The Important Decision at Retirement

Presented by David Corwin

Did you know that, at retirement, you might have to make a difficult decision that could negatively impact your future financial security and that of your spouse? At retirement, you will have to decide how your pension benefit will be paid out for the rest of your life:

Should you elect to receive the maximum retirement check each month for as long as you live, with the condition that upon your death, your spouse gets nothing?
Should you elect to receive a reduced retirement check each month, with the condition that upon your death, your spouse will continue to receive an income?

Did You Know…
* The decision you make will determine the amount of pension income you receive for the rest of your life?
* This decision is generally irreversible?
* In making this decision, many people unknowingly purchase the largest death benefit they will ever buy and one over which they have no control?

If you are married, federal law requires that, in order to protect your spouse, you must elect a “joint and survivor” annuity payout option for your pension benefits. This guarantees that your surviving spouse will continue to receive at least one-half of your pension income.

This concept is sound, except that you have to pay for a joint and survivor annuity payout option:
* Your pension benefit is reduced for as long as you live.
* If your spouse dies before you, your pension benefit cannot be restored to its unreduced amount.
* All pension payments cease when both you and your spouse die.

Let’s look at the results of the three most common pension benefit options, using a hypothetical example:

Life Income Option: If you receive your pension benefit under the life income option, you receive the maximum lifetime pension payment. If you die first however, your surviving spouse receives nothing after your death.

Joint and One-Half Survivor Option: If you elect the joint and one-half survivor option, you’ll receive a lower lifetime pension payment. On the other hand, if you die first, your surviving spouse will continue to receive a lifetime pension benefit equal to 50% of your pension benefit prior to your death.

Joint and Equal Survivor Option: With the joint and equal survivor option, you’ll receive a significantly lower lifetime pension payment. Your surviving spouse, however, will continue to receive 100% of your pension benefit if you die first.

In making this important decision, you should evaluate the risks associated with retirement income protection funded with life insurance:
* Your income after retirement must be sufficient to ensure that the life insurance policy premiums can be paid and coverage stay in force for your lifetime. Otherwise, your spouse may be without sufficient income after your death.
* If your pension plan provides cost-of-living adjustments, will upward adjustments in the amount of life insurance be needed to replace lost cost-of-living adjustments after your death?
* Does your company pension plan continue health insurance benefits to a surviving spouse and, if so, will it do so if you elect the life income option?