Pension Maximization


DEFINITION of 'Pension Maximization'

A retirement strategy for couples that involves purchasing a single life annuity on the older spouse rather than a dual or joint life with last survivor annuity that covers both people. The increased income received from the annuity will be used to fund the couple's retirement up until the older spouse dies.

Should the older spouse die first, the surviving spouse will use the life insurance proceeds to purchase a single annuity to fund the remainder of his or her retirement. At this point, the higher age of the surviving spouse will allow for more annuity income than he or she would have received at the beginning of the pension maximization process.

BREAKING DOWN 'Pension Maximization'

The basis of this strategy is that the extra money received from the single life annuity on the older spouse yields sufficient income for the couple to live on and also to fund a life insurance policy on the older spouse.

However, there are many important factors to consider before attempting this strategy, including the health of both spouses, other income, tax implications and the specific terms of the couple's pension or medical plan. Plans should be discussed with a licensed insurance professional or financial planner.

  1. Stretch Annuity

    An annuity option where tax-deferred allowances are passed on ...
  2. Fixed Annuity

    An insurance contract in which the insurance company makes fixed ...
  3. Pension Plan

    A type of retirement plan, usually tax exempt, wherein an employer ...
  4. Annuitant

    1. A person who receives the benefits of an annuity or pension. ...
  5. Joint Life With Last Survivor Annuity

    An insurance product that, when annuitized, makes payments to ...
  6. Certified Financial Planner - CFP

    The CFP legal team has provided its official definition, along ...
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  1. What is pension maximization?

    Pension maximization refers to a strategy for choosing a payout option at the time of your retirement. Employees near retirement ... Read Full Answer >>
  2. Can I leave my pension to my spouse when I pass away?

    In most cases, an individual with a pension plan should have the option to leave at least a portion of his or her pension ... Read Full Answer >>
  3. When can catch-up contributions start?

    Most qualified retirement plans such as 401(k), 403(b) and SIMPLE 401(k) plans, as well as individual retirement accounts ... Read Full Answer >>
  4. Are 401(k) contributions tax deductible?

    All contributions to qualified retirement plans such as 401(k)s reduce taxable income, which lowers the total taxes owed. ... Read Full Answer >>
  5. Are 401(k) rollovers taxable?

    401(k) rollovers are generally not taxable as long as the money goes into another qualifying plan, an individual retirement ... Read Full Answer >>
  6. Are catch-up contributions included in the 415 limit?

    Unlike regular employee deferrals, catch-up contributions are not included in the 415 limit. While there is an annual limit ... Read Full Answer >>

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