And Now It's Time to Retire An annuitant is somebody who receives an income benefit from an annuity for life or for a specified period. 205 If you are considering an annuity option and a pension max, we have provided an excellent work- sheet in Appendix A, "Worksheets," to help you decide whether pension max is right for you. Pension Maximization: Will It Work for You? When you retire, there are two general ways of taking your pension: · Lifetime only--You get a higher monthly income, but it stops when you die. · Joint-and-survivor--You get a lower monthly income, but it lasts for the lifetimes of you and your spouse. A pension max salesperson will propose that you take the lifetime-only pension. To protect your spouse, you buy a life insurance policy. At your death, the proceeds of that policy can be used to provide your spouse with a lifetime income. This plan is potentially workable in two cases: · Your single-life pension after tax, and after paying the insurance premium, is greater than you would have received had you chosen the joint-and-survivor pension. · After your death, the insurance proceeds are sufficient to buy your spouse a lifetime income at least equal to what the joint-and-survivor pension would have paid. Have You Really Maximized Your Pension? Does your proposed plan meet these two tests, if you are just starting your retirement * ? This work- sheet will tell you. You and the salesperson should fill in the following blanks: 1. 2. 3. 4. 5. 6. 7. 8. Your monthly pension, if paid for your life only. Your monthly pension after all taxes. ** Your monthly pension if you take a joint-and-survivor option. The same pension after all taxes. [**] Your spouse's monthly pension after your death, if you take the joint-and-survivor option. (This may or may not be the amount you reported on Line 3.) The same pension after all taxes. [**] The midpoint between Lines 5 and 6. Use this as a first, rough target for figuring how much insurance to buy if you choose pension maximization. *** The cost of buying your spouse an annuity after your death, figured for your spouse's age when you The annuity rate tells you, in dollars and cents, how much monthly income can be bought for every $1,000 of life insurance proceeds. Age: ______ Annuity Rate: retire. [***] $______ $______ $______ Subtract the monthly premium (Line 10) from the after-tax income you'd get from a single-life pension (Line 2). This gives you the disposable income that you, as a couple, would have left to live on. Compare this with the income you'd get from a joint-and-survivor pension, after tax. $______ $______ $______ $______ $______ $______ $______ $______ $______ 9. 10 . 11 . 11 a. The life insurance proceeds needed to provide the monthly income. To calculate this, divide the target income (line 7) by the annuity rate (on Line 8) and multiply by 1,000. Monthly life insurance premium required to secure the proceeds shown here. ** Federal, state, and local. Do the exact calculation. Don't just estimate the bracket. *** A good professional planner will be able to target this exactly. If your income after pension max leaves you with less disposable income than you'd get from a joint- and-survivor pension, stop here. It usually makes no sense to use it. * This worksheet is not effective for plans started earlier than retirement. For such plans, the salesperson should compare the cost of insurance premium with the after-tax pension benefits expected, adjusting for the fact that costs come now and benefits come later.