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.

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RELATED FAQS
  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 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 Answer >>
  3. How old should you be to get life insurance?

    There's really no pre-determined age when it suddenly becomes necessary to take out a life insurance policy. However, if ... Read Answer >>
  4. If I am no longer employed, can I roll over a 403(b) plan into an IRA?

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  6. Can I return funds to my Roth IRA after I have taken it as a distribution?

    Yes. You can roll over the amount to the Roth IRA, or another of your Roth IRAs (excluding inherited Roth IRAs), provided ... Read Answer >>
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