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Pension Maximization

A Closer Look at the Pension Maximization Sales Concept

As individuals with pension plans get closer to retirement, they have an important decision to make. They need to determine whether or not to take a single life 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 their lives.

If a client decides to choose the single life benefit, his or her monthly benefit amount is larger than the joint and survivor option. The disadvantage of the single life benefit is that the surviving spouse will not receive any future income upon death. Usually the joint survivor (also known as the joint and 100% survivor) option provides a benefit amount of around 65-75% of the single benefit. The advantage of the joint option is the pension plan will continue to pay the surviving spouse with income until death.

Pension Max Client Profile

  • Ages 50 – 65
  • Concerned with retirement and have need for life insurance
  • Pension income with reduced survivor benefit
  • Client is preparing for the financial impact caused by loss of benefits for surviving spouse as a result of the joint life option.
  • Male or Female
  • Married
  • Looking to maximize monthly pension income

Solution using Life Insurance

In order to help maximize income, the retiree takes the single life option, which provides a higher monthly benefit compared to the joint and survivor option. A portion of the extra monthly income is used to buy a guaranteed death benefit life insurance policy1. This life insurance policy will provide a guaranteed death benefit that can be used to provide income for the surviving spouse. As a result, the client is able to maximize his or her monthly benefit amount, while providing income for the surviving spouse.

Sample Case Study using the Custom Guarantee Universal Life Insurance

Let’s look at a 58 year-old male in excellent health and is planning retirement. He has a $5,500 per month pension; however it’s only $4,000 a month if he takes the joint and 100% survivor option. We need to determine how much of a lump sum we need for the surviving spouse to provide her $4,000 a month for the rest of her life. This is calculated using a Single Premium Immediate Annuity. The immediate death benefit needed is $758,552 and that amount decreases, as the spouse gets older. At age 70, the required single premium to provide $4,000 a month for the surviving spouse is $600,034, and at age 80 the single premium needed is $423,880.

You can make your illustration as simple or as complex as you wish. In the attached example we changed the death benefit approximately every 10 years, however you can change the death benefit every year. In this case, with a monthly premium of $664.04 for life insurance, your client’s monthly benefit from the pension becomes $4,835.96 which is an extra $835.96 a month over the joint and 100% survivor option.

1. Subject to premium payment requirements.

  • Pension Max Sample Case

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