3.17.23: Audio automatically transcribed by Sonix

3.17.23: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.

Val Mejewski:
Well, welcome back to the Federal Retirement show. I'm your host, Val Majewski, with American Benefits Exchange. And I appreciate you tuning in and being a fan of the show, a subscriber to the show, a diligent and dedicated listener of the show. Because as we continue to repeat, this information is for you, the federal employee navigating their career, looking for information on how to best do so and plan for retirement. So kudos to you for tuning in. And today's topic is called pension maximization. Why are we talking about this today? Well, I've been getting a lot of questions from folks that I've been doing benefits and retirement reviews for about which survivor benefit option they should choose when it comes to filling out their retirement paperwork. What are the consequences of that selection? What are the benefits and the negatives to that selection? What are alternatives to that selection? Today we're going to talk about an alternative. It's called pension maximization. And the concept is very similar or simple to understand. We want to help you maximize your pension, make sure you're set up properly. Optimized is another term that we use. And and really so you and your spouse can see the maximum benefit from your pension. So let's dive into the information and today talk about pension maximization, a survivor benefit alternative. So first of all, before we talk about pension, Max, I want to do a review of the Survivor benefit plan.

Val Mejewski:
Now, there's another episode just entitled SVP Do's and Don'ts. But I want to just reiterate about the Survivor benefit plan so you can get a baseline if you've not seen that episode of what we're going to be talking about today. I think in my opinion, I'm just going to give you a straight out. I think it's a bad piece of life insurance and you're going to see why. And you're like, well, survivor benefit plan already. It's not life insurance. I already have life insurance from the government. It's vaguely well, once I explain it, you'll see why I think this is life insurance. But Survivor benefit plan, it's a benefit for your survivor. In most cases, a spouse. This means you, the federal employee. When you pass away, how much are you going to leave or how much do you want to leave to your spouse in the event again you die first in retirement? That's what the survivor benefit plan is. Now it comes at a cost. There is a cost. As much as I think that it's a bad piece of life insurance, there is a hook. There is a reason why a lot of people will still choose the survivor benefit plan. It's because they attach your federal employee health benefits to your selection. Now, what do I mean by that? You, the federal retiree, you decide to not take a survivor benefit plan. And let's say your spouse is dependent upon your health insurance.

Val Mejewski:
In the event now that you die first without choosing a survivor benefit plan, your health insurance will die with you. So if you die first in retirement without having selected a survivor benefit option, then your spouse can no longer continue. Your federal employee health benefits. That's a big deal for a lot of folks, especially people I've been talking to recently. So they've had to or been forced to take at least a minimal survivor benefit plan so that their spouse can continue to health benefits. We're going to talk about that a little bit more here in a second. But the Survivor benefit plan again, SVP for short is the benefit. You will leave your spouse in the event you die first in retirement. For the sake of time, I'm just going to be talking or discussing the first system. There's different options, slightly different options for those that are in the CSR system. If you are in that, just again, for the sake of time, I'm going over first. If you are CSR, reach out to us directly. Go to federal retirement. Show.com fill out the form on that website and we'll be happy to get in touch with you, go over your situation and share with you all of your survivor benefit options as a CSR employee. But let's look at first. So what is FERS options for survivor benefits? Well, as a first retiree, you can choose one of two things.

Val Mejewski:
If you want to leave a benefit for your spouse, you can choose to leave 50% of your pension to your spouse, so you die first. They would get 50% for the rest of their life. Or you can choose the minimal option, which is 25%. Those are your two choices. You can leave 50% or 25%. You can certainly leave nothing. But if you want to leave something, it's either 50% or 25%. I said earlier that there's a cost for this. What is the cost? The 50% option will be a reduction of 10% of your retirement annuity. So it costs you 10%. The 25% option will cost you 5% of your retirement annuity. Your pension check. So understand that if you want to leave a benefit to your spouse, if you died first, it's going to cost you a portion of your pension. Now, some that I talk to say, Hey, I still need to take this option because of the health benefits. I want to ensure that my spouse is taken care of with the health benefits if I die first. So I'm willing to at least take the 25% and lose 5% of my check for that option. That's completely up to you. But let's look at an example of how this would work. So let's say you're a fers retiree and I've already done the calculation, and let's say that your pension amount is going to be 33,000 a year and you elected the maximum survivor benefit, maximum meaning your spouse would get 50% of your pension or 16,500 per year for the rest of their life in the event you died first in retirement.

