A 5-Step Guide to Making Pension Maximization Work for You


Pension maximization with life insurance might sound like a daunting strategy to piece together, but it’s certainly doable, especially with the help of an experienced life insurance agent.

If you are due to receive a pension from your employer within the next few years, don’t seal the deal until you read this article!

Many people accept a reduced pension payout in order to get the spousal or “survivor” benefit when they could have instead taken their full pension and provided even better protection for their spouse with life insurance. Don’t hide from life insurance just because it seems complicated; using life insurance for pension maximization can dramatically enhance your life during retirement, not to mention provide priceless peace of mind.

In this article, we’ll provide a short introduction to pension maximization, followed by an easy, step-by-step guide for exploring your own pension maximization strategy.

Quick Article Guide

1. First, Here’s How a Pension Works
2. Now, Here’s How Pension Maximization Works
3. Step 1: Start Early
4. Step 2: Do Some Basic Math (Nothing Exhaustive)
5. Step 3: Talk to an Agent
6. Step 4: Submit an Application for Life Insurance
7. Step 5: Compare Side by Side and Make Your Decision
8. Additional Benefits of Pension Maximization
9. Get Started

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First, Here’s How a Pension Works

Most pension plans allow you to choose between several different elections.

  • First, you can accept the full pension over your entire lifetime with no survivor benefit. This means that when you die, pension payments stop, but you’ll receive a larger pension payout each month.
  • You can instead opt for a smaller payout (typically 35-50% less) that includes a surviving spouse benefit. Under this option, your spouse will continue receiving your pension income after you die.
  • Regardless of whether you choose the single or spousal benefit, you can also request a reduced payout delivered as a single lump sum rather than ongoing payments.

Now, Here’s How Pension Maximization Works

So, how can life insurance help you “maximize” your pension?

Many people find that it makes more sense for them to accept their full pension and seek protection for their spouse through life insurance rather than with the reduced survivor benefit of their pension.

  • Let’s say your full pension pays $4,500 per month.
  • Taking the spousal benefit might drop your payout to $3,700 per month.
  • In this example, the spousal benefit will end up costing you $800 per month or $9,600 annually.
  • Life insurance, on the other hand, can provide the same peace of mind and perhaps even a larger payout for, say, $200 per month.
  • This means that by accepting your full $4,500 per month pension and buying life insurance separately, you are putting $600 more in your pocket each month, or $7,200 per year, compared to the spousal benefit.

It’s a beautiful thing when the math adds up in your favor like this—and it happens quite often! But where do you begin?

Step 1: Start Early

Our most important bit of advice regarding pension maximization is to start early. You want to have at least 90 days to shop for life insurance, take a medical exam, compare rates, and let the approval process run its course.

Six months to a year out would be even better. If you run right up against your pension deadline, things can become awfully nerve-racking considering the high stakes of protecting your spouse. By starting the process early, you won’t be forced to make a decision about your retirement that you don’t feel fully comfortable with.

Step 2: Do Some Basic Math (Nothing Exhaustive)

You get a feel for the numbers game first by calculating how much life insurance you need to fully protect your spouse.

For example, let’s assume you and your wife are in your early sixties and still have 8 years left on your mortgage with a $150,000 balance. Without the mortgage payment, your wife would need about $2,000 per month to survive and pay the bills.

In this situation a 10-year term policy for $250,000 to $300,000 would work well. The policy would allow her to pay the off the balance of the mortgage while providing her with an ample amount of income replacement. The expectation is that after 10 years your wife will be self-insured with the mortgage paid off, and collecting Social Security Income.

If you decide that you need coverage for the rest of your life, no problem. We can also offer you a policy that will lock in an affordable rate for your coverage until you reach the age of 90 or later.

Once you understand how much protection you need , you can get ballpark figures for life insurance rates and compare the cost difference between full pension + life insurance vs. spousal benefit with no life insurance. But you’re not there yet!

Step 3: Talk to an Agent

Pension maximization isn’t rocket science, but its best left to an experienced life insurance agent. Not only will they be able to guide you through the process, they will also manage your application so that everything moves as quickly as possible. For those who value both their own time and the expertise of professionals, an agent is the way to go. Make sure you work with an independent agent who can shop multiple carriers to find you the best rates.

Every life insurance company has their own rates and guidelines for approval. It doesn’t matter if you’re in excellent health, or if you have some health issues, shopping the market will save you money. For this reason, we always recommend speaking to an agent representing more than one insurance company.

Step 4: Submit an Application for Life Insurance

Once you’ve found a policy that meets your needs, you should apply for the coverage, even if you’re not sure you want to go through with life insurance for pension maximization.

There is no cost to apply for life insurance and our shopping services are free. Having an application approved does not automatically lock you into a policy. Once you’re approved, well send you an approved policy to review with no money due and no obligation.

If you decide to accept coverage, you’ll have 30 days to review your policy and send in a payment. This period is also known as your “right to a free look” and during this time you can also adjust the amount of coverage you accept if your needs have changed. If you decide not to accept your approved life insurance policy, no problem.

If you decide to change the amount of life insurance you accept, we’ll let you insurance company know and they’ll send you a new policy to review. You only begin paying premiums if you decide to accept your policy. When you work with an independent agency like JRC, you can test the waters, with no obligation or fees should you ultimately decide not to buy life insurance.

Step 5: Compare Side by Side and Make Your Decision

At this point, the majority of the work is done and making your choice between spousal benefit and life insurance is relatively easy—simply pick the one that yields the best income while you’re alive and the best income protection if you die.

You’ve probably heard the saying, a bird in the hand is better than two in the bush. This saying is especially true with life insurance. Do not make a final decision about your pension that is based off of a few ball park quotes you’ve received online or from an agent.

You should not finalize your pension until you have received your approval for life insurance. This is another reason we advise our clients to start the application process early. Life insurance can take up to 90 days to get approved, especially if you have extensive medical records.

Additional Benefits of Pension Maximization

In addition to helping you make the most of the pension you’ve worked so hard to earn, life insurance also offers several other benefits over the survivor benefit in a pension:

  • A life insurance benefit is 100% tax-free, while pension income is subject to income tax. (Remember this when comparing the two. For example, if you have a $100,000 pension spousal benefit and a $100,000 life insurance death benefit side by side, the pension payout becomes more like $70,000 after taxes, while the life insurance payout holds at $100,000.)
  • A life insurance death benefit is paid as a lump sum. The only way to get a lump sum with a pension is to accept a smaller payout.
  • Money from life insurance is generational. A pension with a spousal benefit is void after the spouse dies.
  • You have more leniency to adjust or cancel your life insurance coverage if your needs change. There is no going back on your pension decision.

Get Started

Just because we’ve provided this guide doesn’t mean you need to figure out pension maximization for yourself. JRC Insurance has helped countless retirees-to-be execute a pension maximization strategy tailored to their needs, with no stress or commission fees.

That’s right! You don’t pay a dime for our services. And, unlike agents in busy call centers with daily quotas, we’re committed to examining all of your possible options across 40+ top-rated carriers.

If you want to learn more about pension maximization, or if you need an accurate life insurance quote, give us a call toll-free at 855-247-9555. You can also click the free quote button below to start your road to pension maximization!

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Cliff Pendell

VP of Marketing at JRC Insurance Group
Cliff is a licensed life insurance agent and one of the owners of JRC Insurance Group. He has helped thousands of families of businesses with their life insurance needs since 2012 and specializes with applicants who are less than perfect health. In his spare time he enjoys spending time with family, traveling, and the great outdoors.
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