Pension Max

The Pension Maximization calculator provides a powerful illustration for clients taking a higher income option from a defined benefit plan and purchasing life insurance. The life insurance proceeds are used to provide their spouse (or other beneficiary) an income in lieu of selecting a lower income option for the client that provides the spouse an income. The steps for Pension Max are:


1.A client takes a higher income option, and

2.The client purchases life insurance to provide income for a surviving spouse.

When the client passes away:

3.The spouse invests the life insurance proceeds conservatively to provide himself/herself an income stream for the remainder of life.

If the retirement plan has additional benefits to the spouse besides income (such as health insurance), TRAK allows for the client to take the second highest income option (having a smaller spouse benefit). Thus, providing a higher level of income to the spouse than the option would have otherwise provided.  If taking a reduced annuity option and replacing a reduce option, those proceeds would be added to insurance proceeds (plus interest gained and after taxes removed) to achieve the needed after tax income for the option being replaced.

The Pension Max calculation assumes two things:

1.The client dies soon after retiring, and

2.The life insurance proceeds are used to provide income to the spouse.

The Pension Max stand alone calculator extends the functionality of the integrated Pension Max tool (in the Quick Gap and Gap Analysis calculators) by allowing for term insurance to be purchased (in addition to a whole life policy) thereby potentially reducing the cost of the Pension Max option. Additionally, the Pension Max calculator allows for setting the spouse's life expectancy.

The Pension Max calculator can be divided into Data Entry and Calculations. This is followed by an explanation of how the cash flow works.

Note:The Calculations tab will be enabled only when there are multiple options for the defined benefit plan that have income that can be calculated for a pension max illustration.