Val Mejewski:
Well, the cost for that would be, what, 10%, $3,300 a year or $275 per month. So you would lose out on 275 a month. For the ability for your spouse to get 16,500 a year for the rest of their life, assuming you died first. But you may be thinking, okay, you just said assuming me or you, the federal employee dies first. What happens if your spouse dies first? Well. This is where it gets a little tricky and this is where I think it's a bad piece of life insurance. Number one, you can cancel your plan. So if you your spouse dies first, you can cancel your survivor benefit, you can regain your full pension. You're no longer losing out on $275 a month. However, you do not recoup or get back any of that money that you paid into the program while you were doing so. So that money is just gone. So you can cancel your survivor benefit plan only if your spouse predeceases. You get back your full pension, but you don't have any. Cash to get back. You can't get back any of that money that you paid into the program.

Val Mejewski:
Now, I mentioned about the spousal benefit, though. Let's say the best case scenario happens and best case scenario, meaning you die first because you've been paying for that. You you said, hey, I want to pay for this because my spouse will get something if I die first. You die first. Your spouse will get money for the rest of their life. Well, how is that paid out? It's paid out in a monthly taxable payment for the rest of their life. There's no guarantee of how much they're going to get. So let's say you both lived long into retirement, 15, 20 years, and for 15 or 20 years you were paying into this survivor benefit. You passed away first as the federal retiree. They can get this payment up to 50% for the rest of their life, but there's no guarantee they're going to make back all the money that you paid into the plan. They may only live a couple of months, a couple of years, which may not recoup all those dollars. So what does that look like? Well, it may not have been a good investment. They can keep the health insurance at that point for sure. But from a dollars perspective, it may not have worked out. There's not a lump sum option like there would be with life insurance. So if I say this comment once again, I think the survivor benefit plan, outside of the need for the health insurance just on itself, take the health insurance out of it is a bad piece of life insurance.

Val Mejewski:
How does life insurance work if you own it, which you have phegley? So you own some of it. But let's say you own a private plan outside the government. How does it work? You pay a premium, you pay money, and in the event that you die, that life insurance company will pay your spouse a lump sum, tax free death benefit, lump sum, tax free. How does the survivor benefit work? You pay a premium. It's either 5% or 10%. Upon your death, your spouse will receive a taxable monthly payment for the rest of their life with no guarantee of how much they're going to get. So again, if you could see this, how this is a bad piece of life insurance and agree with me, I'm going to share with you ways in which we can create a real life insurance plan. But the big hook, like I mentioned, is the health insurance. Why do they still make this look attractive? Why do federal employees in your situation that are nearing or entering retirement still choose the survivor benefit option? Either they don't know how it completely works or even if they do, they need that health insurance option. Now, understand, too, that if you die first and did have a survivor benefit in place, they can keep your spouse can keep the health benefits, but they still have to pay the premiums for those health benefits.

Val Mejewski:
So it's not a free thing. So let's review this real quick. So you really hit the nail on the head here. You pay a premium, receive a reduced pension. That's how the survivor benefit works. It's it's permanent. I didn't mention this before. This is essentially an irrevocable decision. It's a permanent decision. So if you make this choice, there is a small window at the beginning of your retirement where you can make a change. But let's say you're a few years down the road. Five years later, you and your spouse are sitting there saying, We can really use that. In this past example, $275 back into the check. Let's get rid of this survivor benefit. We don't need it anymore. You cannot make that change. It's set in stone. At that point, I said the only way you can make a change once you elect it is if your spouse predeceases you. There's no cash built up in it. So the money that you're putting aside that 275 that's not coming out of your check or the reduction to your pension of $275 doesn't go anywhere. It's just not money you're seeing. It's lost money. It's a payment that you made that you don't see any benefit of. There's lack of options in retirement and death. I just mentioned it's a pretty much a irrevocable choice set in stone.

