Pension Alternatives for Public Employees

Join Host Jeff Roediger and Financial Adviser Tom Muije as we discuss alternatives to Pension annuity survivor payments. 

Here are the topics we discuss:

Clarify: Single vs joint life?

Who could be help by a pension maximization strategy?

When should you start a pension maximization? 

Also, go to www.govresource.com and obtain your no cost pension report card.

Transcript

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This conference will now be recorded. Hello, everybody and welcome back to our podcast series, replacing Wall Street with Main Street, your host, Jeff rediger, where I interview financial advisors fiduciaries advocates on different subjects pertaining to each of you out there. And so today, my guest is Tom Luigi. Tom is with Aspen Creek financial, he's a regional financial advisor. And I invited Tom on today to talk about pension and pincher pension survivor options, because I think it's very misunderstood. So Tom, welcome to the broadcast. Thanks for joining me. Thanks for having me. So let's talk a little bit about your you're located in Las Vegas, but you work with public employees in different states, and you help them with their decisions regarding educating them on their pension. And what's the best survivor options, correct? Absolutely. So the term that I've heard a lot, and I think it's confusing, but what I, what I want to make sure that we communicate to the audience is there's a lot of decisions when it when it comes to their, their pension option at retirement. And once they make that decision, that's it. And if you choose a survivor option, you are giving up a certain percentage of that retirement income, correct? Correct. And for the viewers, I want to make sure they are aware of what we're talking about when we're discussing survivor options, as well. So in most pension plans, there's going to be two options, there's going to be a single life, or you're going to have a joint life benefit and with survivorship, which just means that after the initial is deceased, the payments will continue on to the spouse after that for the remainder of their lifetime as well in the joint option. And so what does it mean? What does the term pension maximization mean? So pension maximization is just a strategy that allows the pension holder to get the maximum benefit for their work and their time in the system. And there's the way we do that is through a life insurance plan in most cases. So help me understand and the audience how would that work was walking us through maybe a case study or an example. For example, let's say you had a single life pay of $5,000 per month, meaning that every month for the remaining of your life, you're going to receive a $5,000 check from your pension, that would be the single life option. Or in many cases, you'll have a slightly reduced benefit as the second option, which would mean you have basically a $5,000 benefit for you. And they'll give $1,000 to your spouse for the remainder of their lifetime as well. Or there's a 5050 option in many states. And that would be that they only give you about $3,000 and then give the other three and then give $3,000 continuously to the spouse as well until they pass. Okay. So how does this? How does this help of with an overall retirement strategy? Well, with an overall retirement strategy, what we can do is we can kind of calculate those funds that are needed on the back end, if there is a early decease of the pension holder. And then we use that information and create a life insurance plan that works for them that will allow for a benefit that will meet or exceed the needs of the spouse, if the pension holder word of the seats early. Okay, so more flexibility. Absolutely. And then one of the questions that I get confused on still and I've been in the industry quite a long time is single versus joint life. Could you explain that pension option? We see it all the time. And I know it's still confusing to some of the employees out there that when they started looking at their pension payout options as they get closer to retirement? Yeah, we touched about it a little bit earlier when we're going through our examples, but just make it very clear. It's a single life would be the pension holder gets a payment each month every month for the remainder of their lifetime. And the joint life simply means that those payments will continue to this spouse for the remainder of their life as well, albeit at a lesser amount. Okay, and then. So, essentially the life insurance would replace that survivor income, correct? Yeah, what we're trying to do is calculate what that survivor would need for their expenses, you know, be it medical, home care, you know, vacation money, whatever their retirement plans are, we want to make sure that we have enough for them to meet those plans. And so we try and calculate a number and then we make sure that we have a benefit with the life insurance that meets or exceeds that number, so that the pension holder can go ahead and take the maximum benefit, and not worry about whether their loved ones taking care of should something happen to them, and should they decease earlier than they intended. Right. So who would be a good candidate in the public sector, who would be a good candidate, and then a follow up to that is, you know, obviously, if you're weak from retirement, you probably don't have a lot of options on the table, but kind of give us that, that target audience that that you can really help with these types of alternatives? Well, the best thing I can say to any of the listeners is to start as early as possible, you know, permanent life insurance gets more and more expensive with each year. And so the earlier you're able to start these types of plans, the more affordable and the larger benefit, you're going to be able to see from them. With that being said, you definitely going to need a spouse, it's you know, you're not going to have a joint life without, you know, a spouse that you're leaving that money to. So this isn't an option for single individuals. But any young individuals on the pension system, newly married couples, this is definitely a plan that you guys should be looking into. I know it's very difficult for the younger individuals to kind of see what what their costs and what kind of benefit we should be seeking. Because retirement is so far off. But any type of planning towards this that can get started early, will give you a leg up on future retirement. It's good information. And then what are some other benefits of looking at this alternative? Well, there's also a cash value associated with many of the permanent life insurance policies. And what that means is that a separate account grows with the life of the policy and increases and gives a cash value. So not only are you receiving the benefit on the back end, but you're also building another nest egg that you can utilize during retirement. And I always tell clients, you know, it's it's important for us to have as many buckets that we can pull from as many levers that we can pull in retirement, make it as fluid as possible and lower the tax incidence as much as possible. And having that cash value in the life insurance policy can be a big help in that matter. There's always pros and cons to everything right? So what are some of the cons of the pension Mac strategy that the consumer should be aware of? I would say the biggest caveat is what I kind of already touched on when speaking about the younger individuals. And what that is, is that we can't anticipate and can never plan perfectly for the future. And what I mean by that is our analysis of what your loved one may need, may be more or maybe less than what actually happens. And that's one of the risks of pension maximization is you're giving up that lifetime payment in hopes of a larger payment, but you're taking a risk that they may outlive the amount that we have in benefit for them. And with people getting older and older and medical science advancing at the rate it is it makes it more and more difficult for us to anticipate these numbers, along with the increase in medical care. It can make it difficult, I still believe in the pension maximization strategy and I think that in many cases it can be the best option, but it's very important that the listeners sit down with a registered financial advisor and discuss their options. And clearly before making any decisions. I agree. So, on that note, what's the best way for somebody get a hold of you if they have questions on the pension or would like to discuss these alternatives. If they'd like to get a hold of me, Jeff, they can reach me at 888545840. And my extension is 718. And they can reach me by email at Tom. gov resources COMM And I'd be happy to discuss with anyone a little bit more in depth about the pension maximization strategy. Okay, and so also for listeners out there, if you'd like more information on retirement I talked about as well as a pension report card, which I think is very important. Go to Gov resource calm and download your specific pension. So we have 680 pension systems out there that there are report cards for a third party economic think tank at a Boston College. economic center has graded your pensions. So it's probably good to get a third party review of how healthy your pension system is, because that could ultimately impact the decision you would make on a subject that Tom and I just talked about. So go check that out. And, Tom, I want to thank I know you're busy. So I appreciate you taking a few minutes to share very important subject. Thanks for having me, Jeff. All right, everybody, look for the next episode to drop and go check out 70 plus other podcasts on 14 of our channels out there. Under Jeff Retta you're bringing Wall Street to Main Street. So thank you, everybody, and we'll be back. This ends our session.