Pension maximization

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Sandy Botkin
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Do you qualify for a pension from your employer? Is a reduced pension option available to your spouse in case you die? WAIT: Read over this post very carefully. Although taking a reduce pension in order to get your spouse payments for life seems like the right choice, it usually isn’t! Read over the comments for more information. This is a CRUCIAL post that you should be telling everyone you know

Here is the problem,which incidentally happened to my dad. My father was given a choice at retirement to either get his full pension or take 2/3 of his pension with a guaranteed payment to my mom. This was an irrevocable election. A few years later my mom died and my dad was stuck with this reduced pension forever!

So what should you do: the answer is to do some planning about 4-5 years before retirement. You should take out a life insurance policy, assuming you are insurable. This policy should be high enough to to generate enough income to equal the pension. This way, if the spouse predeceases you, you can cancel the policy and keep the cash and keep your full pension. If you predecease your spouse, the spouse will get a huge life insurance benefit, tax free, and get income for life!Moreover, if you do this early enough, the cost of the insurance should be less than the reduction in the pension that you would have taken

Two final thoughts. First the insurance should probably be permanent insurance and not term, even though I despise permanent insurance for most people. Secondly, in trying to figure out how much insurance you should have, take the income that you want to provide your spouse and divide by .03. Thus, if you want them to receive $45000, plus yearly cost of living for inflation, you would take out $1,500,000 worth of insurance.

This is a CRUCIAL post folks. In addition to really understanding what I said, tell everyone that you know that might be impacted by this such as your parents. Finally, before insurance is taken out, make sure that if an reduced pension election is made, the election is irrevocable. Some employers will provide the full pension if the spouse predeceases the retiree. Always Check this out.

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