Brian Gruss Licensed Insurance Planner

Maximize Your Pension Benefits with Pre-Retirement Planning

People retiring with pension benefits frequently encounter what is known as the “pension dilemma.” They are forced to decide whether to take their full pension benefit, which means zero income to their surviving spouses after their death; or take less than the maximum benefit so that their spouses will continue to receive benefits after they die.

One way to get around this, is to choose a joint and survivor option, which pays benefits as long as either spouse is alive. This option is automatically offered to married retirees; and the law requires that before you can elect anything else, you must both agree in writing. The drawback to this option is that benefit payments will always be less than those under the single life option even if the beneficiary spouse predeceases the participating spouse.

You have another alternative that is often referred to as pension maximization. You start by purchasing a sufficient amount of permanent life insurance on yourself before you retire, and name your spouse as the beneficiary. The income tax-free death benefit is designated to replace the lost pension benefit if you die first.  Of course, for this to work you need to be insurable to qualify for the insurance.

When you retire you and your spouse opt for the single life benefit option. This provides you with the maximum pension benefit for as long as you live. Use the difference in the amount between a single life and joint and survivor benefit to fund the life insurance premiums.  Often times you’ll even have money left over after paying the life insurance premiums.

You can determine if this alternative is right for you by meeting with your pension plan administrator and finding out about your projected benefits under the single life and survivorship options. Then ask an insurance agent to show you how much life insurance you will need to replace your pension income, and what it will cost.

The life insurance premium should be less than or equal to the difference between the single and joint and survivor monthly benefits. You should also choose a permanent policy, such as a whole life or universal life policy, which offers a fixed premium for the rest of your life.  Otherwise, if your premiums increase as you age, you may not be able to afford the insurance when you need it the most.

Another important point to determine before you choose pension maximization is whether or not your pension plan requires you to select the joint and survivor option in order for you to receive post-retirement medical benefits.

Finally, keep in mind that if you decide to purchase life insurance under the pension maximization option, rates are based primarily on age. The younger you are when you make this decision, the lower your premium costs.

Tags: Beneficiary, Benefit Option, Benefit Payments, Death Benefit, Drawback, Income Tax, Insurance Agent, Life Benefit, Life Insurance Premiums, Maximum Benefit, Pension Benefit, Pension Benefits, Pension Income, Pension Maximization, Pension Plan Administrator, Permanent Life Insurance, Retirement Planning, Single Life, Survivor Benefit, Survivorship

Fill Up Your Buckets for a Stream of Retirement Income

If you’ve heard it once, you’ve heard it a million times: when it comes to retirement planning, diversification is key. Everyone knows how important it is to build up a healthy nest egg—but if you put all your eggs in one basket, you are putting your financial well-being at risk.

Look at it this way: if you throw all of your funds in one investment or market sector, what happens if that sector takes a nosedive? Your retirement savings will go down the tubes right along with it. However, if you spread your investment funds across a variety of different assets, you will greatly decrease your risk.

So, how can you possibly protect yourself from financial devastation and still save up plenty of funds for a comfortable, happy retirement? Simple. It’s time to fill up your buckets!

The art of bucket planning

As Americans are living increasingly longer lives, one of the greatest risks today’s retirees face is the possibility of outliving their income. That’s why financial experts recommend that retirees adopt what’s called “bucket planning.”

Bucket planning is the act of spreading money across various pools income to ensure you have a lifetime stream of income. This strategy is growing increasingly popular in the retirement planning field. As a matter of fact, approximately 52 percent of financial advisors recommend the bucket planning method to their clients, according to Gallant Distribution Consulting.

Collect your buckets

There are a few different bucket planning methods. Some financial advisors recommend three buckets while others say you should fill up four. However, the most basic bucket planning strategy includes the following three pails:

Bucket #1: This bucket holds into low-risk investments, such as short-term Treasury bonds. This pool provides a stream income for the first five to seven years of your retirement.

Bucket #2: This pail should be filled with indexed annuities, which offer guaranteed income with an upside potential if the markets do well. This bucket will provide income for years 8 through 15 of your retirement.

