Pension Max Idea: Unions, State EE’s, Teachers have pensions

March 6, 2023

2 minute read – A pension plan, unlike a 401(k), is where a retiree chooses the maximum benefit from their pension, during the final months of their active employment. The pension maximization idea is where a portion of it is earmarked for a life insurance policy premium. This life insurance policy then creates the “survivor” benefit, and potentially more, once the retiring pension participant (employee) passes.

The pension maximization strategy is a dying breed since qualified pension plans have become scarce with the rise of defined contributions plans, like 401(k)s. However, for those in their pre-retirement years now, using a pension max is still a very real possibility as you age forge your retirement plan. The method making the most out of the pension a retiree will receive based on his choice of the type of retirement benefit he will get.

It is not without some financial risk, requiring a thorough analysis before electing this irreversible decision for you and your spouse.

This strategy offers couples several advantages:

The pair receives the maximum benefit which they can enjoy together for the rest of their lives. As long as they purchased enough coverage, the spouse will continue to live at the same economic level as she /he has prior to spouse’s passing. Both the couple and the single spouse will maximize their income. With the purchase of a permanent life insurance policy, (i.e., Whole Life, Universal Life, Index Universal Life), the couple has the benefits of this policy:

  1. They can take out loans against it.
  2. The cash value will accumulate.
  3. They will also have the added income from the annual dividends, assuming they are paid.


If the retiree should die, the spouse has immediate funds available from the life insurance benefit to pay expenses and debts, while replacing the nest egg for future retirement funds. The spouse will have to pay income tax if she receives a pension benefit after the retiree’s death.

On the other hand, if her income replacement comes from a life insurance benefit, she will get these funds tax-free.

If the coverage is adequate, they’ll be able to build a guaranteed income for the rest of her life, which meets or exceeds what her spouse was receiving.

Risk & Rewards:

Pension maximization carries risks if the retiree fails to do the necessary pre-planning. Much of it exists from not crunching the numbers.

The strategy only makes sense if it does indeed maximize the income of both the retiree and the surviving spouse. Likewise, the insurance coverage on the retiree must be adequate to meet the future financial needs.

Of course, it is essential the surviving spouse maintains the premiums on the life insurance to prevent it from lapsing. This means she/he must have adequate resources to cover it, which usually are a portion of the pension benefit. It’s worth noting drawing from the policy before it pays out will lessen the death benefit when the time comes. It’s crucial the retiree determines whether his choice of benefit affects his spouse’s medical coverage.

Some retirement plans may stipulate eligibility requirements for the surviving spouse to continue to receive benefits. The retiree should determine these stipulations prior to making a choice of his benefit.


This strategy has many variables which need to be considered before implementing this plan. Factors such as the pension benefit requirement, the health of the retiree, and current financial situation all play a role in determining if it’s an appropriate choice. To truly maximize one’s pension, the individual should consult an insurance advisor experienced in this sort of planning for guidance.

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