Pension Maximization

AAA

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.

INVESTOPEDIA EXPLAINS '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. Fixed Annuity

    An insurance contract in which the insurance company makes fixed ...
  2. Stretch Annuity

    An annuity option where tax-deferred allowances are passed on ...
  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. Certified Financial Planner - CFP

    The CFP legal team has provided its official definition, along ...
  6. Joint Life With Last Survivor Annuity

    An insurance product that, when annuitized, makes payments to ...
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 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. What is the difference between moral hazard and adverse selection?

    Adverse selection occurs when there's a lack of symmetric information prior to a deal between a buyer and a seller, whereas ... Read Full Answer >>
  4. Should I purchase a master limited partnership (MLP) in my retirement account?

    Most investors should not purchase units in a master limited partnership, or MLP, in their retirement accounts. MLPs offer ... Read Full Answer >>
  5. What does the lapse ratio in the insurance sector measure?

    The lapse ratio measures the amount of insurance policy renewals with respect to the total number of insurance policies at ... Read Full Answer >>
  6. Why some insurance policies are more expensive than others?

    There are several reasons that an insurance policy can cost more or less at different agencies. Some of the more common reasons ... Read Full Answer >>
Related Articles
  1. Budgeting

    5 Ways To Stretch Your Retirement Budget

    Living comfortably can be easy if you follow a simple plan.
  2. Taxes

    The Tax Benefits Of Having A Spouse

    Check out the perks designed to promote and preserve your post-work savings - if you're married, that is.
  3. Retirement

    Lump Sum Versus Regular Pension Payments

    If you're about to retire, you may be facing this dilemma soon. Find out what your options are.
  4. Options & Futures

    Retirement Planning Basics

    Realizing your post-work goals need not be daunting. We'll tell you everything you need to know to get - and stay - on track.
  5. Personal Finance

    Should You Track The Cost Of Retirement Income?

    Today, workers face a challenge when saving for retirement, because retirement income is getting more expensive, and the savings are not keeping up.
  6. Retirement

    How Much Money Do You Need To Retire In Hawaii?

    The Aloha State remains an idyllic place to retire, but at what cost? From rent to cereal to gasoline, we look at the hidden costs of living in paradise.
  7. Retirement

    IUL Insurance: An Alternative Retirement Plan?

    Indexed universal life insurance is the rise. But critics argue that wisely allocated IRA and 401(k) funds will normally offer better returns.
  8. Personal Finance

    A Guide to Financial Education for Doctors

    Doctors need to choose the educational option which best fits his or her time, schedule and learning preference. Here's a guide.
  9. Retirement

    Find The Top Retirement Cities In Australia

    Australia has some of the world's most livable cities. Did we mention the beaches?
  10. Retirement

    Retire In Vietnam With $200,000 Of Savings?

    An excellent retirement "buy" because English is spoken widely, the cost of living is compellingly low, and Americans are generally welcome.

You May Also Like

Hot Definitions
  1. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  2. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  3. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  4. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
  5. Adverse Selection

    1. The tendency of those in dangerous jobs or high risk lifestyles to get life insurance. 2. A situation where sellers have ...
Trading Center