Pension Retirement Planning: I'm 59, How Can I Maximize My Pension Benefits for Retirement?

Wondering About Your Pension's Worth? Learn to Maximize its Value

Casey Weade: You're retiring with a pension. Congratulations. Now you want to better understand what the value of that pension is. Maybe you want to apply it to your balance sheet. Maybe you just want to know what the value of that pension is for your own well-being. Number two, we're also going to be walking you through some pension decisions, and how to make the best pension decision for yourself. Then we're going to stack on top of that how to maximize that pension so that you can squeeze every single penny of value out of it.

Hey there, my name is Casey Weade. I'm the CEO and founder here at Howard Bailey Financial. I'm also a certified financial planner practitioner. I'm here to walk you through your pension decision. Number one, we want to understand what the value of your pension is. I'm going to be walking you through a real case study. We're going to walk through this case study to understand all of the different options that you have. We know there's a lot of different options. Sometimes there are as many as 10 different options you have when it comes to making that pension decision.

You want to understand what the value of each one of those pension options that you're going to have is actually going to be so that you can make the best pension decision for yourself given all of the different variables. Once we walk this couple through making the best pension decision for their unique situation, you'll be able to apply that to your own retirement income strategy to maximize that decision for yourself. We're going to take it beyond that.

At the end of this video, we're going to be walking you through how to make that pension decision and ensure that those assets, some of that pension, which is usually gone once you pass away, how do you ensure that pension passes on to your heirs. We're going to walk you through how to create that value and some additional value adds that might actually get you some additional long-term care benefits, believe it or not, out of that pension. We're going to start by walking you through this case study.

What I'm sharing with you here on the screen are the seven different pension options that Phred and Ethel have. They have each one of these that they have to choose from, and I want to walk you through each one of these so we have a good understanding of the definitions. The two that most people are focused in on are this first one and this last one down here. This is the single-life pension option on the top. That's going to give them $5,377 per month for the rest of Phred's life. If something were to happen to Phred after he filed, nothing would pass on to his survivor, Ethel, in this particular circumstance.

Then we have 100% joint and survivor down here on option 7. That's about $4,600 a month that would continue for the rest of Phred's life and Ethel's life. If something happens to Phred, then it will continue on to Ethel, but in both of these circumstances, if something happens to both of them, nothing will pass on to their beneficiaries. Then, of course, we have other joint and survivor options here, 75%, and 50%. That's a 75% reduction to the survivor or a 50% reduction to the survivor. We're going to get a little bit more in those circumstances versus the 100% joint and survivor option.

Then we get to our period of certain options. That is 10 years certain and 15 years certain. Let's look at these two first because they are the easiest to understand. That means that this 10 years certain, it's going to continue. If they start this pension option, $8,700 per month, and if something were to happen to Phred two years into filing for that option, then it would continue on for eight years for Ethel. If something happened to both of them, say, two years into filing, then that pension option would continue on to their beneficiaries for eight years.

These are the only options that will continue on to beneficiaries other than Phred and Ethel. Then we have this 10-year certain and continuous option. It's about $4,860 per month. That is one that can be a little confusing and trip you up sometimes. That 10-year period certainly is going to continue for 10 years, but it's continuous. This is a single-life option, just like the single-life benefit that we see up here, outside of the fact that this is guaranteed to continue no matter what for 10 years to both Ethel and their survivors.

I think it's very clear, as you can see from all of these different scenarios, that if you can tell me when you're going to pass away, then we'll know exactly what the best option is, for the most part anyways. If we know that Phred and Ethel were both going to pass away two years from now, then they should choose that 10-year option that gives them that $9,200 a month. How do we determine how long we're going to live? The best tools that we have are actuarial tables that are provided by the U.S. government.

We have our mortality calculator that we use here, which was adopted from what Michael Kitces provided over at, and provided us with a great tool for me to play with a little bit. I did some editing on my own just to clean it up and allow it to be a little bit more visually appealing for those of you who are watching along. Let's take a look at this a little bit deeper. This over here, this period life table, this period life table is what the IRS provides us with or the Social Security Administration provides us with. That is updated as of 2020. It hasn't been updated again since mortality tables were updated in the year 2020. What we did was we took this life expectancy table and we used it to calculate both Phred and Ethel's life expectancies at different ages and their joint life expectancy. Because your joint life expectancy is always going to be longer than your single life expectancy, the joint life expectancy really just says what if either one of you is going to live? What are the odds that just one of you continues on living for some time rather than just one?

