Page 31 - Know-So Money, Hope-So Money, Retirement Secrets Wall Street Doesn't Want You to Know

Rescue Your Pension

As mentioned in the introduction, pensions provide a selection of

choices, none of which are particularly optimal. To recap, they are: a)
take a lump sum, thereby eliminating all the risk mitigation the pension
provides, b) take a life-only payout, eliminating any benefit for your
spouse should you die first, c) take a joint and survivor benefit,
resulting in a reduced payment that could end costing you thousands for
a benefit you never receive, and d) in any but the lump-sum choice,

losing the benefit for the family should you both die.

How do you fix this? First, it’s important to look at the various
components and understand how they work. Starting with the single-life
payout, this is the maximum structured, lifetime benefit you can get
from the pension. In other words, the core value of the pension:

guaranteed income you cannot outlive. This is the Holy Grail of
retirement. So, start by maximizing this. Elect the single-life payout.

“But wait,” I can hear you thinking. “If I do that, and I die before my
spouse, she will be left high and dry!” Yes, that’s true. So, now,
understand what the joint and survivor (two-life) option represents.

What’s involved with that option? A reduction in income (a cost), for
continued income for your spouse if you die (benefit). Looking a bit
deeper, when does the benefit occur? Right, when you die. One might
call that a “death benefit.” What type of product can you think of that
provides a death benefit for a cost? Life insurance!

Here’s what you do. You take the full payout, say $2,000 a month.
Compare that to the reduced payout for joint and survivor, say, $1,800
per month. Now, go to your insurance calculator and see how much
permanent life insurance you can purchase for $2,400 per year.

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