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We Help You Find Options Before You Get To Retirement

There are no two pensions that are alike. Each pension plan is subject to a rigorous review process.

If you or your spouse have a pension benefit from a current or former employer, you will have some decisions to make upon retirement.

Pension options typically include taking a single-life annuity or taking one of several survivorship options (e.g., 100%, 75% or 50%). While providing security to a spouse, the survivorship options will cause your income to be less than the. single-life annuity option.

Note: If you are single, the decision is simple because there is no need to consider survivorship options. This choice is one of the more important decisions that you will have to make because once the election is made, it typically cannot be changed. Unfortunately, many people make this important decision without thorough analysis.

So which choice is best for you? The answer is: “It depends.” Also, beyond the
standard choices, there is a strategy that everyone should learn about. The
strategy is called Pension Maximization. Essentially, the strategy is the self
insurance of one’s pension using life insurance. This allows for the full pension
(single-life annuity = most money) while still providing protection for a spouse.

Note: The strategy only works if the pensioner is in reasonably good health. The following presentation provides an illustration of the four possible outcomes
for a couple in retirement and the election of a survivorship benefit vs. life
insurance.

The Four Possibilities of Retirement as it Relates to Pensions

Pension with Survivorship
is Chosen by Spouse B

Single Life Pension
is Chosen by Spouse B

Single Life Pension Plus
Life Insurance is Chosen by Spouse B

Single Life Pension Plus Life Insurance

Pros:

  • Strategy provides flexibility because it works regardless of which spouse passes away first
  • Pension benefits do not provide death proceeds. They only provide survivorship benefits if elected (at a cost)
  • Life insurance proceeds are tax free
  • Life insurance can be used for estate planning
  • BONUS – Current law requires non-spousal beneficiaries of qualified plans to withdraw the money within ten years. This potential tax bomb can be diffused with life insurance.

Cons:

  • The Life insurance premiums must be close to or cheaper than the pension survivorship reduction amount
  • The correct type(s) and amount(s) of life insurance must be carefully selected before the pension is selected!
  • The premiums must be affordable from a liquidity perspective
  • The plan fails if the premiums are not paid and/or the insurance lapses
  • Laws regarding life insurance proceeds are not guaranteed

This information is provided for illustrative purposes only. Actual results will vary, perhaps to a significant degree. The Pension Maximization Strategy is not right for everyone. The strategy works best if the pensioner is in good health and, preferably refrains from tobacco products. It is imperative that any decision to self insure a pension be based on careful analysis. The information for the analysis is provided by you. If any of the information is incorrect, the incorrect products could be chosen.
The information provided by you should be reviewed periodically and updated when either the information or your circumstances change. Each company pension is unique. Please see your pension plan documents for special terms and conditions.

If life insurance is used to self insure a pension, the premiums must be paid on time, otherwise the plan may fail if the insurance lapses. In conjunction with strategy development, the funds used to pay the life insurance premiums should be identified, perhaps even as a separate pool of money. As with any plan, there is no guarantee that your objective(s) will be reached.

Securities offered through Registered Representatives of Cambridge Investment Research, Inc., a broker-dealer, member FINRA/SIPC. Advisory services offered through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Enterprise Financial Network and Cambridge are not affiliated.

Abbreviations used:

COLA
Cost of Living Allowance

DB
Death Benefit

RIP
Rest in Prosperity

Key Points:

  • If you elect to take any type of survivorship option on your pension, you are
    essentially buying life insurance.
  • If your spouse passes away before you, the survivorship option you selected is all
    for naught, and you are stuck with your election.
  • The Pension Maximization strategy works if your personal life insurance is
    cheaper than the cost of the survivorship option offered by your pension.
  • The amounts and types of life insurance must be personalized for each situation.
    In other words, it is not a cookie-cutter approach.

Objectives:

  • You will learn how much your pension is worth when you first retire and
    throughout your retirement.
  • You will learn how pensions, Social Security and personal savings can be
    combined to make a customized Retirement Income Plan.
  • You will learn how your Pension Maximization strategy can be tied into your
    estate plan.
  • You will learn about possible tax strategies to preserve your wealth.

Let's Begin.