Pension Plus

You Face a Tough Decision . . . .

if you are in line for a pension at retirement. It could cost you and your spouse thousands of dollars and take a chunk out of your children’s inheritance.

It’s called the "pension dilemma" and here’s why it is a problem. Say you’ll be eligible for a $4,000 monthly pension benefit. That’s the value of your benefit and the amount you will receive under "the single life option." $4,000 a month . . . $48,000 a year. Sounds great so far, but benefits are paid only as long as you live. Your pension dies when you die. That may be OK if you’re single, but probably not if you’re married and your spouse survives you.

The Obvious Choice

On the surface, it would seem that married individuals have no choice but to elect a "joint and survivor option." In fact, under federal law, that is the automatic pension option. It pays a reduced pension (typically 75% to 85% of the single life benefit ) for as long as either spouse lives. In our example, the $4,000 monthly benefit might be reduced to $3,000. See the Story!!!

The Long Term Cost Factor

In our example, the income lost is $1,000 a month . . . $12,000 a year. This lost income is almost always a permanent loss and it could add up over a typical couple’s joint lives:

Potential Benefit Loss Over 20 Years:

Full Reduced A ccumulated

Years Benefit Benefit Loss

1 $ 48,000 $ 36,000 ($ 12,000)

5 $240,000 $180,000 ($ 60,000)

10 $480,000 $360,000 ($ 120,000)

15 $720,000 $540,000 ($ 180,000)

20 $960,000 $720,000 ($ 240,000)

There may be a better way - Pension Maximization

Here’s how it works:

Purchase a sufficient amount of life insurance on yourself prior to retirement, naming your spouse as beneficiary. The death benefit is earmarked to replace the lost pension if you die first.

To get the best insurance rates, the younger you are when you make this decision, the better. But it may still work, in some cases, even if the policy is purchased shortly before retirement. The idea is to use a portion of your full benefit to pay the insurance premium. The result can be a win-win situation for you, your spouse, and your heirs.

At retirement, you and your spouse opt to take the single-life benefit option . . . receiving your maximum pension benefit for as long as you live.

Pension Maximization Advantages

You receive the maximum pension benefits to which you are entitled.

Your spouse shares in your benefits. Should you die first, even though your pension stops, your spouse’s income continues in the form of insurance proceeds, which can be set up as an annuity . . . with benefits guaranteed for life.

Should your spouse die first, your benefits will continue. The life insurance can be canceled or the beneficiary changed to protect your estate and benefit your heirs.

Cash values accumulate in your life insurance policy. If you and your spouse live well into your golden years, the insurance can protect other assets for your heirs. In fact, no matter what happens, your estate can be protected . . . enabling you to pass assets on to your children and grandchildren.

Is Pension Maximization Right For You?

That depends. There are many factors to consider, such as your age, health and actual pension benefit. Still, you owe it to yourself and your spouse to find out more.

See information about feasibility on the reverse side of this brochure.

Is Pension Maximization Feasible For You?

Every situation is unique. Electing a "single life" pension and using life insurance is a serious and complex decision. Try our simple worksheet for starters.

Ken Lund can help you make the decision. You will need to provide the following information:

Name - you and your spouse

Sex

Age - you and your spouse

Smoker/non-smoker

Health concerns - you/your spouse

Estimated amount of retired benefits

Does your plan provide for cost of living increases?

Does your plan require the surviving spouse election in order to maintain medical benefits?

Does your plan provide a reversion feature?

Ken Lund will . . .

recommend a plan to accomplish your goals.

provide a detailed analysis for your review.

Will encourage you to get an expert "second opinion".

[ Home ] [ The Story ] [ Worksheet ]

Text, charts and examples found within this web site are for illustrative and informational purposes only. No guarantees, promises, representations specific to your own circumstances are made within this site. If you have questions or comments, complete the feedback section or send mail to kenlund@ptinet.net with questions or comments about this web site.

Last modified: June 1, 1998