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), 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 as opposed to the joint-life option. However, as the name suggests, with the single-life option, when the pensioner passes away, the pension benefit ends.
The Pension Maximization Strategy provides the best of both worlds to the pensioner and their spouse: extract the maximum monthly benefit possible from the pension, as well as providing financial support for the spouse should 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: The pensioner purchases a life insurance policy on their life. Upon the pensioners’ death, a tax-free death benefit is paid to their spouse. The spouse can now use the life insurance proceeds to replace part or all of the income they would have received if the joint-life pension option had been selected.
Step 2: The pensioner selects the single-life pension option (with their spouses consent).
Possible Outcomes
| What Happens… | Joint-Life Pension Option | Pension Maximization Strategy (Single-Life Option) |
| 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 to ensure the Pension Maximization Strategy is right for you and your family.
For more information on the Pension Maximization Strategy or to find out if it’s a viable option for you, contact Jeff Graham at (604) 363-7549 or jeff@firstoakfinancial.ca.
Additional Marketing Materials: