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.

RELATED TERMS
  1. Years Certain Annuity

    An insurance product that pays the holder a monthly income for ...
  2. Annuity

    A financial product that pays out a fixed stream of payments ...
  3. Qualified Joint And Survivor Annuity ...

    An annuity payment from a qualified plan or 403(b) account that ...
  4. Valuation Period

    The time between the end of the business day of the first business ...
  5. Whole Life Annuity Due

    A financial product sold by insurance companies that requires ...
  6. Indexed Annuity

    A special class of annuities that yields returns on your contributions ...
Related Articles
  1. Retirement

    How a Fixed Annuity Works After Retirement

    These popular investments can provide a steady stream of income during your retirement years. Here are the details.
  2. Retirement

    Annuities Vs. Bonds: Which One Is Better For You?

    Compare the important features of annuities and bonds, and understand which investment vehicle is the better choice based on retirement goals.
  3. Personal Finance

    An Overview Of Annuities

    These contracts provide a guaranteed income stream. Learn how they work and their benefits.
  4. Retirement

    Are Annuities Retirement-Only Investments?

    Learn more about why annuities are generally purchased and the way that they can positively and negatively affect an individual preparing for retirement.
  5. Retirement

    When Annuities Are the Wrong Investment

    Understand how annuities provide several unique benefits, but many drawbacks as well, and identify the situations where they are not the best investment.
  6. Retirement

    What Role Should Annuities Play in Retirement?

    Fixed annuities can provide income protection for those worried about outliving their assets. But don't buy a bigger policy than you really need.
  7. Retirement

    Are Annuities Right for You?

    Annuities are safe and often appealing, but IRAs and 401(k)s offer advantages that annuities typically can’t match, with little additional risk.
  8. Retirement

    How to Build Retirement Income with Annuities

    Annuities may provide an excellent tool when it comes to building income for retirement. Here's why.
  9. Retirement

    Who Benefits From Retirement Annuities

    Annuities guarantee some degree of fixed income in retirement. But is the security worth the fees and less favorable tax treatment? How to decide.
  10. Retirement

    Annuities: How To Find The Right One For You

    Fixed, variable and indexed annuities offer different features. Find out which one fits your needs.
RELATED FAQS
  1. What are the distribution options for an inherited annuity?

  2. What is the difference between an individual retirement account and an individual ...

    All these years I thought I had a "regular" IRA (I made $22,000 pre-tax deposits spring of 1985 and 1986), ... Read Answer >>
  3. What is the best way to fund my pre-retirement years?

    I am trying to postpone taking social security until the age of 65/66 in order to maximize the amount I get every month. ... Read Answer >>
  4. What are the main kinds of annuities?

    Learn about the four basic types of annuities, and why the different investment and payout options are suitable for different ... Read Answer >>
  5. What are the best ways to sell an annuity?

    Learn about the best ways to sell annuities. Annuities are financial products that provide income on a regular basis to their ... Read Answer >>
  6. What type of investor should consider annuities?

    Learn about the features and benefits of annuities and when to consider one. Investors seeking to secure income for retirement ... Read Answer >>
Hot Definitions
  1. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  2. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  3. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  4. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
  5. Russell 3000 Index

    A market capitalization weighted equity index maintained by the Russell Investment Group that seeks to be a benchmark of ...
  6. Enterprise Value (EV)

    A measure of a company's value, often used as an alternative to straightforward market capitalization. Enterprise value is ...
Trading Center