Pension Benefit Maximization

Making It Last

At retirement, many of our clients are confronted with challenging decisions regarding their pensions. They often must choose to take 100% of their benefit with no spousal benefit or make the irreversible election to give up 10% of it for a reduced survivor benefit (50% of the reduced amount) should they pre-decease their spouse.

The spousal benefit is valuable, but there is not a scenario where the pension carries on past the surviving spouse. Without an advisory relationship, a client may pass up a tremendous opportunity to add to their estate and give their spouse more flexible income options.

The strategy (if a client is insurable) is for the pension earner to take the 100% benefit and use 10% of it to purchase a life insurance policy to fund the survivor. When the pension earner dies, the surviving spouse crafts an income plan from the death benefit proceeds. Then, at the death of the survivor, there will typically be a large residual benefit (usually between 400-1.2mm$) that can be passed on for children, relatives, or charitable giving.

With large policies purchased later in life, it’s especially important to have multiple companies bidding when underwriting conditions are not ideal. It’s also important to have policies that don’t confuse insurance with an investment component. Stripping out the investment component provides maximum death benefit per premium dollar on a guaranteed basis.

Our insurance brokerage support through LPL enables us to solve for your pension maximization needs in-house with a custom fit.