Val Mejewski:
You cannot make changes in retirement while you're alive. The only two changes I mentioned, if your spouse dies first, you can cancel it. And if you are not married at the time of retirement and you get married in retirement, you can add it. Those are really the only two in death. Your spouse has one option. They're going to get a check for the rest of their life. That check is taxable. It will come for the rest of their life. They live another 30 years. They will get it. It's a taxable monthly payment. There's no lump sum option in death. There's only one. They attach the federal employee health benefits to it. So you may agree with me thinking it's a bad deal, but if you want your spouse to be guaranteed to be able to keep the health benefits in retirement, then you need to at least elect the minimal benefit. As I said, it is a bad piece of life insurance on the front end. The health insurance factor, the FB factor changes it a little bit where some people may be forced to take it even if they don't agree or they do agree with me. Sorry that it's a bad piece of life insurance. They may still elect it because they want to keep the health insurance. Well, what if and this is what we we pose to folks that we talked to and this is what we're posing to you now, What if you can get the opposite of what we just talked about? What if you can keep your full pension? There's no reduction to it.

Val Mejewski:
What if you can get some equity with the cost of the program? So if you put that $275 somewhere, you'd actually get some some equity, some cash build up with it. What if you had options in retirement? You can make changes to your plan along the way. If circumstances change in death. What if your spouse had options with the money? What if they can get that monthly payment that was an option, or they can choose a tax free lump sum option? What if they had those choices? What if it was an actual life insurance policy instead of a bad piece of life insurance? Well, what if you can also provide a custom amount to your spouse? If you go back to the previous slides, you can see the only two options that you can choose as a federal employee. You can leave 50% or 25%. What if your spouse wants 60%? What if they need more money to live on in the event that you passed away first and 50% wasn't going to cut it? He said, Well, we need 60, 70, 80%. I want to leave 100%. You can customize a plan that will do exactly that. Customize the plan to say.

Val Mejewski:
I want to leave 100% of my pension to my spouse. Now you're going to pay for it and I'll explain that. But you have the ability to create that plan, which you don't have with the survivor benefit plan. The only issue with. An actual life insurance plan outside of the government plan is the health insurance. But we're going to talk about that, too. So let's do a comparison. You may have seen this comparison before, but I'm going to expound on this. I'm going to explain what I mean by, again, pension Max. And what is a pension max plan look like? Well, with the government plan, we talked about contractual agreements. Now, not that they would, but they could. It's not a contractual agreement with the survivor benefit plan. And you, the federal employee changes can be made to pensions and programs at any point. That's what new legislation comes in That's new with new budgeting, new things come into play. Now, hopefully they would never make any changes, but with a private insurance plan, a private pension max plan, which I mean when I say pension, Max, is you get to keep your full pension pension maximization and we can better use any money that you spend in a. Personally designed, custom designed solution for you and your family. That's what a pension plan is. It's not just 25% or 50%. It's got so many more features and benefits and values that you can utilize for that.

