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. Joint And Survivor Annuity

    An insurance product that continues regular payments as long ...
  3. Annuity

    A financial product that pays out a fixed stream of payments ...
  4. Wraparound Annuity

    A type of annuity that allows the investor (the holder of the ...
  5. Valuation Period

    The time between the end of the business day of the first business ...
  6. Qualified Joint And Survivor Annuity ...

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

    Why Are Annuities Important for Retirement?

    Understand how annuities work, and identify the benefits they provide for retirement, the most salient being a guaranteed income stream for life.
  3. Retirement

    Guaranteed Retirement Income in Any Market

    By laddering annuities, you can be sure you'll have income no matter what the market does.
  4. Investing

    The Many Benefits of Deferred Annuities

    Having a deferred annuity can ensure income in retirement above and beyond Social Security.
  5. 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.
  6. 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.
  7. Retirement

    Explaining Types of Fixed Annuities

    Learn about this popular retirement tool, its pros and cons and how annuities work to create a guaranteed regular stream of retirement income.
  8. Investing

    What Do You Need to Know About Annuities?

    There are varying views on annuities. Use this basic information to draw your own conclusions.
  9. Financial Advisor

    Annuities: The Good, Bad and the Ugly

    Annuities suffer from a few perception problems. This primer that covers the good, the bad and the ugly of annuities.
Hot Definitions
  1. Net Profit Margin

    Net Margin is the ratio of net profits to revenues for a company or business segment - typically expressed as a percentage ...
  2. Gross Margin

    A company's total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage. ...
  3. Current Ratio

    The current ratio is a liquidity ratio measuring a company's ability to pay short-term and long-term obligations, also known ...
  4. SEC Form 13F

    A filing with the Securities and Exchange Commission (SEC), also known as the Information Required of Institutional Investment ...
  5. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
  6. Risk Averse

    A description of an investor who, when faced with two investments with a similar expected return (but different risks), will ...
Trading Center