2.     Maximize Pension Payouts

A pension benefit will typically be offered in a number of formulations―from the extreme of single life with no refund or period certain―to joint life/100 percent benefit while either spouse are  living.  But in those two extremes, there could be as much as a 25 percent difference, every month for many years, in monthly benefits. 

Steps to take to make use of a “seasoned” whole life insurance policy (purchased in a person’s late thirties or early forties and for which premiums are paid and not “borrowed”):

•       Place on “paid-up” or “reduced paid-up” status;

•       Initiate the single life annuity option on the retiree—maximizing the monthly benefit without regard to a survivor benefit;

•       If the annuitant dies before the spouse, annuity benefits stop but the life insurance proceeds can acquire a new annuity for the remainder of the survivor’s life.

3.     Supplement Retirement Income—Pension Maximization

A “seasoned” policy should have a substantial build-up of cash value by retirement age, and the net amount at risk will be correspondingly less. But that’s good! It may be possible to reduce or eliminate the premium through “offset” or “reduced-paid-up” strategies and the cash value is available on a tax-favored basis to provide annual supplemental retirement income. As long as the policy remains in force until death, the withdrawals and loans taken on the policy for retirement cash flow will not be taxed and the residual death benefit paid upon death will also be free of income tax.

4.     Supplement Retirement Income—Market-Sensitive Strategies

While many proposals involving life insurance used for supplemental retirement cash flow assume annual withdrawals/loans, it may be more appropriate to use cash value on a discretionary basis, e.g., only when “the market” is in one of its periodic declines. Rather than liquidating equities at depressed value to generate income, your client can use the life insurance policy to supplement income until “the market” recovers. Then switch back to redeeming equities for retirement income.  Cash flow taken from life insurance policies will not be subject to income tax—requiring less borrowing for a given net-after-tax need.