Val Mejewski:
In the example that we used before, $275 or whatever it is that you're paying into it. Managing costs. So the program, as we said, can be expensive, 10%. And you're not really getting much as far as return on that investment. It's just going away, right? That investment, that 275, there's nothing that's done with it. Well, what if you can build up some cash with that 275? Now costs are fixed for this plan as well as the government plan. But what if you're going to get more equity for it? We talk about good health discounts. Now with an actual life insurance plan, the healthier you are, the cheaper it's going to be. If you have private life insurance, you've seen that the healthier you are, the better your rates. We can look into that as well if you're in good health. Beneficiaries The survivor benefit plan is basically a spouse only program. There are circumstances where dependent children or other people that have insurable interest can get a benefit. It's rare. It's mostly just a spousal benefit with a private, actual pension. Max life insurance plan. You can name your spouse as a beneficiary. You can name your kids as contingent beneficiaries, grandkids, whoever. Something will go to somebody in the event that you pass away. The spousal plan is basically just a spousal benefit. Family protection. Yes, the government plan does protect your spouse with either the 50% or 25% lifetime payment.

Val Mejewski:
But with the private plane, you can name anybody, again, your beneficiary, spouse, kids, grandkids, what have you. Your estate. It can go wherever you name it and want it to go. Taxation. I mentioned this earlier that the survivor benefit plan, the monthly payment is taxable to your spouse with a private, actual life insurance plan. Benefits come out 100% tax free, tax free. Whether that is that monthly payment or the lump sum option will be tax free. Now, proof of insurability. This is the only negative against the private plan. You've got to be in good health to get it right. This is an actual life insurance plan. So if you're not in the greatest of health or you couldn't qualify health wise for an actual life insurance plan, then this may not something or not be something that is available to you. And we'd be forced to stick with this survivor benefit plan. But if you're in good health. And you can qualify health wise, then this could be a better option for you. Again, I say could because I don't know your situation. I don't know everybody that's listening to this episode, your situations. But I just know in general to show you the options and maybe an option you did not know about, it's worth the consideration to see if it is a good solution and suitable for you and your family.

Val Mejewski:
It's not for everybody. Trust me, This is not a one stop shop solution for everybody. Everybody go to this plan. But if we lay it all out, it could be a viable solution, a suitable solution for you and your family. Reducing coverage. As I mentioned earlier, this is pretty much irrevocable. And there's 25% or 50%. Once you choose that option, you can't say I'm at 50, I want to go to 25 or I'm at 25, I want to go to 50. It's set in stone with your private plan pension max plan. You can make changes at any time. You can. And there's the ability to do so because this is a custom plan that you own and control. Coverage limits said limited to 25 or 50%. With the survivor benefit plan, we can choose whatever amount you want within reason, I should say. But I'm talking when it's percentages of how much you want to leave your spouse or lump sums that you want to leave your spouse in the event that something happened. We can choose any custom amount for you. That's right. For you and your family. So just understand that with a private plan, it's 100% customizable. It's something you own and control can make modifications, changes to it at any point. It's a much more flexible plan. Percent customize it and make sure that the benefits are there, that what you want to do for your spouse and kids are there.

Val Mejewski:
The only negative, as I mentioned earlier, the health benefits are attached to the survivor benefit plan. If you went with the pension Max entirely, well, the health benefits would die with you when you pass away. There's a way around that as well. So let me let me go back to this slide before I jump the gun and go to our closing slide. Let me go to this one again, because it said family needs. What if you're saying, well, I'm kind of stuck, you know, I need the health benefits and I like what you're saying, but I need the health benefits if that's the case. I've walked a lot of federal employees through this, where you have to take the 25%, you take the 25% option, you're locking in and guaranteeing that your spouse will at least be able to continue the health benefits if you die first. If that is a major worry of yours, some federal employees would say, you know what, She'll probably be of age where she can get Medicare or an alternative plan. We'll roll the dice that way. If. But if you 100% want your spouse to keep the federal employee health benefits, then take the 25% option as a FERS employee. If you want to supplement the remainder 25%, or maybe you want to go up to 60 or 75%, we can supplement that with. The pension Max Private life insurance plan.

