Up" Provision: Option C's Secret Weapon
There is one massive advantage to Option C that private insurance cannot match: the "Pop-Up" Provision.
If your designated beneficiary passes away before you, your pension "pops up" to the Option A amount. You stop paying for the protection precisely when you no longer need it.
With private insurance, if your spouse dies first, you are simply out the money you paid in premiums (unless you cancel the policy, having lost that cash flow for years).
Verdict: When to Choose Which
Choose Option C If:
- Your spouse has little to no other guaranteed income (Social Security/Pension).
- You want "set it and forget it" permanent protection.
- You have health issues that make private insurance expensive or unobtainable.
Consider Option A + Insurance If:
- Your spouse is significantly older or in poor health (actuarial reduction might be too high).
- You only need protection for a fixed period (e.g., until a mortgage is paid off).
- You are extremely disciplined and will actually invest the difference (most people don't).
Run Your Own Numbers
Don't guess with your family's future. Use our calculator to see the exact dollar difference between your Option A and Option C payouts today.