What is pension maximization? Pension maximization is the process of ensuring that you receive the most pension income possible. What most people who are eligible for a pension do not realize is that when they retire, they are given several pension income options from which to choose. The first option is to receive the largest pension income BUT LEAVE NO SURVIVOR (SPOUSE) INCOME in the event of death. The second and subsequent options are to receive a reduced pension income but DO LEAVE A SURVIVOR (SPOUSE) INCOME. The second option is the most popular for obvious reasons.

The following illustration shows an example set of pension income options that were available for a retiree. Not all pensions will have the exact factors of calculation but this example is fairly representative of pension options.

Option 2 is an excellent way to provide security for your spouse in the event of death. However, the disadvantages are: 1. If the spouse dies first, the reduced pension income will never increase for the pensioner; 2. If the pensioner remarries, the new spouse will not be eligible for any survivor benefit because he/she was not part of the original contract; and 3. The principal used to establish the plan is locked in and can not be accessed or used for collateral.

What is the alternative to option 2? The best alternative is to choose option 1. To provide an ongoing income for the spouse in the event of death, a PERMANENT LIFE INSURANCE PLAN should be purchased (the earlier you start, the cheaper the premium). The life insurance plan provides equity which can provide emergency loans or be used as collateral. In the event that the spouse dies first, the pensioner still receives the maximum pension benefit and is free to name a new beneficiary for the life insurance policy. In most instances, the cost of such a policy would be less than the difference that exists between a "maximum pension" ($30,000.00 in the example) and the "joint survivor pension" ($27,000 in the example) which was $3,000.00. The following shows how pension maximization can be achieved. This method offers better value and more flexibility: