Jay Steinbock - Chapter Two - Pension Max Using Life Insurance as an Alternative

Join Jay Steinbock and Jeff Roediger as we discuss the potential advantages of using Life Insurance to create more options at retirement. 

- Flexibility

- Control of Estate

- Additional Retirement Funds

Transcript

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Hello, everybody and welcome back to our podcast series with co host, Jay Steinbach. Jay, welcome back. Thanks, Jeff, for having me on again. We wrapped up our last section, talking about pension alternatives. And this is especially important for public employees pension maximization and using life insurance as a possible alternative. So, you know, you've been in the industry, what, 30 years? Little over 30 years? Yes. So what's your experience? you've dealt with this subject quite a bit. So let's get to it. For the audience out there, what exactly is pension Max? pension maximization is a participant in a defined benefit plan, say fers or servers with the federal government, instead of taking a straight life. Or so taking a joint and survivor option takes a straight life option where the spouse or significant other will sign off on the pension, that participant gets a full benefit. And then we use a life insurance policy to replace all are part of the survivor benefit that spouse gave up, essentially how it is. Okay, so what are some of the some of some of the benefits, say I'm getting ready to retire, the survivor options are 25 years as a federal employee, what would be some of the advantages of maybe not taking the survivor option for my spouse? in taking that full pension, using the life insurance as the survivor benefit really correct? Correct? Well, one of Israel off the bat is you generate more income up front from day one, you'll you don't take a reduction in your pension, you get 100% of your pension benefit paid to you. Another option or another advantage, excuse me is if your beneficiary passes away first, undertaking a joint survivor option you disinherited any other family members, with the pension maximization, you can name children or charity or whatever you want as a beneficiary. Also, with a life insurance policy, it does generate cash value. So at some point in the future, if you needed to borrow money against the policy, or you didn't need it anymore, under circumstance, you can get some or all of your money back, you put into it with a joint and survivor option. Whatever you whatever your pension benefit is reduced by you, that's gone, and money's not coming back to you. One that we don't talk about more is the pension benefit our survivor option, whatever that spouse would get, let's say 3000, you're getting in that spouse gets 2000 a month, as a number, all that money is taxable to that that spouse, or significant other and 100% the life insurance is paid out to the beneficiary 100% tax free, it gives you more flexibility, if you want to take some of that money to pay off some debt or do something else with a portion of it, you can and you still have enough money left over to pay you an income as well. I didn't even thought about that option. So when you're so when you're going through this, let's go through a scenario. Let's say that I reached out to you one day retirement consultation, what are the steps that you go through with the employee to to address whether or not it makes sense? What are some of the keys that you discuss with the employee, when you're going through an analysis to determine whether or not the maximum pension option would make sense to them. Um, a couple things. One is I have to have their numbers, I can't work on this as a partial number, this might be what it is you have to provide me the actual numbers that your company, federal government, state, local, whoever might be is providing you so we can make a determination as to what your what your options are the amounts you're going to have, you'll get full retirement, a partial reduction, a full reduction based on what they have available. And to order merit some serious consideration. One either need to be married with a significant other because if you don't have that, then there's no reason to do the patient maximization. To you need to be healthy enough to qualify for the insurance. And three, I like people to be at least five to 10 years away from their retirement because the younger you get the insurance, the more benefit it is to you because it basically if you're not healthy than a life insurance option is not going to work there's going to be too costly. If the amount that insurance is going to be more than what you'd give up in a pension, your net loss so that wouldn't be something I would want to pursue. I also like to look at I like to see people between five and 10 years out from retirement. Now that's not that's a sweet spot for me when I'm working with people I can't always get that someone that I'm working with just recently is going to retiring in a few months. So I work with what I've got, but the younger you are, the healthier you are it makes more sense The other one is we always look at. And I see this with the federal government anyway, if you take a straight live option and you pass away, your spouse does not get any health insurance. So we have to make sure that how that works. So if if there's a situation where they're not eligible for Medicare, when you would pass away, then that's something that you have to factor that in. And that's one of the considerations. Also, do you find not only on the health insurance? What's been your experience? And again, this is for federal employees? Um, for those five to 10 years from retirement, do you see a lot of federal employees that participate in the optional insurance amounts? For example, option B? Yeah, a lot of them do is, when they were younger, they all took the option, the option B, what I find is, is as our kids are grown and gone, there, things have changed. They just they just put that on autopilot, don't even bother to look at it again. So that's one of the things that we'll look at is what gets to leave and earning statement to see what how much insurance they have, what options do they have? Are there some ways that we can maybe look outside the federal government of fegli, to find you a better plan, it's cheaper, more cost effective than maybe has some more benefits to it, than what the government's offer you. And I don't think I'm out of line and say, and it's that group coverage is limited, and it's very expensive, comparatively correct, these healthy goes up, everything goes up as you get older, basically, in five year increments. And I just find the people that we can go on the outside and chop, shop them out on the marketplace and do much get a much better plan for them, as well. And then there's much benefits living benefits that the outside life insurance policies have that the fegli does not offer for your offer you something that employee should look at even if their health is not great. And I know that's subjective. There are options out there that we have seen that I've there are actual cases that I've looked at where somebody has been able to improve their situation, a lot of times they thought I couldn't qualify, or this isn't gonna make sense. You know, what's your philosophy on that? Do you just say, hey, let's take a look. Because sometimes people are like, I don't go through the process and just get, you know, get turned down or get rated or whatever. What's your How do you approach that? Well, what I do is we taught call it a trial application or a, you might say, trial balloon, let's say, I'll get the information from them, handled side medical releases for their medical records, I take it back to my back office, and we shopped that out to a multitude of different carriers to see what they what, what, what the underwriters would think of this certain person's condition, some of the things that used to throw people off were blood pressure, and cholesterol, those are even non factors anymore. Diabetes used to be a decline. Now, if it's maintained, a one sees or under a certain level, it's maintained by diet and exercise, that has not been an option as well. So there's medical conditions that 10 1520 years ago would cause an issue that because of, you know, health, technology, and, you know, innovation in the healthcare field, it's not it's not that big of a deal anymore. But we don't make a commitment to anybody. I'll do all the work. Just get the information from that person, shop it out to our carriers and see where we get the best offer. Does it cost them anything to go through that process? cost them nothing, but a little bit of time? That's it? Yeah. So you have nothing to lose really to to do a comparison. I tell everybody looking for alternatives. I mean, the worst case scenario is just be reassured you set up the correct way. Correct. If they we find out we go through the process and find out that the insurance isn't a better option than the survivor benefit. And we know that that's not going to be an option going forward, choose one of the survivor benefit options, and I'll work with them even doing that even if they're not going to buy an insurance based on you know, their their lifestyle, their income budget, what they've got and other assets, tsp, IRAs, Roth IRAs, whatever they may have, and other retirement plans. We work with them on that if the insurance isn't an option for them. So if an audience member out there wants to wants to learn more, how do they get ahold of you? Well, they can go to my website, www.steinbach.com. That's jystink.com. Or we have some ways to contact me through gubb resource, our email and web address. It's j y at Gov geo v r e s, o urca. Calm as well. So go to my website, you can see an updated picture of me and all the information products and services that I provide. We're located here in the Kansas City area, but I have clients all throughout the Midwest all throughout the United dates. And you can also leave a question for Jay, on our fed. website fed checklist.com. Fed checklist calm. If you've attended this podcast and you have questions you can we have a comment question section, you can also request a meeting. And we also have a nice report that's free. You can download it. It's the questions you need to ask before retiring as a Fed employee. It includes workbook worksheets and budgets, as you approach retirement that'll help you as you prepare for your meeting with Jay. So great information today. Thank you, Jay. Jeff, thanks for having me on. Again. I appreciate it. All right. So look for our next episode to be uploaded soon. And let us know if we can be of service to any of you out there. We're here to help education first. And that's very important in the times we're living in. So thank you, everybody, for attending. pass this along to other employees that you know, and let us know if we can be of service. This concludes our session. Thank you.