Pension Maximization Can Help Protect Your Spouse

What is pension maximization?

Pension maximization is a program that enables you to take your full pension benefits at
retirement and use a life insurance policy to replace the lost benefits for your spouse if
you die first, increasing your retirement income. It is not for those with a 401(k) plan. It is for those with a defined benefit pension plan like state employees and school teachers/educators, and some companies.

This issue arises if you are married and eligible to receive a pension.
You will probably have to decide whether to:

• Take your full pension benefits at retirement, leaving your spouse without
  any of the benefits should you die (the Single-Life option); or
• Take less than your maximum pension benefits at retirement in exchange for
  continuing benefits to your spouse at your death (the Joint and Survivor
  option). The Joint and Survivor option may offer the choice of your spouse
  receiving either full or reduced (generally 50 percent) monthly benefits at
  your death.

It’s a tough decision. But pension maximization insurance offers a win-win third option.

Although the concept of pension maximization is fairly simple, determining whether it is
a good fit for your pension scenario can be a complicated endeavor. For that reason, you
should consult with your Southern Financial Consultants representative to help you analyze the best course of action.

Pension maximization can make a significant difference

To illustrate how pension maximization insurance can be helpful, let’s first look at the
difference in benefits provided by the Single-Life and Joint and Survivor options, based on
a full monthly pension benefit of $2,000:

As you can see, although your spouse is protected by the Joint and Survivor option, the
amount of your pension benefits is significantly reduced. For example, if you live for 15
years after you retire, the total reduction of your income from the benefits is $90,000.
Under the Joint and 50% Reduced Survivor option, the total reduction is $54,000.

Pension maximization insurance can help you to substantially reduce that difference.

How pension maximization insurance works

• You purchase a life insurance policy on yourself prior to retirement, naming
  your spouse as beneficiary. You and your spouse designate the death benefit
  to replace the lost pension benefit if you die first.
• You and your spouse elect the Single-Life option at your retirement.
• Pay the insurance premiums with part of the additional pension benefits that
  you received by taking the Single-Life option. The premium may be lower
  than the pension reduction.
• If your spouse dies first, you may cash in the policy to further increase your
  full retirement benefit.
• In your later years of retirement, the insurance cash values may be converted
  to supplemental income for you and your spouse.
• Cash values may also be left to accumulate, giving you additional assets in
  your estate.
• At your death, your spouse can either receive the policy’s death benefits in
  the form of a lump sum or as an annuity, which guarantees lifetime income
  benefits.
• The insured survivor benefit also provides for children, whereas the pension
  plan would not. This would be critical, for example, if you have a disabled
  dependent child.

Who should consider pension maximization insurance?

There are many factors to consider, including your age, your spouse’s age, your health,
your actual pension benefit and the insurance premium costs. In general:

• Pension maximization may be appropriate if you are interested in
  supplementing your pension benefits for your spouse and can afford to pay
  the insurance premium from your additional monthly benefits.
• You are interested in the other benefits offered by the life insurance.

Some additional points to note:

• Since life insurance rates are based primarily on age, the younger you are
  when you purchase pension maximization, the lower your rates will be.
• Pension maximization can also work even if you are at or near retirement.
  However, you must be in good health; otherwise, the rates may be too high or
  the policy unattainable.

Southern Financial Consultants Can Help

Southern Financial Consultants provides solutions to all of your insurance needs, including pension maximization insurance. As retirement planning experts, we can help you analyze whether pension maximization is right for you.

A Southern Financial Consultants representative will be happy to help you explore this additional pension maximization opportunity to provide the financial security you need to live the retirement of your dreams.

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