PENSION MAXIMIZATION

Pension maximization is a term used to define the use of an insurance contract and a life only payout from a company's annuity INSTEAD of using the life plus survivor option (QJSA) normally required. It is potentially viable for a retiring couple if it can be shown that more income could be generated from the proceeds of the life insurance than would be available under a QJSA.

If the pension annuity payments have a Cost of Living Adjustment, then pension maximization is probably not even worthwhile considering. Second, it must be remembered that the spouse, once she/he signs off the annuity as a surviving entity, may then lose all rights to any medical coverage normally allowed the worker's spouse. This coverage could be VERY expensive to duplicate- if possible at all.

The decision cannot be taken lightly since once the survivor option is signed off, one cannot make a change to the option later on. The calculations should probably be done on guaranteed growth rates in the contract and with realistic mortality rates and expenses. The worker shuld almost undoubtedly be in good health to get economic premiums.

Distributions options from pension

Life Only payout __________________

Joint with ____% survivor option __________________

Employees age for commencement of distributions __________

Smoker (yes) (no)

Health (Preferred)(Standard) (Rated)

Spouses age when payments would stop ___________ (taking into account any period certain)

Life insurance premiums (use level premium) _________

Annuity rate source for survivor's annuity ________

This means that the survivor would NOT take on the responsibility to invest the proceeds for income, but that the life insurance company would guarantee a rate of payments to the survivor for as long as he/she would live. The rates should be those currently being offered.

Step 1: Calculate maximum insurance premium available

a. Annual pension, life only _________

b. Annual pension, joint and ____% survivor _________

c. Maximum annual insurance premium _________ (1a- 1b)

Step 2: Calculate maximum amount of insurance available (use level premium)

a. Maximum annual insurance premium 1c above _________

b. Amount of insurance available from policy _________

c. Amount of death benefit from policy at later date pension distributions start or period certain ends. (+ cash value) _________

Step 3: Compare life income available using insurance benefits with amount under pension joint and ___% survivor option

a. Insurance proceeds _________

b. Spouse's annual life annuity from _________ proceeds if payment is directed from insurance company. Or amount from

invested funds. Question? Does survivor have competency to invest funds?

c. Spouse's income from joint and ___% option __________

d. Difference to surviving spouse (3b- 3c) __________

If the amount using the life insurance annuity (d.) is greater- probably by a large margin- than the proceeds that would have been available under the QJSA, then pension maximization might be viable.

BUT I WOULD BE VERY, VERY CAREFUL BEFORE DOING THIS. DEFINITELY SUGGEST SECOND OPINION.