Are you a member of a Defined Benefit Pension Plan? If so, you may want to inquire about a Pension Maximization Strategy.
For individuals with a Defined Benefit Pension Plan (DBPP), you’ll want to discuss a Pension Maximization Strategy to get the most out of your retirement. There are two options in regards to receiving their pension benefit upon retirement: joint-life or single-life. The single-life option provides the pensioner with a larger monthly benefit than the joint-life option. In other words, with the single-life option, the pension benefit ends when the pensioner passes away.
The Pension Maximization Strategy provides the best of both worlds to the pensioner and their spouse. You can extract the maximum monthly benefit possible from the pension, as well as providing financial support for the spouse. For instance, this is done in the event that the pensioner predecease them. Whether you are near retirement or have just started your career, this could be a great fit.
How is this accomplished?
Step 1: Firstly, the pensioner purchases a life insurance policy on their life. Upon the pensioners’ death, a tax-free death benefit is paid to their spouse. After that, the spouse can now use the life insurance proceeds to replace part or all, of the income they would have received if they had the joint-life pension.
Step 2: The pensioner selects the single-life pension option and will need their spouses consent.
|What Happens…||Joint-Life Pension Option||Pension Maximization Strategy |
|While both spouses are alive||Reduced pension benefit is received||Maximum pension benefit is received|
|If the pensioner dies first||Spouse continues to receive the reduced pension benefit||Spouse receives tax-free death benefit from the life insurance policy to provide retirement income|
|If the spouse dies first||Pensioner continues to receive the reduced pension benefit for their lifetime||Pensioner continues to receive maximum pension benefit, and can keep the life insurance policy for other heirs/legacy, or access the policy cash values for personal use|
|Future Heirs||Receive nothing from the pension plan after the spouse dies||Can receive leftover funds from the life insurance policy or be named beneficiary of the policy|
Each scenario requires a thorough review with a licensed and experienced insurance advisor. Above all, we want to ensure the Pension Maximization Strategy is right for you and your family.
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