Fewer and fewer Americans today have a pension. If you have one, congratulations, that’s great. It’s a huge asset to have, especially when it comes to retirement. But which pension option should you choose? Should you choose “Your Life Only?” Should you buy out your pension? Should you cover your spouse or maybe even cover your kids? How do you think about that? I’m going to give you the concepts to help put those questions into the right perspective so you can make an informed decision.

The number one thing to think about when it comes to a pension is that “Your Life Only” is your full pension amount. This means that if you take the option where your pension goes away if you die, that’s your actual pension amount. Everything else is life insurance that you buy through the pension. You might see something that says “Your Life + 10 years”. That means that once you retire, you will be covered for the rest of your life. But if you die in the first 10 years, they will continue to pay out that benefit for the remainder of the 10 years starting from the day that you retired, not 10 years after you die.

You might also see “Your Life and Your Spouse’s Life” or “Your Life and then 75% to Your Spouse”. If you choose either of these, know that you’re taking decreases in your pension to basically buy life insurance for your spouse. The only difference is instead of a lump sum policy that’s tax-free like life insurance is where your spouse can do whatever they want with it; instead, they’re stuck to that pension program. So if your spouse ends up passing away two years after you or even before you, then the benefit is greatly reduced and you’ve paid your entire life for this benefit.

One of the things we recommend is that if you’re healthy, take a look at what the difference will be between your maximum pension amount and whatever the decrease that you want is, and see how much life insurance you can buy with that. If your maximum pension amount is $1,000, and to cover your spouse, it’s $700 a month, how much life insurance can you buy for $300? If you’re not that healthy, then maybe not that much. But if you’re very healthy, you might be able to get an even better benefit for your spouse because life insurance is tax-free.

So the way I want you to think about the pension is that “Your Life Only” is YOUR pension. And I’m not saying that I don’t want your spouse to get any, but just realize everything else is buying life insurance. You just have to figure out if you want to buy life insurance through the pension program or do you want to get it on your own. That’s the decision that you have to make, though a lot of times we see that it’s cheaper to get your own life insurance rather than taking the decreased one that the pension plan has to offer.

Lastly, if you have a buyout option, you probably want to take a look at that. Sometimes buyout options will end up paying you out a lot more money than the actual pension payments because they’re trying to get you off the books. They don’t want the liability of someone who might live to be 85, 90, or 95-years-old, so they’re trying to get those assets off the books. So if you have a buyout option, I highly recommend you speak with somebody who works with pensions and retirement to see if you can recreate more income than what the pension is going to give you.

Securities and advisory services offered through Madison Avenue Securities, LLC, member FINRA SIPC, and a registered investment advisor. Madison Avenue Securities, and Don Anders are not affiliated companies.