Retirement from public service comes with one of the most important financial decisions you’ll ever make.
If you participate in a Defined Benefit Pension, you’ll likely be asked to choose between a Maximum Pension and a Survivor Pension Option. At first glance, the choice appears straightforward. In reality, it can affect your retirement income, your spouse’s financial security, and your family’s financial future for decades.
Understanding the differences is the first step toward making an informed decision.
The Maximum Pension
The Maximum Pension provides the highest monthly retirement benefit available from your pension system.
Because no continuing pension benefit is provided after the retiree’s death, the pension system can pay a larger monthly amount while the retiree is living.
For retirees who want to maximize their monthly retirement income, this option often provides the greatest cash flow throughout retirement.
The Survivor Pension Option
The Survivor Pension Option reduces the retiree’s monthly pension so that a surviving spouse can continue receiving pension income after the retiree passes away.
The percentage of the reduction varies by pension system and the survivor option selected. Some plans offer a 100% survivor benefit, while others may provide a 50% survivor benefit or additional alternatives.
The important point is that the reduction is generally permanent.
Comparing the Two Options
Neither option is automatically better than the other.
Instead, each addresses a different financial priority.
A Maximum Pension generally provides:
- The highest monthly retirement income.
- Greater spending flexibility during retirement.
- No continuing pension payments after the retiree’s death.
A Survivor Pension Option generally provides:
- Continuing pension income for a surviving spouse.
- Lower monthly retirement income during the retiree’s lifetime.
- A permanent reduction in the pension benefit.
For some retirees, that permanent reduction can represent a significant financial tradeoff over a long retirement. You may want to learn How A Reduced Pension Can Cost As Much As $300,000 Over 25 Years.
The right choice depends on your family’s financial circumstances, retirement goals, and the provisions of your specific Defined Benefit Pension plan.
Questions Every Retiree Should Ask
Before making your pension election, consider questions such as:
- How much monthly income will each option provide?
- How much is the survivor benefit reduction?
- How would each choice affect our retirement lifestyle?
- What financial resources would be available to my spouse if I die first?
- Is there another strategy that could help accomplish the same goals?
These questions deserve careful consideration because, once your pension election becomes effective, it often cannot be changed.
For some first responders, that next step is learning about the Pension Shield Option™, a retirement income strategy designed to help eligible retirees evaluate another approach before making a permanent pension election.
Every retirement is different, and every pension system has its own rules. Taking time to understand your options before signing your retirement paperwork can help you make a decision with confidence.