Evan R. Guido
If you participate in a traditional pension plan (known as a defined benefit plan) with your employer, you may receive monthly benefits from the plan after you retire. These benefits are generally based on your age at retirement, as well as your years of service and your average earnings with the company.
Depending on your plan's provisions, you may have more than one payout option to choose from. You want to select an option that will provide you with sufficient retirement income. In addition, if you are married, you want to be sure that your spouse will have sufficient income in the event that he or she outlives you.
When you retire, a defined benefit plan must offer you and your spouse a joint and survivor annuity. If your spouse consents in writing, you can generally decline the joint and survivor annuity and elect a single-life annuity instead. Some defined contribution plans offer similar options, so consult your plan administrator or benefits department if you participate in one of these plans.
With a joint and survivor annuity, payments continue as long as either you or your spouse is alive. When one spouse dies, the benefits paid to the surviving spouse generally cannot be less than 50 percent (or more than 100 percent) of the joint benefits. By contrast, with a single-life annuity, payments last for your lifetime and cease upon your death. For example, if you received one payment after retirement and then died, the single-life annuity would provide no further payments from your pension. Your spouse would receive nothing.
So why would you choose a single-life annuity knowing that payments will stop at your death? One reason is that the single-life annuity generally pays a larger monthly benefit than the joint and survivor annuity. This is because the payments are designed to last for a smaller number of years (i.e., one life expectancy instead of two). Retirees who want to maximize their monthly income sometimes choose the single-life annuity for this reason.
The retiree can then use the additional income to purchase life insurance with his or her spouse as the beneficiary, thereby protecting the spouse's financial future. This strategy, commonly called pension "maximization" using life insurance, may be appropriate for you.
Be sure to seek qualified professional advice, since choosing a pension payout option and life insurance coverage can be complex and will impact both your financial future and your spouse's.
Next week: Factors to consider when purchasing life insurance.
About Evan:
Evan heads a wealth management team at Baird in Sarasota, FL focused on retirement
planning. Evan entered the investment business in 2002. His team holds a series of
educational workshops in the community and is involved with numerous clubs and
charitable organizations in the community. Evan was born in St. Petersburg Florida,
attended the University of Alaska Anchorage and has 3 beautiful children with his wife
Evan Guido is a Financial Advisor with Robert W. Baird & Co. The content of this article was produced and provided by Broadridge Investor Communication Solutions, Inc. Copyright 2015. Baird does not offer tax or legal advice.
Evan R. Guido
Director, The Evan Guido Group, Retirement Planning & Portfolio Management
One Sarasota Tower, Suite 1200
Two North Tamiami Trail
Sarasota, FL 34236-4702
941-906-2829 Direct Line
888 366-6603 Toll Free
941 366-6193 Fax
EVANGUIDOGROUP.com
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