Protect Your Spouse

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Protect Your Spouse

Pension Max provides you with options to protect and provide for your loved one's needs. GPM Life can help design the right plan for you.

What is Pension Maximization? (Pension Max)

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What is Pension Maximization? (Pension Max)

Many government employers and a few private sector companies still offer pensions. Pensions offer a guaranteed retirement income payment for life to the retiring employee. If the employee is married at the time of retirement, a choice is usually available to provide a survivor benefit if the retiree dies before the spouse. These benefits can range from 50% to 100% of the pension payment. In order to fund the survivor benefit, the employee’s payments are reduced by a certain percentage. 

For example, John’s full pension payment is $3,000 per month. If he wishes to provide a 50% survivor benefit ($1,500/mo) for his wife Mary, his payment will be reduced to $2,700 per month. So the reduction or “cost” of providing the benefit is $300, or 10%. If John’s pension has a Cost of Living Adjustment (COLA), the cost to provide the benefit will also increase, and the costs over time can be expensive.

Pension Maximization is a concept that allows the retiree to take the full pension payment, with no reduction. The survivor benefit is then provided through the benefits of a life insurance policy.  The life insurance policy is designed with a death benefit that can be used to provide the desired monthly level income payments, and cost less money over time than funding the survivor benefit within the pension plan. 

Pension Max solves two problems:

1. If a survivor benefit is selected, the only choice is the monthly income. With a private life insurance policy, the spouse can 1) take the death benefit and turn it into a guaranteed income for themselves, or 2) receive the death benefit in a lump sum, then decide on an investment or income plan based on their needs at the time. These choices are not available with the pension plan. 

2. If the spouse dies before the retiree, all costs paid for the survivor benefit are not recoverable. With the private life insurance policy, the retiree could 1) continue the policy and change the beneficiaries, 2) continue the policy and receive some of the cash value, or 3) surrender the policy and receive the cash proceeds. These choices are also not available with the pension plan.

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