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A Guide to Pension Maximization with Life Insurance

A Guide to Pension Maximization with Life Insurance

April 19, 2024

Retirement should be a time to relax and kick back. But securing a comfortable and financially secure retirement requires careful planning, especially for those who rely on a traditional pension plan as their primary source of retirement income (and who want to navigate retirement pitfalls.)

Retirees face two traditional pension plan payout options when choosing how to receive their pension benefits. 

  1. Single Life Annuity provides a higher monthly payout for your entire lifetime, but payments stop when you pass away. 
  2. Joint and Survivor Annuity offers a lower monthly payout, but your spouse continues to receive a portion of the benefit after you die.

For many retirees, receiving a lower payout with the Joint and Survivor option might not be enough to maintain their lifestyle, especially if they have a surviving spouse. 

Enter pension maximization with life insurance.


Understanding Pension Maximization

Pension maximization with life insurance is a strategy to maximize your retirement income through your pension while still providing some form of death benefit for your spouse. 

Let’s break down how this works:

At the core of this strategy, you want to select the Single Life annuity option as part of your pension plan. This means you’ll receive a higher amount of monthly income throughout your retirement, but payments will stop when you pass away.

Where you cover your loved ones is with life insurance. You’ve taken the higher monthly income option from your pension plan, which can then be put towards a more premium life insurance option. This allows you to list your spouse or other beneficiaries as recipients.

After you’re no longer here, your spouse can leverage the insurance benefit to replace lost income they would normally get had you opted in for the Joint and Survivor pension plan. They can either purchase an annuity which provides a guaranteed income stream through their lifetime, or they can invest and generate income in tandem with their existing retirement sources.

What matters with pension maximization is that you’re giving yourself a higher monthly income while you’re alive and setting up your loved ones with income options when you pass away.


Benefits of Pension Maximization

Pension maximization offers several advantages for retirement planning including:

  • Higher retirement income by choosing a single-life pension option and receiving larger monthly payouts compared to a joint and survivor annuity.
  • Flexibility and more control over your pension money. 
  • Financial estate planning because the extra income can be used to fund life insurance, which benefits your surviving spouse or heirs financially after your death.
  • Potential tax advantages because payments from a life insurance death benefit may be tax-free, while a joint and survivor annuity might have taxable portions.


What to Consider With Pension Maximization 

Despite strong advantages, there are some important factors to consider before implementing pension maximization as a retirement strategy including:

  • Cost-benefit analysis to see if your increased retirement income justifies the ongoing cost of life insurance premiums. (The cost of your life insurance policy depends on factors including your age, health, and your desired death benefit amount.)
  • Impact of health conditions you may have that could affect your eligibility for life insurance and potentially raise your premium costs.
  • Tax implications to ensure you’re aware of any potential tax liabilities associated with the life insurance policy and the death benefit payout. (Be sure to talk to a qualified tax advisor.)
  • Long-term care planning to ensure you have sufficient resources available to cover these expenses if you need long-term care in the future.


If you’re interested in your retirement planning and want to learn more about how pension maximization and your life insurance needs could fit into your plan, schedule a call with our team. We’d love to meet you and work through any financial questions you may have regarding retirement.