Let's take a look at Phred. Phred, if we go on down here, we want to find this point of 50%. That happens 22, 23 years from now around the age of 81, or 82. We can see that is 50%. This is what you often see is this is your life expectancy. A 59-year-old male as of today has a life expectancy of about 81. You can also see from this table that that doesn't mean that Phred and every male who's 59 is going to pass away at age 81. That means that 50% of people are going to live beyond that. 50% are going to live a shorter life than that.

This also takes into consideration everyone who lives in the United States. One of the biggest factors of longevity is wealth. If you're a wealthier retiree, you probably want to expect to live a longer period if you take care of your health if you don't do drugs, you don't drink alcohol, you work out every day, all of those things have to be factored into your unique life expectancy. There are also some great calculators out there that I'm happy to share with you.

Ethel here. Ethel has a life expectancy. As we know, women live longer. Ethel is out here at 84, 85 years old. It's about 27, 28. That is her life expectancy. Then let's take a look at joint life expectancy. The joint life expectancy for this couple takes us out a couple more years. That puts us out about 87, 88 for Ethel, 89, 90 for Phred. About a 30 to 31-year joint life expectancy for this couple. When they wanted to run this scenario, they chose 85 and 90. They're assuming that Phred is going to pass away at 85 and Ethel is going to pass away at age 90.

At this point, we can start to calculate the value, the present value, and the value of each one of these different benefits. Let's check out that calculator we've put together for us today. Now let's jump into our analysis of all of these different options, really running the numbers here. Let me walk you through the calculator that we use here in the office to hone in on the best option for you. We have all of their options plugged in up here at the top of this chart. We have that option 1 through option 7. This is the initial benefit.

This is the annualized benefit. We took those monthly options and multiplied them by 12. Then we have our survivor's benefit. This is how much is passed on to the survivor. We know from option 1 through option 4, nothing is passing on to Ethel. Then options 5, 6, and 7, we have those survivor options. Then we have a period certain. We have no period certain for option 1. We have those three in the middle that have that period certain of 10, and 15 years. Now we see over here we have Phred, and Ethel, plugging in their ages, 59, and 57 years old.

We have their life expectancy, as we discussed, at 85 and 90 years old. How many years of benefit will Phred get? About 26. How many years of benefit will Ethel get? About 33. Now we have all of these options laid out over here and what those payments will be year over year based on those life expectancies. What we're trying to run here is something called a present value calculation. This is how you determine what the value of your pension really is today. To determine what that is, we have to look at this much like a business decision.

Phred and Ethel, they're going to get a stream of cash flows that are going to last for some time. They're investing. The question becomes how much would I need to invest to create that same level of income stream over that same period at a set discount rate. We call this a discount rate. That discount rate that we're going to use, and what is most commonly used for these analyses, is the risk-free rate because often your pension is considered a risk-free investment or a risk-free form of income and so we're using the current risk-free rate.

The risk-free rate is usually set by the 10-year US Treasury rate. The 10-year Treasury today as we're recording this video is about 4.25%. We'll have a link so that you can look up the current 10-year Treasury rate right there in the description so you can see where we got this number. We're using a number just a little bit lower of where it currently is. We're using 4% as a discount rate so we're assuming that they could take these dollars, these dollars we see over here, and invest them at this investment rate of 4% and that would generate this amount of cash flow over the period that we've laid out based on their life expectancies.

What we can see here on this left side is option one gives us about a million dollars as a present value. That is the value of getting $64,000 a year over their joint life expectancies and that is because option one is going to continue for the rest of Phred's life but once Phred passes away nothing is continuing on to Ethel. Option two we had 10 years certain, however, we're assuming that Phred is going to live out here to age 85 and so that is then going to be the point that it discontinues but that was the 10-year certain and continuous option.

