Use Life Insurance to Complement Your Pension Payout Plan

Ensuring the best possible income for you and your spouse during retirement until you both die is important. You can use life insurance to enhance your company pension payout plan choices. Here's a couple of ways to approach ensuring an income for both your lives.

Choosing a company pension payout option that's best for you and your wife can be tricky. You need to explore a few approaches to see what suits you best. If you have a life insurance policy on yourself, you can use it to produce income in retirement.

At retirement, your pension plan may present several options. You may be able to take it as a lump sum or as an annuity for life. The annuity is the pension payout. Assume you're interested in taking an annuity.

Let's also assume you're married. I'll explore a couple of pension payout options you might consider and how you may integrate them with a life insurance approach.

-To keep the numbers simple lets say you have to choose between two monthly payout options:

* Option 1 - take $1000 per month but no payments to go to your spouse when you die, or

* Option 2 - take $800 per month while you live, with $400 per month paid to your spouse after your death.

If you're about 65, statistically you have some 20 years of remaining life expectancy. Your wife may be a few years younger than you - and statistically will live to an older age than you will. The $200 per month more that you receive in Option 1 compared to Option 2 can add up over those 20 years. So what option should you take?

One approach would be to choose Option 1 for its higher payout during your life. If you own a life insurance policy already, you can make your wife the beneficiary. At your death, she can use the death benefit to invest for income for herself- or buy an annuity.

If you don't have a policy, then you can still take Option 1 and use the extra $200 to buy life insurance with her as beneficiary. But buying life insurance late in life may be too costly.

On the other hand, if you do have some other source of income or assets - but not a lot - that can supplement your pension income, you may choose Option 2. This way you'll take the $800 per month income for now but assure your wife will have $400 per month when you die. You'll have to decide how much you should save of your other income or assets to assure that she'll have enough help her get buy on her lower income when you die.

Whatever option you choose, you should nurture a trusted relationship with your son or daughter to help manage money issues when you, or your spouse, become too old to do it responsibly.

at 6:09 PM
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