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Financial Tip - Maximizing Your Pension

Pension maximization combines the single life option with a life insurance policy to produce a higher monthly pension benefit along with a death benefit that may be used as a source of retirement income for a surviving spouse. We now take a closer look at pension maximization.

Suppose you are about to retire and are offered either a pension of $3,000 per month for the rest of your life (the single life option), or $2,500 per month for the lives of both you and your spouse (the joint and survivorship option). For a married couple, the joint and survivorship option with the lower monthly benefit may initially seem like the best choice, since it ensures continued income for a surviving spouse.

However, another possibility is to select the single life option with the higher monthly pension benefit and use a portion of this amount to purchase a life insurance policy on yourself. This , of course, assumes that you qualify for a policy, subject to underwriting. If you die before your spouse, the death benefit may provide your spouse with a source of income to help offset the loss of your pension benefit. Death benefit proceeds depend upon the claims paying ability of the insurer. This strategy offers a number of advantages:

Ø You and your spouse receive a higher monthly pension benefit. You can use a portion of these funds to pay the premium on the life insurance policy. As long as you maintain adequate life insurance, it will provide your spouse with a source of retirement income if you should die first.

Ø A cash value can provide a ready source of funds for emergency or other needs. In addition to providing a death benefit, cash value life insurance accumulates a cash value on a tax-deferred basis. The insured can borrow against the cash value during his or her life. However, any unpaid loan amount will reduce the death benefit.

Ø Life insurance provides a source of supplemental income for a surviving spouse. Cash value or death benefit proceeds are not subject to the minimum distribution rules that are inherent to other tax-deferred savings vehicles. Death benefits are also received income tax free when paid to a named beneficiary. They may be used as a source of supplemental income or in whatever manner your surviving spouse chooses.

Despite its advantages, a pension maximization strategy requires disciplined management to achieve the desired results. First, your life insurance policy may lapse if the premiums are not paid or if substantial cash values are borrowed and interest is not paid. Second, a lumps sum death benefit must be properly managed to yield the anticipated income. Third, by waiving the spousal provision, your spouse may lose benefits provide in conjunction with the pension, such as health insurance or cost-of-living adjustments. Finally, the issuance of a life insurance policy is not guaranteed. With so much at stake, you may wish to consult a financial representative when selecting your pension payout option.


Jim Brogan, CLU is affiliated with P&D Financial Partners, LLC in Boston, MA. Jim has over 20 years experience servicing personal and business insurance and investment needs. For additional information contact Jim at

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