If we look at all of the different values of each one of these different pension options, the worst one is that option four. That is getting those benefits over 15 years certain option. We're going to throw that one out and then we're also going to throw out these others that we see here in the yellow. We're focusing on the single-life pension option and the 100% joint survivor, the 75% joint survivor option. Now when they looked at all of these different options that they have and their values of, they said well why would we do the single life option when we could get about the same value with a joint survivor option?

Then they said well with the 75% option it's so close to the 100% option that we're just going to go ahead and choose that 100% joint survivor option. It came down between these two. The single-life option and the 100% joint and survivor option are here. What I'm going to show you here in just a second is why you might choose this single-life option up here even though we know for Phred and Ethel it's so important that income is continuing for two lifetimes. Let's take a look at that. Let me share with you what's going on here. They are buying life insurance right now with a pension company. Go back and let's look at those pension options. The difference between the single life option and the 100% joint and survivor option, we have a reduction of about $750 per month from $53.77 down to $46.29. That difference is going to stay there for the rest of their lives. They'll pay $750 a month for essentially life insurance. They are paying for life insurance by taking this joint and survivor option down here to ensure that $4,629 continues for the rest of Ethel's life.

The reality is though that when they are currently 57, or 59 years old yes they need a certain amount of life insurance to replace the pension. A lump sum to replace that pension and maybe cost $750 a month. Then when they're 85, they don't need to pay for the same amount of coverage because they don't need the same amount of coverage when they're 85 as they would when they were 60. The amount of coverage they're going to need to replace that pension for Ethel is going to go down every year.

Let's talk about how we look closely at those numbers and the best calculator that I've found and I encourage you to use this if you're in the situation. The best calculator I've found out there to help visualize this and help you determine what lump sum you need to replace the pension at any given age comes to us from Let's take a look at it. This is what the calculator looks like. You enter your current age. We have Phred at 59 and then he's going ahead and retiring now. He wants this income today. His retirement age is at 59.

Then we have a life expectancy of 85 which they have selected. Then we have Ethel's age in here at 57, a life expectancy of 90, and their single pension option, their joint and survivor option. We entered a cost of insurance per thousand down here at $20 per thousand. Now we're going to run some numbers. I'm going to show you how we came up with that number. It could be dramatically lower than that as well. This is about $20 for a 59-year-old to buy a permanent policy. It's going to be about $20 per thousand for someone who's in standard health.

That means not really bad, not really good. They're just somewhere in the middle. They're just okay. It could be dramatically lower than that. We wouldn't necessarily have to choose permanent insurance. Because we need less and less life insurance as time goes on. I'm going to show you how we bring that $20 number down quite significantly with some good planning. We have a rate of return again on those investments at 4%. There's no cost of living adjustment on this pension. The lump sum that's required at, if Phred were to pass away at age 85, is $1,041,322.

Now what happens is this beautiful chart really explains the situation. The monthly cost of the joint and survivor benefit is $748 a month. That is steady for the rest of their lives. The monthly cost of life insurance, going by what they're showing here, it should go down over time because they're buying that insurance and reducing that insurance every single year for the amount of insurance they're actually going to need. By the time they get out here in those later years, around 81, 83, then that cost of insurance drops off quite significantly. Now what I'm going to illustrate to you is how we get this blue line even better. How do we get this number down even further so that the monthly cost of insurance is even less than what's being illustrated here? At the very least, we can get pretty darn close to this blue line. It would be great if we could just go out and buy a life insurance policy that would decrease that death benefit every single year for us and just follow this graph along. Unfortunately, decreasing term policies, decreasing life insurance death benefit policies have become a thing of the past.

We're going to have to get a little bit more creative. That means putting together and structuring different life insurance policies that are going to drop off at different times. Where we have maybe a 5-year term policy, a 10-year term policy, 15, 20, 25, maybe even throwing in there a permanent policy as we did in this scenario. I just wanted to run a few quotes for you through our quote engine so that you could see how we might start structuring and selecting which policies that we're going to use.

