Many employees of school districts across the Island are approaching retirement age and may not be aware of how to maximize their pension benefits. Some may not realize that with the right kind of planning, they may be able to retire sooner than they think.
Generally, retirees are offered a single pension plan, which provides the pension payment for as long as the retiree lives and results in a higher pension benefit. That means the pension payments stop once the retiree dies. If the retiree’s pension is going to be the main source of income, then it becomes more important that proper safeguards are in place to ensure the surviving family members are cared for. Some retirees then opt to take a pension payment that provides a death benefit should they pass away. But if the retiree outlives their spouse, then the retiree is stuck with a reduced pension payment. This is where a life insurance plan can come into play.
A permanent life insurance policy can be used to cover the difference between a single pension benefit and a pension with a death benefit. This plan is generally helpful if the spouse has their own income, but it can still work since the single pension payment is much higher, allowing retirees to earn and then save more money.
There are, however, many important factors to think about before choosing this strategy: life insurance premiums are linked to your health condition and lifestyle, and depending on how you fare, your premiums may be quite expensive if you are considered to be in a higher risk category. Shopping around for a life insurance policy is critical and can significantly impact financial planning for retirement.
Here are some tips to consider:
- Planning ahead can provide more options. Starting a life insurance plan when you are younger can provide a source of revenue during the retirement years as cash can be taken from the plan. If you are lucky to live longer, you can start to take out the cash values from the insurance plan to counter inflation.
- Make sure that the insurance value is sufficient to cover your needs as well as your family.
- Do the math and assess whether the cost of the premiums makes sense as compared with taking a reduced pension payment.
- Those with chronic health problems or whose spouse is much younger may be better off by taking a reduction in pension payments.
- Maximizing your pension requires planning, and if done correctly, you can reap the benefit over the years, and hopefully have a long and comfortable retirement.
For more information, contact Jim McTighe at firstname.lastname@example.org | (516) 408-5626