Pension Maximization Strategies

By Brent Meyer — SafeMoney.com Founder & Editor Reviewed by Licensed Financial Professionals  |  SafeMoney.com — Trusted Since 2011  |  Updated Regularly Quick Answer: Pension maximization is a strategy that lets you take the higher single-life payout from your pension and use a life insurance policy to protect your spouse financially after your death. Whether it's right for you depends on both spouses' health, the gap between your payout options, and your other retirement income sources. If you are among the rare few with a retirement pension , congratulations! You have a benefit that is becoming increasingly rare. With the 401(k) plan becoming the workplace retirement plan of choice, people hold more responsibility for their financial futures than ever. Knowing you have a pension gives you the comfort of knowing that, once you retire, you are scheduled to receive monthly income payouts for life. Your income payment will be based on your salary and your length of employment . Just like with annuity payout options , the lifetime payout option you select with your pension plan will have a direct bearing on how much income you receive. Survivor's Benefit: Single Life or Joint and Survivor? Let's say your retirement day has dawned and you are going to meet with your pension plan administrator. You will be asked a very important question. Which distribution option do you choose: "single life" or "joint and survivor" distribution? Single life refers to the option that pays you pension benefits until you pass away, therefore paying during your life alone. The joint and survivor distribution pays your monthly pension to you while you are alive, then pays that benefit to your spouse until their passing. If the joint and survivor option seems the obvious choice to ensure your spouse is taken care of , there are other factors to consider. Selecting the joint and survivor option means that you will receive a lower pension payout from the beginning. Why? Because the payment is calculated on the assumption that payouts will continue for a longer period. The payouts would cover not only your lifespan, but that of your spouse as well. How Your Pension Payout Options Differ in Practice So, how might this affect you in real-world dollars and cents? Let's look at a scenario involving two couples. Joan and Arthur are a married couple. She is 60, he is 70. Arthur has a pension at work. He decides on a single life distribution for their monthly payments