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Maximizing Retirement Income:
Things to ConsiderMost of us dream of the freedom of retirement—freedom to travel, freedom to spend time pursuing personal interests and the freedom to live a life of financial security independent from a job.
For many, the transition into retirement is a time of unexpected stress. The change in lifestyle and the disappearance of the work social network can cause anxiety and depression. The pressures can make many susceptible to making bad financial choices at a critical time.
For those who are participants in defined benefit or money purchase pension plans, making the right choice between the various pension payout options can mean the difference between a comfortable retirement and one that is financially tight.
We have found in some cases that the strategy of pension maximization (pension max) can help ease the financial stress of retirement.
What is pension maximization?
Those who participate in defined benefit or money purchase pension plans, may be required at retirement to choose between two types of benefits:
A life only benefit, which pays a monthly retirement income for the lifetime of the participant, or
A joint and survivor benefit, which pays a monthly retirement income for the lifetime of both participant and surviving spouse.
The life only benefit is usually higher than the joint and survivor benefit. However, if the participating spouse dies first, the benefit will be paid for a shorter time.
So which one is the best choice? It depends on many things, including the dollar difference between the monthly retirement choices and the relative life expectancies of each spouse.
In some cases, it makes sense to choose the single life option and buy insurance on the life of the retiree. That’s the pension max concept in a nutshell.
If the retiree dies early, the insurance is available to provide income to the surviving spouse or to protect other family members. If the spouse dies before the retiree, the participant can cancel the policy—and continue to collect a higher pension benefit. Or the retiree can continue paying for the insurance to provide money for other family members.
Figuring out whether pension max makes sense for you involves gathering the information needed and making some calculations. We can help do that with you.
If you’re planning to retire and pension max is not a workable strategy for you, we can also help you decide what other action might be needed so that you have a comfortable and stress-free retirement.
Please contact us at 504-212-3440 or estateplanning@lawealthplan.com to set up an appointment with Todd or Chip to discuss tax planning or other matters of financial concern.
