Pension Maximization using Life Insurance
Retirees that have a pension discover
that there are different withdrawal options available to them. Each option should be considered when looking
at your overall retirement portfolio as it may have a significant effect on a
pensioner’s retirement income. One option some pensions offer is a strategy
known as pension maximization using life insurance.
This strategy should be considered when
the pension holder is married because it gives the option of a pay out of the
pension upon the death of the pensioner.
In brief, this option results in the pension paying out lower monthly
payments over the lifetime of the pensioner but with the promise of a lump sum
payout upon the death of the pensioner. By
receiving a lower monthly payment you are in essence ‘buying’ a life insurance
policy. Often time, the surviving spouse
will continue to depend upon the pension income and this strategy guarantees
that the surviving spouse would receive some benefit from the pension.
For example, a pension may pay $1,000 a
month with no survivor benefit, but if the pensioner opts for survivor
benefits, the monthly payment is reduced to $750 per month and your spouse,
upon your death, will receive a lump-sum payment. Often times, the surviving spouse will
continue to depend upon the monthly pension income and this strategy guarantees
that the surviving spouse would continue to receive some benefit from the
There are advantages and disadvantages
to “pension maximization.” The most obvious disadvantage is a reduction in the
amount of the monthly pension payments.
The primary advantage is that it will guarantee some income is paid to
your surviving spouse upon your passing.
So how do you decide to use this
strategy? There are a variety of factors
that should be considered when making your decision on whether to use “pension maximization”
or not such as:
age gap between the pensioner and their spouse
retirement income sources such as Social Security
difference between the pension check with and without pension maximization
amount the spouse would receive if the pensioner chooses to take a lower
monthly payment during your lifetime
life expectancy of the pensioner and their spouse
If you find yourself in this situation,
because there so many factors to consider and due to the different terms of
each pension plan, we recommend that you meet with us to review your unique
situation. We will analyze the terms of
the different payment strategies your pension plan offers and your other
retirement assets to personalize your retirement plan to your needs. Please email us or contact us at the office
for a no cost no obligation meeting.
Any opinions are those of Debbie Craig
and not necessarily those of RJFS or Raymond James. Any information is not a complete summary or
statement of all available data necessary for making an investment decision and
does not constitute a recommendation. Guarantees are based on the claims paying
ability of the insurance company.