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
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
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 firstname.lastname@example.org.