What is Pension Maximization?

Monday, April 24, 2017 | 9:33 pm

If you’re near retirement and have a pension, you may be considering a pension maximization strategy. With all the variables involved, it can be challenging to determine if it’s really in your best interest. Pension max always results in more premiums for the insurance company, but doesn’t always result in more income for you. How do you know if it’s a good option for you?

Married couples usually use pension max to increase their net retirement income while still protecting the surviving spouse’s income in the event the pension recipient dies first. Basically, the pension recipient elects a single life pension instead of one with a survivor benefit for their spouse. This results in a higher monthly pension benefit. Then the pension recipient purchases life insurance to allow the surviving spouse to replace the pension income in the event that the pension recipient dies first.

In some situations, this approach can result in a higher net retirement income if the cost of the needed life insurance is less than the increased pension benefits. Consider the following before making a decision:

1. If you’re not married, there’s no reason to consider it. Depending on your estate goals and health, there may be other strategies that make sense.

2. The health and age of the pension recipient matters a great deal. If the pension recipient is in excellent health and can likely qualify for preferred life insurance rates, pension max has a lot better chance of being a good idea.

3. You need to determine how much and what kind of life insurance is needed to replace the income. As the pension recipient gets older, less life insurance death benefit will be required to replace the pension income. Usually some combination of tiered term-life policies and a small amount of permanent insurance fit the bill.

The increased pension benefit will be subject to income taxes. So when you’re comparing the net effect on your income, you need to calculate how much your pension will be worth after taxes because you will be paying the life insurance premiums with after-tax dollars. This is an easy area to ignore, but depending on your tax bracket, the effect of taxes can make or break the plan.

For more information visit Taylor Insurance at 251 South Lake Avenue, Suite 320, Pasadena. You can call them at (626) 356-7637 or by email info@taylorinsfin.com. For more information visit their website at www.taylorinsfin.com.

Securities and advisory services offered through SagePoint Financial, Inc., member FINRA/SIPC. Insurance offered through Taylor Insurance and Financial Services, dba Taylor Insurance Group Inc., is not affiliated with SagePoint Financial.



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