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What is Pension Maximization?
When a married employee is retiring with a pension or 401k, they have options as to how they will receive their money. The following is an example:
(Monthly Figures)
Retiree Income
Survivor Income
$4000
$3200
$3200
None
1. Single Life
2. 100% Survivor
The Pension Trap
Most retirees choose number 2: the reduced income "Survivor" Option ($3200/month).
If they die first, pension income continues to their spouse.
The $800 a month they forfeit is essentially a life insurance premium paid to the retirement fund.
This form of life insurance can be costly and gives the retiree less control over their survivor benefit.
* If retiree dies first, the spouse pays less income tax.
* If spouse dies first, the retiree can change the beneficiary without a recalculation in income or
the retiree can surrender the life insurance policy and receive any money accumulated in it.
* If both retiree and spouse die about the same time, they can pass on insurance policy benefit to estate or charity.
* Access reserve cash fund for emergencies.
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Pension Maximization Strategy- An Alternative Way to Provide Survivor Income
As an alternative to the survivor option, the retiree could choose number 1: the maximum income "Single Life" Option ($4,000/month). Then with a portion of the savings ($800/month), they purchase a life insurance policy for their survivor.
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