American’s face a tough decision if they receive a pension at retirement: choosing a distribution plan. 

There are two common options for pension distribution:

  1. The Single Life Option allows you to receive the highest possible monthly income throughout your life. The only problem is that your benefits will be paid ONLY as long as you live. At your death, your pension benefits die with you. That’s fine if you’re single, but what if you’re married? If still living, your spouse will be left with no monthly income from your pension plan. 
  2. The second option is the Joint & Survivor Option. This option pays a reduced monthly pension (typically 75% to 85% of the single life benefit) for as long as either you or your spouse is alive.  This option guarantees a payment for the surviving spouse. What happens if your spouse dies first? You will continue to receive the reduced income and you lose the gamble. 

Most people select the Joint & Survivor Option because they do not want to leave their spouse without income. However, there’s another option that most people don’t know about: Pension Maximization. 

The Pension Maximization concept is fairly simple: you purchase a sufficient amount of life insurance (usually permanent life insurance) on yourself, naming your spouse as the beneficiary of the life insurance policy. The death benefit will replace the lost pension benefit if you die first. At retirement, you and your spouse opt to take the single-life benefit option in order to receive the maximum benefit, using a portion of the additional pension funds – the difference between the amount for a single versus a joint and survivor benefit – to pay for the life insurance premiums.

In order to get an idea if this alternative would work for you, you should first check with your pension plan administrator to find out about your projected benefits under the straight life option. Then ask what the decreased amount will be each month to add your spouse under a survivorship option. Contact a life insurance agent at AccuQuote to get your free life insurance policy illustration and free term life insurance quote. The amount of the life insurance premium required to keep the policy in force should be smaller or the same as the difference between the amount for a single versus joint and survivor benefit.

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