Don't choose the most expensive life insurance policy you may ever buy. In this episode,
I'm going to answer the question, "Should I choose a survivor benefit on my pension?" A lot of people
think about this. And sometimes they make a rapid decision without really understanding
what they're doing at retirement when they choose a survivor benefit. Get ready to learn the truth.
So, my name's Doug Andrew and as a retirement planning specialist for more than 4 and a half
decades, I've helped many, many people who had defined-benefit pensions. What's that? Well,
this would be like a school teacher who maybe taught school for 30 years in their state. And so,
most states have defined-benefit pensions. Those are fewer and far between. tTey've been replaced
by defined contribution plan. A defined benefit pension came around clear back in the industrial
revolution. That if you worked for you know a Ford motor company or Harley Davidson or what
have you. When you retired, you would have a defined amount of retirement benefit coming to
you based upon your years of service. So, for example, a school teacher may get 2%
for every year of service. So, if they toss school 30 years, that's 2 times 30 is 60
of the average paycheck. They earned or took home the last 5 years they taught school. And so, you
know, if they were making 5,000 a month, they're going to get 3,000 a month in a defined benefit.
And there's usually a cost of living increase. That's what a defined benefit pension is. But at
retirement, what happens is you sit down and the counselor goes, "Now, you can get 3,000 a month.
But if you'll just take 2,400 a month, that will mean that you can share this
retirement benefit with your spouse if you happen to die first and that's a survivor benefit." You
give up some of your income in order to make sure that if you die before your spouse does,
your spouse will continue to get that income for as long as they live. Sounds good,
right? It's not very good when you analyze it. So, get ready to understand this better.
So, I would say the following scenario usually plays out when a lot of people who have pensions
are about to retire and they're sitting down with the counselor. It goes something like this: "Well,
Jim, you're approaching retirement. And so you have some choices to make. You have some options."
Now, you could take a lump sum. Sometimes they let you take a lump sum and and most of the time, when
they offer that, I would recommend considering taking the lump sum instead of the guaranteed
income for life." That can be calculated and i could show you how a lump sum could probably
generate as much or more income for as long as you live and your spouse lives and then still leave
behind plenty to your children where most pensions would not do that. But sometimes they don't offer
a lump sum distribution. So, the conversation goes now you have the equivalent of a 500,000-dollar
asset here. Or it might be a million or whatever. Because what they may do is you know, your pension
is going to be let's say 5,000 a month, that's 60,000 a year. Now, in order to generate
60,000 a year, you would have to have an asset of $500,000 or whatever the number is. It's
easy to calculate this generating this rate of return to be able to pay you 60,000 to your L/E,
life expectancy. So, you really have like you know a 500,000 asset, let's say. Now,
I'm sure you would like to share that with your spouse and they turn and they look at your spouse.
And you go, they put you on this guilt trip "Well, yeah. Yeah, yeah. Uh,
yeah honey. I'd like to share that with you. Well, we thought so. And so, we would recommend you take
the survivor benefit option and there's usually 2 or 3. Now, instead of getting 5,000 a month,
you're only going to get 4,200 a month. It's 800 a month less. But that means that you'll get 4,200
a month for as long as you live. And when you pass away, your spouse will continue to get 4,200
a month. Or you can get 4,500 a month and your spouse will get half that for as long as he or she
lives. Does that sound good?" And they nod their head up and down and you go, "Oh, okay." Yeah. So,
you think, "Golly. that sounds pretty good. My spouse will get it." Well, what they may not
tell you is what if your spouse dies first? Sorry, if you get remarried, you cannot name your next
spouse as a beneficiary to receive that. You must die first. If your spouse dies first, then
you cannot name a new beneficiary your children what if you uh selected that option. And you died
91 days after retiring. It's gone. Now, people say, "Well, if you choose the no survivor option,
it's going to..." Well, yeah, but if if the husband and wife die in a common disaster, it's
gone. So, what's better? What they don't realize is that when they choose the survivor option,
they are buying the most expensive life insurance policy they will ever buy. So, as I mentioned,
I think a lot of people ought to consider a lump sum payout if they offer it. A lot of
times they won't. But many, many times when the people who have your pension,
they say, "Well, you can have this much income or there may be a lump sum option." A lot of
times they don't like to tell you that. When I've done an analysis for many people, the lump sum
deposited (even after tax because you have to pay tax on that) into a max-funded insurance contract
the way i structure them can generate tax-free income equal to or sometimes greater than the
amount of pension income that they would have to take if they chose not to take a lump sum but to
take a lifetime income, with or without a survivor benefit. And so, it would behoove you to analyze,
"Golly, if I can take out a lump sum, could I have that generate the same income or greater?"
