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Pension maximization using life insurance is a way to help you gain death benefit protection while offering an opportunity to maximize pension benefits. If you have defined benefit pension plans, you need to make an important decision as you near retirement to decide on the Life Only Benefit or a Joint and Survivor Benefit on their pension plans. This is an irrevocable choice that can have a significant financial impact on the rest of your life.

Life Only Option

Benefit: Offers a larger benefit amount than the Joint and Survivor option(s). Downside: The surviving spouse receives nothing upon the participant's death.

Joint and Survivor Option

Benefit: This option provides the surviving spouse with income until death. Downside: Benefits may be significantly less than the Life Only benefit.
The pension maximization strategy using life insurance offers a compromise between these two options. Let's look at a hypothetical case study on how to put this concept to work.

The Situtation

Walter is a 62-year old public school teacher who's been teaching history for nearly 30 years. His wife Sue works as an administrative assistant at a local car dealership and the couple has three adult children.
Walter is looking forward to retirement and joining his former colleagues who have recently retired. From conversations with these friends, Walter knows he must decide on how his pension benefits will be paid. He would like to retire in three years and he wants to make the right financial moves now to prepare him and his wife for their retirement years. Walter and Sue have been fairly disciplined at saving for retirement over the years, but he's looking to get the most out of his pension plan. Additionally, he wants to be able to financially help his three children if needed, as they start their own families.

The Strategy

Walter meets a life insurance agent recommended to him by a close family friend. Walter and his wife discuss their life insurance needs with the agent and explore a few options to help them with their financial goals. The agent recommends considering pension maximization using life insurance. Here's why:
Immediate death benefit protection Walter gains confidence in his plan from the start with death benefit protection should he die before retirement or soon after retirement. Maximize pension income By selecting the Life Only option, Walter receives a larger benefit. Should Sue die first, he isn't left with a reduced benefit if he had chosen the Joint and Survivor option. Under this scenario, Walter may also access a permanent life insurance policy's cash values through loans or withdrawals to supplement his retirement income. Death benefit for plan participant's spouse When Walter dies, Sue receives the life insurance policy's death benefit potentially tax free, which replaces the discontinued pension income. Possible inheritance for heirs If Sue predecease Walter, and Walter keeps the life insurance policy in force, any remaining life insurance death benefit would pass to the three children.


Possible loss of spousal benefits Walter needs to talk with his pension plan's administrator and consider if selecting the Life Only option will disqualify Sue from medical or other benefits that would be provided with the Joint and Survivor option.
Lapse of life insurance policy Walter's agent stresses that it is highly important to keep the life insurance policy in force. Purchasing a guaranteed death benefit product may reduce the risk of lapse as long as Walter pays the required premiums. Inadequate death benefit amount The couple understands that the life insurance death benefit amount needs to be sufficient enough so Sue can have enough funds to meet financial needs. The couple decides to base the death benefit amount on the worse-case scenario in which Walter dies soon after retirement. This will help ensure that Sue has adequate funds to last her lifetime.

The scenario above is a hypothetical example and is for illustrative purposes only. Your situation and results will vary.

There is no assurance that the strategy discussed will yield a positive outcome and may not be suitable for everyone.

In some situations, loans and withdrawals may be subject to federal taxes. This information is not intended as tax or legal advice. You should consult with a qualified tax and legal advisor for tax and legal advice.

Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Please consult with your financial professional about your individual situation. Life insurance policies have exclusions and/or limitations. The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased. As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have mortality and expense charges. In addition, if a policy is surrendered prematurely, there may be surrender charges and income tax implications. Guarantees are based on the claims paying ability of the insurance company.

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