Bucket #3: This is the bucket for long-term investments that will provide a guaranteed stream of income in your later years.

Another version of bucket planning includes investing in three or four different fixed or fixed indexed annuities, each which has a unique set of terms and benefits.

In either strategy, each bucket represents a different stage in your retirement. The primary objective of your first two or three buckets is to create an annual income stream during your first 15 years of retirement. When those 15 years are up, the last bucket still holds plenty of guaranteed annual income that will last throughout your lifetime. Because you have a bucket of income set up for each retirement phase, your cash flow will never run dry.

An endless stream of income

Bucket planning has skyrocketed in popularity because it can create an endless stream of income that you won’t outlive. If you set up your buckets properly, you won’t lose money, you’ll always be accumulating money and you’ll always have a guaranteed stream of income. That means you’ll live a comfortable and financially stable retirement without having to worry about outliving your assets.

In other words, if you fill up your buckets, you won’t run out of money before you—well—kick the bucket.

Liquidated earnings are subject to ordinary income tax, may be subject to surrender charges and, if taken prior to age 59 1⁄2, may be subject to a 10% federal income tax penalty.

Guarantees and payment of lifetime income are contingent on the claims paying ability of the issuing insurance company.

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Create Your Own Pension with a Fixed Annuity

Remember when pensions were part of every job and every retiree had one? Pensions were great; they paid the pensioner a fixed sum each month for his or her entire life and in most cases, at least a portion was paid to the surviving spouse at death. While pensions may be a thing of the past, the concept of a qualified retirement benefit that pays a guaranteed monthly amount for life is not. Instead of a company pension, they now take the form of self-funded immediate fixed annuities.

Immediate fixed annuities may as well be a distant cousin to pensions in the way that they provide and guarantee a retirement benefit. Some of the similarities include:

• A guaranteed monthly payment for the life of the annuitant, regardless of the actual growth of the underlying principal.
• Optional death benefit for surviving spouse – for a smaller monthly payout, if the annuitant dies before he or she has received enough payments to equal a return of principal, their beneficiaries will continuing receiving funds.
• Annuities, like pensions, offer a low-risk, guaranteed return. While this return may not be as substantial as that of more high risk investments, it is perfect for conservative retirement planning.

While many aspects of the two retirement benefits are similar there are also many differences. The most important difference between the two is that an annuity is self-funded whereas a traditional pension is funded by the pensioner’s employer. This difference introduces a number of considerations that you must make before you buy an annuity-considerations that would not matter in an employer-sponsored plan, like:

• Because annuities guarantee you a certain payout based on the original contribution, you generally can’t remove additional funds after you’ve purchased the annuity. That means that if you put your life’s savings into an immediate annuity you may no longer have access to the funds in the event of an emergency. Now there are some newer products on the market that do offer increased access to funds, but you usually give up something in return such as a lower monthly payout.
• If you do have access to the funds and you remove a lump sum there will be surrender charges imposed. This could not only negate any interest growth you’ve experienced but could cut into your principal and will reduce the monthly income paid out by the annuity.
• Your heirs will generally not inherit any of the remaining annuity value after your death. While this may not be a concern in an employer-sponsored pension, it should be considered when making a contribution to a straight life immediate annuity.

If the concept of an annuity for funding retirement benefits appeals to you talk then call me today about the many flexible annuity products available. You may find that while a straight life immediate annuity does not fit your needs, a joint and last survivor or period certain annuity does.

Liquidated earnings are subject to ordinary income tax, may be subject to surrender charges and, if taken prior to age 59 1/2, may be subject to a 10% federal income tax penalty.

Guarantees and payment of lifetime income are contingent on the claims paying ability of the issuing insurance company.

Tags: Annuitant, Beneficiaries, Company Pension, Death Benefit, Distant Cousin, Fixed Annuity, Guarantee, High Risk, Immediate Annuities, Immediate Annuity, Immediate Fixed Annuities, Job, Low Risk, Pensioner, Pensions, Retirement Benefit, Retirement Benefits, Retirement Planning, Risk Investments, Traditional Pension