So, what's the advantage? Well, then when you pass away, you're not giving up anything. Because a
lot of pensions, when you pass away, it's done. It's gone. It stops. If you have that money, it
doesn't stop. Because where I put my serious cash what I call the Laser Fund, when I pass away, it
blossoms and transfers tax-free. A pension, it's over unless you choose the survivor option. Now,
I mentioned, if you choose the survivor option, it may be the most expensive insurance policy you
will ever buy. Why don't you just buy your own private insurance policy with the difference?
So, let's say the pension is going to give you $5,000 a month with no survivor benefit? If you
take a survivor benefit, it's only you know 4,200 a month. So, that's you're giving up 800 a month
in order to share that with your spouse if you die. But it's only if you die first. Well,
I would rather take that 800 a month and buy a life insurance policy. Do you know that 60,
65-year-old ofttimes can get a half a million, a million dollars of life insurance
for $800 a month? And so, here you've got a half a million or a million dollars of life insurance and
you are actually owning the insurance so that now when you die your spouse gets a huge
lump sum or they can take that and put that into a new insurance policy and generate as much or
more income than the survivor benefit would ever generate. And if your spouse pre-deceases you
and you get remarried, you can name a new beneficiary. You can name your children as as
contingent beneficiaries. You cannot do that with a survivor benefit. You have to die first for your
survivor to get anything. If they die first, it's over, it's done. This is why I think it behooves
you to have your own private insurance policy and fund it with the difference in what they're going
to deduct out of your pension income for that survivor benefit. Otherwise, take the lump sum
maximum fund and insurance policy. And the death benefit
will provide for your spouse whenever you do die. If you understood what I just said, if you had a
lump sum of 500,000 or a million or if that was a proceed from the life insurance, if you happen
to pass away and that's what you left behind, you put that into a maximum-funded insurance policy.
And historically, for the last 45 years I've earned average returns between 6 to 10 percent.
But when you start taking payouts, every million can generate like 80,000 a year of
tax-free income for as long as you live and still leave behind the million or whatever was in there.
So, it's far better than a defined benefit pension. So, as we connect the dots on
answering the question "Should I choose a survivor benefit on a pension?" Hopefully,
you're beginning to realize that if you choose a survivor benefit, you're actually buying the most
expensive life insurance policy you will ever buy. And you don't have the options that you would have
if you owned that life insurance policy privately. So, when you take a lump sum
and you reposition that into a max-funded indexed universal life insurance policy,
I've shared with you how you can earn tax-free income that is equal to or greater than many
pensions provide. And at the end of the day, your spouse gets to keep it going and your children...
You're not restricted to one beneficiary. And if your wife pre-deceases you or your spouse,
you can name a new beneficiary which you can't do with a pension when you select a survivor
benefit. But when you put it into an insurance policy, not only can you get tax-free income. Or
if you are taking the maximum a life only payout, take the difference. In the example I gave you,
if you can take 5,000 (let's say) for life only but when you die, it's gone. But if you
lowered it down to 4,200 or 4,000 and that provides a survivor benefit. But only for your
current spouse. Hello. You take that difference of $800 a month or $1,000 a month and put that into
a new life insurance policy you own privately. And now when you pass away, anybody that you name as a
beneficiary can own that. Whereas, with a survivor benefit, you only have one beneficiary. So,
that makes way more sense. But as you provide that additional life insurance, it's far more flexible.
In other words, when you choose a max-funded index universal life policy, you do not have to max fund
it necessarily. You can minimum fund it just for the death benefit. But if later on you had
a windfall you inherited some money or you got a lump sum from somewhere, where could you put it?
You could put it into the insurance policy and max fund it and earn predictable rates of return. See,
it is so flexible you can minimum fund it, you can maximum fund it. But it gives you choices.
When you select a survivor benefit and a pension, you're stuck. You cannot change that. If you die
sooner than later, it's pretty much the way it is. If your spouse predeceases you, it's done. It's
determined. You don't have the flexibility that your own life insurance policy can provide. So,
don't buy the most expensive life insurance policy you will ever, ever buy. If I frame it like that,
you would never make that choice. So, how can you learn more? If this has piqued interest,
I would love to gift you a free copy of my most recent best-selling 300-page book, The Laser Fund
which is actually 2 books in one. This book here is about 200 pages comprised of 14 chapters with
all kinds of charts and graphs and explanations of how to diversify and create the foundation for a
tax-free retirement. Now, if you learn more right brain with stories and examples, you flip the book
over and read this one. This is about 100 pages 12 chapters with 62 chicken soup for the financial
soul stories like the one I just told you. If you like to use your whole brain, I would recommend
you read both books. But it's 300 pages. This has been flying off of our warehouse shelves. I'll
tell you what. I will pay for the book. You go to laserfund... LASeRfund.com. It's on the screen
here. And claim your free copy. You contribute a nominal amount towards the shipping and handling.
I'll cover the rest of that cost. And I will send out a book to you. There's also options
there for you to listen and learn and watch and learn. But here's to your brighter future.