We have a 10-year term policy here all the way out to a 25-year term policy depending on your age will depend on how long of a term policy that you can get or how short of a term policy that you can pick up as well. For a $200,000 death benefit policy that's what we're looking at a quote here for a 59 year old male in the state of Indiana. One of the unique things about insurance is rates do vary up a little bit state by state depending on what's going on in your state. We can run these numbers based on wherever you are in the country as we work with people across the entire country.

As we can see here, Protective has the best policy for a $200,000 death benefit for someone that's in excellent health. These are super preferred or preferred best rates here at $625 a year for a $200,000 10-year term policy. That's through Protective. Now if we go on down here we can see that those rates are quite a bit different from carrier to carrier. Where if we go down to the very bottom we see Mutual of Omaha at $868 a year. Rates vary widely. This is why it's so important to work with an independent advisor that has access to all of these different carriers in order to provide you the most efficient death benefit.

Then I also ran some standard ratings. Your average individual, not the best health, not the worst health. That standard number is about $1,000 and the best policy is actually with a different carrier. Protective comes in second in that scenario. What I did is I took all of these different rates, all of these different term policies, and structured a plan for this family in order to maximize their benefits. Let's take a look at that plan. Now bear with me. I know there's a lot of different numbers on this page. This is not an easy thing to run.

This takes quite a bit of time in order to build out something like this, but it can be massively beneficial for you to have somebody go through this for you. Let me walk you through the columns. Over here we have the year. We have over here the age of this couple. They're 59 and 57 for Phred and Ethel. There's their single-life benefit. There's their joint benefit. These are those lump sums that are required to replace the pension at $1,041,000 and those numbers going down every single year. Then what the reality is we don't need a million dollars to replace his pension.

Why don't we need a million dollars in order to replace his pension? Because we're going to be receiving tax-free death benefits. We're talking about taking that difference of $750, which is a difference between the single life and the joint life, and buying a life insurance policy. One of the best things about life insurance policies is that the death benefit is tax-free. When these dollars come back to them in the form of income, there could be some taxation, depending on how they actually reinvested, but that lump sum is going to be tax-free.

We're assuming a 20% federal tax rate, federal, state, local, let's just assume it's 20%, is their tax rate. We actually need less than that. We need about $800,000 in death benefit, and that's going to drop down over time. Then, this is their savings over time. We have their monthly cost of the joint survivor and pension. Again, as we talked about, $748 a month. Now, here's the thing. When we want to go out and buy that life insurance, we're going to have to pay taxes on that differential of $748. That post-tax differential is about $600 a month.

Now, we have all these policies. We've purchased five different policies, a permanent policy, a 10-year term policy, a 15-year term policy, a 20 and a 25-year term policy, and we've spent a lot of time trying to do what? Trying to match this delta over here, try to match up the total amount of coverage that they need with the lump sum that they're going to need in order to replace that pension, and try to get as close as we can. Because again, we just don't have the option to build in that decreasing term policy that aligns perfectly.

We're trying to get as close as we possibly can. You could say that, well, in those first few years, the odds are so low of them passing away, maybe you don't want as much coverage in those first few years. Maybe you want to backend load this, maybe you want to frontend load this. This really comes down to your own personal preference. I have the premiums for each one of these policies in here, bringing us to a total premium, which is about $700 a month. They're going to have to pay about $720 a month in premium in order to pick up $800,000 in death benefit, which drops off a little bit over time.

As you can see, sometimes they have more insurance than they need. Sometimes they have less insurance than they need. We're just trying to get as close as possible. That monthly premium, we can see it going from $720 a month to $650 to $550 to $489, $250, going down quite a bit. In the beginning years, they're actually going to pay a little bit. They're going to lose out in those first few years over what would have happened if they would have went with the pension. Eventually, they start getting into the green and saving some dollars.

Actually getting more income than they would have received if they did that joint and survivor pension. Now, over time, it ends up saving about $22,000 of the life expectancies that they selected. I also want to point out here though, that someone once said to me, they said, well, it's not working because it doesn't actually save them any money in those early years, or maybe it doesn't save them any money over their entire lifetime. Yes, but for them, maybe that is not the important part.

