Pension Maximization

Pension maximization insurance enables you to take your full pension benefits at retirement and use a life insurance policy to replace the lost benefits for your spouse if you die first.

This issue arises if you are married and eligible to receive a pension from your company. You will probably have to decide whether to:

• Take your full pension benefits at retirement, leaving your spouse without any of the benefits should you die (the Single-Life option); or
• Take less than your maximum pension benefits at retirement in exchange for continuing benefits to your spouse at your death (the Joint and Survivor option). The Joint and Survivor option may offer the choice of your spouse receiving either full or reduced (generally 50 percent) monthly benefits at your death.

It's a tough decision. But pension maximization insurance offers a win-win third option.

Although the concept of pension maximization is fairly simple, determining whether it is a good fit for your pension scenario can be a complicated endeavor. For that reason, you should consult with your Lincoln Investment financial representative to help you analyze the best course of action.

Pension maximization can make a significant difference

To illustrate how pension maximization insurance can be helpful, let's first look at the difference in benefits provided by the Single-Life and Joint and Survivor options, based on a full monthly pension benefit of $2,000:

As you can see, although your spouse is protected by the Joint and Survivor option, the amount of your pension benefits is significantly reduced. For example, if you live for 15 years after you retire, the total reduction of your income from the benefits is $90,000. Under the Joint and 50% Reduced Survivor option, the total reduction is $54,000.

Pension maximization insurance can help you to substantially reduce that difference.

How pension maximization insurance works

• You purchase a life insurance policy on yourself prior to retirement, naming your spouse as beneficiary. You and your spouse designate the death benefit to replace the lost pension benefit if you die first.
• You and your spouse elect the Single-Life option at your retirement.
• Pay the insurance premiums with part of the additional pension benefits that you received by taking the Single-Life option. The premium may be lower than the pension reduction.
• If your spouse dies first, you may cash in the policy to further increase your full retirement benefit.
• In your later years of retirement, the insurance cash values may be converted to supplemental income for you and your spouse.
• Cash values may also be left to accumulate, giving you additional assets in your estate.
• At your death, your spouse can either receive the policy's death benefits in the form of a lump sum or as an annuity, which guarantees lifetime income benefits.
• The insured survivor benefit also provides for children, whereas the pension plan would not. This would be critical, for example, if you have a disabled dependent child.

Who should consider pension maximization insurance?

There are many factors to consider, including your age, your spouse's age, your health, your actual pension benefit and the insurance premium costs. In general:

• Pension maximization may be appropriate if you are interested in supplementing your pension benefits for your spouse and can afford to pay the insurance premium from your additional monthly benefits.
• You are interested in the other benefits offered by the life insurance.

Some additional points to note:

• Since life insurance rates are based primarily on age, the younger you are when you purchase pension maximization, the lower your rates will be.
• Pension maximization can also work even if you are at or near retirement. However, you must be in good health; otherwise, the rates may be too high or the policy unattainable.

Lincoln Investment Planning, Inc. Can Help

Lincoln Investment Planning, Inc. provides solutions to all of your insurance needs, including pension maximization insurance. As retirement planning experts, we can help you analyze whether pension maximization is right for you.

A Lincoln Investment financial representative will be happy to help you explore this additional opportunity to provide the financial security you need to live the retirement of your dreams.