Q.: I will be retiring in about three years. My insurance broker urges me to protect my wife with life insurance rather than with a survivorship option from the NYCERS. What do you think? P. H.
A.: Your insurance broker is attempting to sell you "pension max". You will elect "maximum" (no option) from the NYCERS. Should you die before your wife, she will receive the death proceeds from the life insurance company. The proceeds will be invested in such a way as to generate retirement income substantially equal to the survivorship option you could have elected from the NYCERS for the benefit of your wife.
For the following reasons, I am against the purchase of "pension max":
- Who will be responsible for investment decisions, your wife? What is her investment experience? For a fee she can retain the services of an investment advisor. Where will she find such a person? What is his or her track record?
- In a "bull market," will your wife be tempted to withdraw more than her customary amount?
- In a "bear market," will your wife be forced to sell off solid investments in order to raise her customary withdrawal amount?
- Your wife's cognitive abilities will decrease with advancing age. Who will make sure that her income stream continues without interruption?
- P.H., your NYCERS lifetime income is guaranteed by the Constitution of the State of New York. Should your wife not have the same peace-of-mind? The decision to purchase or not purchase "pension max" is your wife's decision, not yours.
Feel free to contact me should you require additional reasons not to purchase "pension max."
Mr. Frank is a fee-only Retirement Financial Planner and a retired city high school Teacher of Accounting. He can be reached by phone at (732) 536-9472, or via email at firstname.lastname@example.org.
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