Maybe for you, you're in a position that you say, "Hey, I'm willing to pay an extra $100 a month or $200 a month to ensure that if something happens to both my spouse and myself, at least there's a death benefit going on to our heirs. At least all of that work that I did over 30 or 40 years at the same employer, just to get this pension someday, doesn't go up in smoke when we both pass away. Maybe you're willing to buy a little bit of coverage in order to ensure something's passing on to your heirs.

These are the death benefits that are still passing on to the heirs if they both pass away. We also said here that we built in a permanent policy at $150,000. You might say, I just want 25 years of coverage. If it's only 25 years of coverage, it's all term coverage, then you can do this, again, much more efficiently and much more cost-effectively by just selecting term policies. This couple wanted to ensure that at least something would pass on to their heirs, and there would always be something there for their surviving spouse if they live beyond their life expectancy.

Now, this is a standard scenario. What if you're in really good shape? We have a lot of families we work with that are working out now, eating well, and taking much better care of themselves than-- I know my grandparents or my parents did. Let's take a look at what that preferred best scenario is. If we're in excellent health, all of those premiums drop down to about $500 a month. Now we're in the green from the very beginning, and over an entire lifetime, that saves about $75,000 that goes back into your pocket, overtaking the pension.

That can be something that could be extremely valuable. In order to really maximize that, we want to make sure that we take really good care of our health. Now, one more thing that I want to throw in here. So far what we've talked about is what is the value of the pension? What are all these different pension options? What do they mean? What is the value of the pension? Then what is the value of each one of these different pensions? You can say, this is the best option for me. I'm going to get the most value out of this particular pension option.

Then we talked about doing some life insurance coverage. This is called pension maximization. Really providing a benefit to ensure that some of that pension is going on to the heirs, or you might be able to put a little additional money back in your pocket every month, instead of buying that insurance coverage through your pension company. Now, what I want to throw in next is the ability to actually accelerate and utilize these death benefits while you're still alive. There are a couple of insurance carriers out there that even on term life insurance will allow you to use a portion, or if not a significant portion, of that death benefit while you're still living.

Some as much as, say, 90% of that death benefit could be accelerated to you. Now, you need to understand how those calculations work. In order to know how much of that death benefit you could use while you're alive, and under what circumstances you can do that. Typically, that's either for chronic illness or critical illness. Chronic illness being you can't perform two out of six activities of daily living, then they're going to provide you a formula to illustrate to you how much of the death benefit that you can use while you're alive in order to cover your home health care, your assisted living, your nursing home care.

Now, I want to be clear though, that these are not long-term care policies. They are not long-term care policies that offer the tax deductibility that you might have seen through a traditional long-term care policy. They function quite a bit differently. They are not reimbursement-based policies. Traditional long-term care insurance works like your health insurance. They're going to reimburse you for your medical bills, meaning that you have to be receiving that care from a certified long-term care provider.

If it's through a life insurance policy that's not a true long-term care policy, then that is a cash basis. They are actually giving you that cash instead of reimbursing you, and you can use that cash for whatever you want. That means you could use the cash to have someone clean the house, make food. Maybe you're in a position where you don't need licensed long-term care coverage or licensed long-term care services, but you do need the extra cash because you are in a chronic or critical illness scenario. Now, in doing so, it's going to increase the cost of the policies a little bit, albeit it might be well worth it.

I ran some numbers with that acceleration of the death benefit, the living benefits being available on that policy, so we could use the death benefit while living. In that scenario, and we're looking at the preferred best scenario again, instead of what we saw being about $528 a month for preferred best policies without the accelerated death benefit provisions, now it's about $628 a month with the ability to accelerate a portion of that death benefit while you're alive for chronic illness or critical illness. Our savings goes down a little bit.

Instead of what we had with that preferred best scenario being about $74,000, now we have about $43,000 in savings over a lifetime. That might still be well worth it in your own unique situation. You just have to evaluate this for yourself. We've walked you through a lot of different numbers in someone's unique situation. You have your own unique situation, you might want to have these scenarios ran for yourself. What we're offering you today is the opportunity to sit down with one of our fiduciary financial planners and have these numbers ran for yourself, a free pension analysis along with a free personal financial review. You can take advantage of that offer by just calling the number on your screen at 866-968-3658.