People who are working in an organization that provides pension after they retire from their employment need to choose the right option retirement plan. You may either commute part of your pension or consider protection of your spouse. You can also choose to maximize your pension by using your life insurance. You can secure your old age by taking some policy at much cheap premium.
How a Pension Plan Works?
Let’s try to understand how the pension amount is decided. It is based on the fixed amount that employer deposited in the pension fund as long you were working in the organization. After you retire, all these deposits become a big corpus where you can have following three options for getting your pension.
- You can opt pension for the rest of your life but with no survivor benefit. This means when the person dies the balance amount left in the pension fund also dies.
- Take reduced pension and add spousal benefit so that after the death of the pensioner the spouse will continue to get pension.
- With more reduced pension, you can take lump sum amount
Each of these options will have their individual pros and cons.
No Pension Option
Many employers in the USA provide their retired employee the option to take full lump sum amount, so as to use this money to invest and get the necessary financial return from it. By doing this employer transfers the burden of managing the pension, on the individual.
Maximization of the Pension
Taking reduced amount of pension to protect the interest of spouse can be a little bitter pill to swallow for many. Once you make your choice then you cannot change your option later. In case your spouse dies early or you get divorced from your spouse then you are at great loss. Therefore instead of accepting reduced pension to get spouse benefit you can prefer to take full pension and you can use your insurance for spousal benefit. Life insurance can provide almost same peace of mind that your pension offers and thus you can enjoy your full pension benefits and at the same time the interest of your spouse also gets protected.
Advantage of Pension Maximization
Many couple prefer to take benefit of pension maximization instead of choosing the option for spousal benefits.
- Life insurance will provide 100 per cent tax benefit whereas the income in the form of pension is subjected to income tax.
- Life insurance also provides lump sum amount after the death where as if you prefer to get lump sum amount from pension fund then you will get much reduced amount.
- Money that is deposited with insurance will be given to the next of kin after the death whereas pension with spousal benefit becomes void after her death.
- Life insurance has a flexibility to change your options however in case of pension there is no option for changing it after you have made.
Are you retiring with a pension, you should read pension maximization life insurance for making a better decision!