Life Insurance Strategies

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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 pension.

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:

  • the age gap between the pensioner and their spouse
  • other retirement income sources such as Social Security
  • the difference between the pension check with and without pension maximization
  • the amount the spouse would receive if the pensioner chooses to take a lower monthly payment during your lifetime
  • the 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.