Pension Buyouts for Married Couples: The Survivor Decision

Pensions come in payment forms, and married couples must compare the lump sum against the form that actually protects the household:

Comparing a lump sum to the single-life amount flatters the lump sum, because it ignores the survivor protection you would actually want. Run the calculator against the survivor benefit you would realistically elect, not the highest single-life number.

Federal law (ERISA and the tax code) makes the qualified joint-and-survivor annuity the automatic default for married participants. To elect a lump sum, or any option that reduces or eliminates the survivor benefit, the plan generally requires the spouse's notarized written consent.

A lump sum does not eliminate survivor protection; it changes its form from a guaranteed income stream to an inherited asset:

• Joint-and-survivor pension: the surviving spouse receives a defined check for life, with no investment risk and no management burden. It cannot be outlived and cannot be mismanaged.
• Lump sum rolled to an IRA: the surviving spouse inherits the account balance. That offers flexibility and any remaining principal passes to heirs, but the income depends on market returns, withdrawal discipline, and someone actively managing the money, possibly a spouse who never wanted to.

• Which spouse is likely to live longer, and what is their income if the other dies first? The survivor's needs, not the participant's, often decide this.
• Would the surviving spouse want to manage a large IRA? If not, guaranteed income is a feature.
• How much guaranteed income survives regardless? Social Security survivor benefits and any other pensions form a floor.
• Do estate goals matter more than income security? A lump sum can leave money to children; a single-life or joint pension generally cannot.

If the offer is large or the answers are not obvious, get an independent review before signing. This is precisely the situation where a fee-only fiduciary earns their fee.