Val Mejewski:
And we can fill in the gaps. So take the 25%. Keep the health benefits. Now go to the private pension, max life insurance plan and fill in the rest. And you can customize that up to any number that you want. Now, understand, there will be a payment for that, a fee for that, a cost of that. But the other thing that I didn't mention about equity and building cash is these plans that we set up since they are a form of permanent life insurance, you get some equity, some value within your plan. I'm going to use an example. Let's say that you, the federal employee, you have the survivor benefit plan with the government. And as I mentioned before, if your spouse dies first, you cannot get back any of the money that you paid into the plan. You can cancel your survivor benefit, get that full pension back, but you cannot get back any of the money that you put into the plan. How would it work with the private life insurance pension Max plan? You can either cancel or surrender your policy. If your spouse dies first because you may not need it anymore and you can regain some of the cash value that you put into the plan, it may not be a full return of all the monies you put in, but you can get something back. So now your net cost over that same period of time is significantly less than it would have been with the government plan.

Val Mejewski:
Or you can keep the plan in place and just change your beneficiaries to be your kids, grandkids, somebody else, which you cannot do with the government plan. So you have more flexibility, more options, even in the event of your spouse passing away first. So whether or not this is right for you, completely up to you, your family, your situation, but I want to make you aware of something again that I've been talking to a lot of federal employees about because this is a concern of theirs. Health benefits may be one paying for the the survivor benefit plan may be number two. But what if we can customize the plan and put you in a better situation, give you more flexibility, options, ownership and control of this? Maybe the private life insurance pension plan is right for you. If it is, reach out to us, go to federal retirement. Show.com fill out that form. We'll be happy to reach out to you discuss this as well as any other options that you want to talk about. Well, i appreciate you joining me today for this episode on pension max. A survivor benefit alternative. Again, i'm your host, Val Majewski. Really appreciate your diligence and dedication to this show. Thank you for listening and look forward to seeing you on a future episode.

Producer:
With soaring inflation continuing to wreak havoc on everyday budgets, there's never been a more important time to cut costs. But do you know where to begin? I'm Matt McClure with the Retirement.Radio Network Powered by AmeriLife, There is no question costs have been soaring.

Sharon Epperson:
About one third, 34%, say they are worse off financially this year than a year ago. Almost half, 46%, say they've had to cut household spending due to inflation.

Producer:
Cnbc correspondent Sharon Epperson recently reported on a survey that sheds more light on how inflation has been impacting us all. Even those who earn six figures a year.

Sharon Epperson:
These high earners say the first expenses to go are dining out at restaurants, entertainment outside the home and travel and vacations. More than half also say they'll delay big household purchases.

Producer:
That high inflation has led the Federal Reserve to respond with interest rate hikes. The goal is to increase costs to tamp down demand. Esther George is president of the Kansas City Fed.

Esther George:
Already we've seen the committee's policy actions lead to a very sharp tightening of financial conditions.

Producer:
But it hasn't done enough yet and costs still keep rising. So what should you do? Well, we have a free resource called 23 retirement cost cutters for 2023. It's full of ideas to help you make the most of every penny. Things like take advantage of senior discounts, eliminate unnecessary subscriptions and cut back on clothing expenses, look.

Sharon Epperson:
At your needs and wants, Figure out what's optional and what you can cut.

Producer:
Out. The last one on the list of 23 retirement cost cutters for 2023 is perhaps the most important. Seek advice from a trusted financial professional. That's the best way to get in-depth financial advice in retirement planning that's customized to you and your goals. Just make sure whoever you consult for financial advice has years of experience and credibility you can verify. So do you know the best way to cut costs in 2023? That's a key question to consider as our budgets get stretched to the max with the Retirement.Radio Network Powered by AmeriLife. I'm Matt McClure.

Sonix is the world’s most advanced automated transcription, translation, and subtitling platform. Fast, accurate, and affordable.

Automatically convert your mp3 files to text (txt file), Microsoft Word (docx file), and SubRip Subtitle (srt file) in minutes.

Sonix has many features that you'd love including automatic transcription software, collaboration tools, share transcripts, transcribe multiple languages, and easily transcribe your Zoom meetings. Try Sonix for free today.