Jumpline magazine Q1 2023 - Flipbook - Page 36
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Financial Thoughts
Gary Gonzalez, Ret.
low enough to maintain the premium under that number.
In most cases, the life insurance policy that meets this
criterion will not provide enough coverage to adequately
provide for your spouse’s future income needs (including
inflation - potentially many years of inflation). Some life
insurance agents will even pitch “term” life insurance to
keep the premium down. The problem with term life insurance, of course, is that it expires… and what if you
expired a day after your policy did? Your spouse would
get nothing.
Which retirement
option is right for you?
If you choose the Pension Plan, with
or without DROP, one of the most
important decisions you’ll have to
make is which option to choose. If
you’re single with no dependents,
the decision is fairly simple. In all
likelihood, you would choose Option 1 (Option 2 allows you to select
any person, organization, trust or
your estate as your beneficiary, so
although rare, there may be circumstances in which you
would want to choose this option instead).
It seems the majority of Pension Plan participants who
are married, whether participating in the DROP or not,
choose Option 3, and in my opinion, for good reason.
In the event of your death, Option 3 provides the most
security for your spouse, and in most cases, does so at
the lowest cost to you. Option 4 provides more income
than Option 3 while you and your spouse are living, but is
reduced by 1/3 upon either of your deaths, and Option 2
only covers your spouse for a period of 10 years, which,
by the way, begins the day you enter the DROP (or the
day you retire if you don’t participate in the DROP).
There is a life insurance sales pitch you’ve probably heard
that suggests you choose Option 1, the highest monthly income amount, and buy life insurance. The concept
is that if you die before your spouse, the life insurance
benefit will be there to replace the lost
income. In my opinion, there are major
flaws with this plan.
The second problem, which I believe is as valid as the
first, is of a more personal nature. Think about this for a
moment; why did you choose a monthly income from the
Pension Plan over a lump sum payout from the Investment Plan? One of the reasons may likely be that you and
your spouse aren’t comfortable with the thought of having
to manage your entire life savings to provide income for
the rest of your lives.
Now, let’s take a brief trip into the future to your spouse’s
financial situation after your death, assuming that you
chose Option 1 and purchased life insurance. What are
the circumstances your spouse would be in? Your beneficiary would have just received a lump-sum death benefit
from your life insurance policy and is now responsible for
determining how to invest that money to try to meet current and future income needs. Your spouse is now in the
uncomfortable position of having to manage an entire life
savings to provide income for the rest of his or her life. If
your beneficiary didn’t have the stomach for it on the day
you retired, what makes you think that would be the case
on the day you die? Why would you put your spouse in
that situation when it wasn’t right at the beginning of your
retirement? From my perspective, it doesn’t make much
sense.
Of course, each of you has your own unique set of circumstances upon which to base this important decision.
It’s worth noting that your option choice is irrevocable
once your 1st pension check is deposited into your DROP
account (or your bank account if you choose the Pension
Plan without DROP participation). In my opinion, it is well
worth your time to meet with a professional investment
adviser who can help you sort through
your options and assist you and your
family in making the right decision.
First, the agent knows that they MUST
keep the life insurance premium below
the difference between the two options, or you would have no incentive
to buy the product. Therefore, there is
an incentive to keep the death benefit
As always, if you have any questions
or concerns, feel free to contact me at
Northstar Financial Planners, Inc., 954693-0030, or on my cell, 954-804-5539.
Until next time, be safe out there.
February 2023 | JUMPLINE Magazine