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Pre-Retirees/Retirees

Congratulations! You’ve made it. You have worked long and hard and look forward to enjoying the fruits of your labor. However, many games have been lost in the “4th Quarter,” “the final three holes,” or “the last period.” Don’t let this happen to you! Market fluctuations, unnecessary risk, and/or taxes can and will erode what you’ve earned. There is a better way to help enjoy your retirement with the goal of being worry free. You’ve already done the “Accumulation phase.” Let’s now concentrate on the “distribution phase” and remember to take care of the “transfer phase.” How can you spend what you have without unnecessary risk and taxes, and still leave a legacy to your family and charities? It’s easier than you think. We can discuss retirement income strategies with you that can potentially minimize your tax exposure and reduce longevity risk. Call us today to review your options. You’ve been saving your whole life for a rainy day. It’s raining! Time to enjoy!

Pension Maximization

Pension maximization refers to a strategy for choosing a payout option at the time of your retirement. Employees near retirement age may be faced with a rather difficult decision when presented with the retirement plan payout options. Most pension plans will offer the participant at least two common payout options: single-life payout or joint-life payout. Under the single-life payout, your pension check will be higher - but it stops at the time of your death. Under the joint-life payout option, the pension check will be smaller - but it continues to pay even after your death, to your spouse. So, if your spouse outlives you, he/she will continue to receive your pension check until their death. This is the option most people take

For example, let's assume the single-life pension payout for a 60-year old is $8,000 per month and the joint-life pension payout for you and your spouse (age 59) is $7,000 per month.

Under this scenario, you are taking $1,000 a month less for the rest of your life!! To insure that your spouse gets a monthly income for their life HOWEVER that is $12,000 a year, $120,000 over 10 years, $240,000 over 20 years and a staggering $360,000 over 30 years ..... that is YOUR money...... What happens if your wife passes on first? or you both live a long time ( under life expectancy you both should) and 25 years from now you pass on, when your wife passes on, the kids get nothing!!!

Another problem is what if your wife needs/ or wants more money to help support your children or the future grandchildren?, Under your current plan the pension plan will only allow her a monthly check, no option for a large cash lump sum and all income is taxable.

Under the pension maximization strategy, you would select the single-life of $8,000 per month payout, which is $1,000 more per month (or $12,000 per year), rather than the joint-life payout. However, instead of spending this extra $12,000, Your husband buys a permanent life insurance policy on himself for the largest death benefit that a $12,000 annual premium will buy with the spouse as the beneficiary. When your husband passes on, under this strategy, the pension payout stops; however, the spouse then receives a large death benefit payout (tax-free) which can be invested and uses to replace the taxable pension payout that is no longer available.

It is very important that your husband first applies and qualifies for the appropriate amount of life insurance prior to making their pension selection. The pension selection is usually irreversible, so you'll want to make sure that you are insurable and offered a reasonable life insurance policy prior to committing to the higher single-life pension payout amount.

Using a pension maximization strategy, you pick the option that pays the maximum pension, while you take out life insurance to provide for your spouse upon your death.

But with adequate life insurance, a pension maximization strategy can put more money in your pocket immediately after your retire—and hopefully for years to come.

Other benefits of a pension maximization strategy include:

  • If you die first, the life insurance death benefit your spouse receives won’t be taxed, unlike taxable pension payments that continue after your death.
  • Your spouse receives a tax free lump sum which provides much more options for her income
  • If you die before you retire, your spouse will get the death benefit.
  • You can change your life insurance beneficiary whenever you want.
  • Certain policies build cash value, which you can access in emergencies.
  • If your spouse dies first, you can cancel the life insurance policy.and any cash value inside the policy can be returned to you AND you receive the higher payout option from your company for your lifetime
  • Or you can hold on to the policy, change the beneficiary to benefit children and or grandchildren.

As a Certified Financial Planner, I can help you and your family with this strategy but still have many questions before we can consider this option such as:

  • How much your life insurance premiums will be.
  • What average life expectancy is.
  • Other financial resources (e.g. a separate pension benefit) your spouse will be able to rely on if you die first.
  • The amount your spouse will need to maintain the same standard of living if you die first.
  • The type of insurance that best fits your situation. (There are a wide variety of term and permanent policies to choose from—each with pros and cons.)
  • Debts you have (e.g. a mortgage) that must be figured into the picture.
  • Medical Insurance