Life insurance is not only for final expenses.It may also be an integral part of your retirement planning.
Consider the following Scenario: Antollin Reiber AJ
Employee, who is married, works for Company A and is getting ready to retire. Employee will receive a monthly pension from Company A upon retiring.
Question:
Should employee elect a single lifetime benefit or a joint & survivor benefit?
Discussion:
When you retire, you must choose the type of benefit that you want. Typically, there are two options.
1) A Single Life Benefit refers to monthly payments based only on the retiree's expected lifetime. The benefits stop at the death of said retiree.
2) A Joint and Survivor Benefit refers to monthly payments based on both spouse’s lifetimes. If the retiree dies before the spouse, the spouse will continue to receive a percentage of the original monthly amount.
With the Joint and Survivor Benefit, you and your spouse will receive lower monthly benefits than the Single Life Benefit. But, it guarantees a steady stream of income for two lifetimes – yours and your spouse's
If you choose the Single Life Benefit option, your spouse will be required to sign a legally binding Spousal Consent Form or Waiver. Once signed, the decision is final and cannot be changed.
You should always consult with an expert and with the benefits coordinator / pension plan administrator before deciding on which benefit option to select.
Additional Considerations:
If you choose the Single Life Benefit, you and your spouse will receive a higher monthly benefit than if you choose the Joint and Survivor Benefit. Here, if the retiree is the first to die, then the benefit stops and the surviving spouse will NOT receive any continuing monthly benefits.
If the pension includes retiree health benefits, they may end for the spouse when the retiree dies 1st under the Single Life Benefit option.
If you choose the Joint and Survivor Benefit you and your spouse will receive a lower monthly benefit and if the spouse dies first, then the retiree will continue to receive that lower monthly amount and the percentage that was being withheld by the plan administrator will be lost.
According to the latest data compiled by the CDC, the average life expectancy for a male is 76.4 years and for a female is 81.2 years.
Using this data, consider the following example . . .
Husband and wife are the same age. Husband retires at age 66. If husband and wife elect a Single Life Benefit., they will receive $2000 per month which will end at husband's death. If they elect a Joint and Survivor Benefit, they will receive $1500 per month. If husband dies first, wife will continue to receive $750 per month.
Using the above numbers, consider the following scenarios . . .
Scenario 1 -
Single Life Benefit is chosen.
The couple will receive $249,600 until husband's death at age 76.4.
Wife will not receive any additional benefits during her remaining projected 4.8 years of life.
Calculations
Husband's avg life expectancy 76.4 yrs
Subtract Husband's retirement age -66.0 yrs
Retirement years 10.4 yrs
Joint retirement received 10.4 yrs x 12 mos/yr x $2000/mo = $249,600.
Total Amount Received = $249,600
Scenario 2 -
Joint and Survivor Benefit is chosen.
The couple will receive $187,200 until husband's death at age 76.4. Wife will receive a total of $43,200 until her death at age 81.2.
Calculations
Husband's avg life expectancy 76.4 yrs
Subtract Husband's retirement age -66.0 yrs
Retirement years 10.4 yrs
Wife's avg life expectancy 81.2 yrs
Length of Time Wife Survives Husband 4.8 yrs
Joint Retirement 10.4 yrs x 12 mos/yr x $1500/mo = $187,200.
Plus (+)
Length of Time Wife Survives Husband 4.8 yrs x 12 mos/yr × $750/mo = $43,200
Total Amount Received = $230,400
BUT CONSIDER THIS . . .
Scenario 3 -
If the couple chooses the Single Life Benefit of $2000 per month instead of the Joint and Survivor Benefit of $1500 per month, Husband may purchase a life insurance policy with a $128,000 death benefit with the $500 per month difference. In this scenario, the couple would receive $187,200 until husband's death at age 76.4 and then wife would receive the $128,000 death benefit from husband's life insurance policy.
Calculations
Husband's avg life expectancy 76.4 yrs
Subtract Husband's retirement age -66.0 yrs
Retirement years 10.4 yrs
Joint Retirement 10.4 yrs x 12 mos/yr x $1500/mo = $187,200.
Wife's avg life expectancy 81.2 yrs
Length of Time Wife Survives Husband 4.8 yrs
Life insurance proceeds to wife at the time of husband's death = $128,000
Total Amount Received = $315,200
Comparing the above 3 options . . .
Single Life Benefit -
Total amount received during retirement = $249,600
Total amount received during retirement = $249,600
Joint and Survivor Benefit -
Total amount received during retirement = $230,400
Total amount received during retirement = $230,400
*Single Life Benefit with Life Insurance -
Total amount received during retirement = $315,200
Total amount received during retirement = $315,200
Summary: Antollin Reiber AJ Reiber Antollin Reiber AJ Reiber Antollin Reiber AJ Reiber
The benefit of incorporating life insurance into your retirement plan can have a substantial impact on your continuing spousal income and support upon your death and is something to consider.
Please contact me to discuss how life insurance may be an integral part of your retirement planning.
Antolin Reiber is a licensed life insurance agent and specializes in the retirement areas of life insurance and long term care planning. Contact me today at 317-652-1717 or by email at antolin.reiber@bankers.com
AJ Reiber
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*Your ability to obtain life insurance is contingent in part to your ability to health qualify. Always consult with an expert prior to making any financial decisions regarding your retirement.
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