Joint-and-Survivor Plan or Life Insurance: Which is Best for You?

Choosing a payment plan at retirement can be a very difficult decision and PEERS cannot advise you on which option to choose. It is our goal to provide you with as much information as possible so you can make the best possible choices regarding your retirement.

There are advantages and disadvantages associated with all the payment plans that PEERS offers. Carefully consider your own personal circumstances, such as your age and the age of your beneficiary, longevity, financial obligations, your health and that of your beneficiaries, income from other sources, and your spouse’s and/or other dependent’s needs.

Always discuss your retirement plans with your spouse and/or other family members. For additional assistance, you may want to seek the help of a trusted financial advisor. Keep in mind that some financial advisors are selling products and earn commission on their sales. If you are in doubt about the advice you receive, it is wise to get a second opinion.

A Look at Pension Maximization
The term, “Pension Maximization,” is used to define the practice of a member choosing Option 1 - Single Life (the maximum lifetime monthly benefit to a retiree with no payments to a beneficiary after a retiree’s death), and purchasing life insurance through a private company, in lieu of choosing Option 2, 3 or 4 – the Joint-and-Survivor plans, (a reduced lifetime monthly benefit to a retiree and a lifetime monthly benefit to a beneficiary after the retiree’s death).

For pension maximization to work:

1. A retiree’s net lifetime pension (after paying insurance premiums and taxes) must be greater than the retiree would receive under a Joint-and-Survivor option; and

2. After a retiree’s death, the insurance proceeds must be at least equal to what the Joint-and-Survivor plan would pay the beneficiary.

Make sure you understand both the risks and advantages associated with utilizing pension maximization.

Remember, the payment plan you select at retirement cannot be changed once your retirement becomes effective. Please contact our office if we can provide additional information to assist you.

Risks and Advantages of Pension Maximization
Risks	Advantages
With cost-of-living adjustments on PEERS benefits (up to 80% of the initial benefit), a much larger amount of life insurance must be purchased.	Members receive a higher PEERS benefit.
A possible loss of health insurance may occur for a spouse and/or dependents at a member’s death. Missouri law states that the employers’ insurance contracts must contain a provision that allows PEERS members to elect to continue healthcare coverage through their employer for themselves, their spouse and/or dependent children, as long as they are receiving or eligible to receive retirement benefits from PEERS.	PEERS cost-of-living adjustments and the 80% cap on them are figured on a higher initial lifetime benefit amount.
A decline in interest rates may lead to higher life insurance premiums or lower death benefits.	Life insurance proceeds may be nontaxable.
Premiums are paid with after-tax dollars.	If the beneficiary dies first, the insurance policy can be canceled. However, with the election of a PEERS Joint-and-Survivor plan, if the beneficiary dies first, the retiree benefit amount “pops-up” to the amount he or she would have received had Option 1 been chosen at retirement.
Complex investment decisions may fall on the shoulders of an elderly spouse or beneficiary.
The insurance policy may lapse if premiums are not paid.	If a divorce occurs, the policy may be canceled. However, a divorce decree may require that the policy be kept in force.
A beneficiary may outlive insurance proceeds unless an annuity is purchased.	If your beneficiary dies first and you continue the policy, a larger estate may be left to your heirs.
The insurance proceeds usually incur additional commissions if an annuity is purchased.	If you and your spouse live for many years, cash may be withdrawn from the policy.