Life Insurance a Poor Substitute for Pension

Participants in the nation’s defined-benefit pension system (public and private) are being preyed upon by life-insurance salespeople. One par­ticularly hurtful proposal dispensed by the commission salesperson is for the pension member to elect the maximum pension (no option) and purchase a life-insurance policy for the protection of the significant other. Upon the death of the insured, the significant other will invest the death proceeds in stocks and bonds in such a way as to generate substantially the same income stream as would be had if the pensioner elected the equal-to-survivor option from the pension system. This proposal is referred to as Pension Maximization.

Let’s examine Joe and Joanne’s situation: Joe is a member of the uniformed forces of the City of New York and is married to Joanne. Both will be 55 when Joe retires. His maximum pension will be $50,000 annually. After thoughtful consideration, they have decided that they need to plan for Joanne’s financial security should she survive Joe.