Ever hear of "pension maximization"? Can one do this?

[Guest amfam2]

Participant is retiring and received a quote for an immediate annuity of $3,500 for life only or $3,000 for joint & survivor (w/his wife as benef.). What participant wants to do is elect the $3,500 life only, but then direct $500 of each monthly payment towards the purchase of a life insurance contract which would provide the wife with survivorship income in the event of death of the participant. The term the insurance agent is using is "pension maximization". I am not finding much information in my usual reference manuals or internet web sites regarding a transaction such as this. My question: can this be done?

[david rigby]

Sure. This is two separate transactions.

First, the retiree is electing the life annuity.

Second, the retiree is spending $X per month to buy life insurance.

Is it a good idea? Much different question, and one that cannot be answered here. Many factors, such as health of retiree, health of spouse, other financial issues.

[jlf]

Pax is absolutely right......moreover the cost of electing a survivorship option, $500 in this case, is paid with gross dollars as opposed to the cost of a life insurance policy which is paid with after taxed dollars.

Best wishes,

Joel L. Frank

[MGB]

When this idea first surfaced about 15 years ago, I was involved with a number of analyses of different insurance products being sold like this.

None of them were worth it. However, certain situations would make it worth it, but they would not be able to buy the insurance due to underwriting.

Remember, in order for the insurance to be sold, there is overhead (sales expense, administration, profits, commissions). None of these are involved in the qualified plan payments. Also, most J&S factors are subsidized within the plan in relation to the cost of insurance producing the same amounts.