KPERS employees should know about this! | 3rd Level Wealth
Every KPERS employee nearing retirement should at least know about this strategy.
It’s called pension maximization.
What is it and how does it work?
KPERS is what we call a defined benefit plan (or pension). Part of your choice at retirement is selecting which option you’d like to receive in your defined benefit plan for the remainder of your life in exchange for your service as an employee. There are a number of options and it will vary by individual.
One of the biggest mistakes I see with KPERS employees is assuming that your financial plan is the same as your coworkers financial plan and therefore you should select the same option as your fellow co-workers. That may or may not be the case because there are too many variables at stake.
So what do you do?
One of the places you could start is to apply and go through the underwriting process for life insurance as a stand alone policy. Why? Because once the results are back and the price is determined, you then can decide if it makes sense to purchase the life insurance policy in conjunction with your retirement KPERS strategy.
For example, imagine you are turning 67 on January 1, 2024, have worked for 30 years in the KPERS system and in your last year you made $50,000. The results for your KPERS benefits are below.
Let’s say for simplicity sake based on your financial plan that we have narrowed down your options to two, take the maximum monthly benefit and hope you live a long time or take the reduced amount and give your spouse 100% Joint-Survivor benefit in case you die before them.
Maximum monthly benefit to you and your spouse: $2,229.17. Amount left to spouse if you die in the first month (or any thereafter) of retirement: $0
Joint-Survivor 100% benefit: $1,810.09. Amount left to spouse each month if you die before them: $1,810.09.
Difference between $2,229.17 and $1,810.09 is $419.08.
So then the question becomes; how much life insurance could I purchase for $419.08 a month?
Would it make sense to purchase life insurance in this scenario?
It depends. It very well could. It depends on your goals. It depends on your health. It depends what you want to leave your spouse, your children, your community, etc.
Again, there are too many variables for this to be a one size fits all strategy, but it is a very good option for the right fit. You could leave your spouse or loved ones with more money tax free than what they would have received if you chose the Joint-Survivor 100% benefit option. It will not work for everyone, but it certainly is worth looking into!
***This is not investment advice. Each situation is unique to the individual or family. Please consult your financial planner or tax professional for personalized advice.
3rd Level Wealth
Check out the resources below and sign up for the newsletter!
What do you do when you are past the age of 65 for your health insurance? What if you are married? What if your spouse is still working and can add you to their group plan? What are your options and which one is best? What is Medicare A, B, C, D? There is much confusion over health insurance in the United States, especially Medicare. Medicare is the federal health insurance program for people over the age of 65 and some younger people who qualify in different situations. Medicare can be your...
What is the five year look-back? Imagine working your entire life while accumulating some assets only to have it taken away at the end. Anyone who has experienced a loved one’s end of life care and the difficult decisions that come with may be able to relate. It doesn’t seem fair that a person can work so hard for so long yet end up spending a majority (or all) of their wealth in their final years on healthcare. Home health care, assisted living and long term care can get expensive in a hurry...
How many different types of investments are there? I remember when I first started in finance trying to figure out all of the ways to invest. It seems the possibilities are endless. Not only in the stock market, but in businesses, in real estate, in commodities, etc. People are very creative at coming up with ways to make money. To help simplify the way I thought about investing, it occurred to me that there are really only 6 different types of investments in the world: Tax free investments...