Considering Pension Option 1 and Life Insurance as an Alternative to Option 3 for FRS Members

For members of the Florida Retirement System (FRS), especially those classified under the Special Risk Class such as firefighters, police officers, and other public safety personnel, choosing the appropriate pension option can play a key role in building a sound retirement strategy.

One commonly selected option at retirement is Option 3, which provides a reduced monthly benefit in exchange for a continuing payment to a spouse or beneficiary after the member passes away. While Option 3 offers spousal protection, it may not always be the most efficient or flexible approach depending on your specific needs and family situation.

An alternative strategy is selecting Pension Option 1, which provides the maximum monthly benefitduring the retiree's lifetime — and then using a portion of that increased income to purchase life insurance independently. This strategy is sometimes referred to as "self-insuring."

Why Some Members Explore the Option 1 + Life Insurance Strategy

Here are a few reasons FRS members — particularly those retiring at a younger age with longer planning horizons — may want to explore this approach:

1. Potential Cost Differences

In some cases, the reduction in monthly income under Option 3 can be greater than the cost of maintaining a term or permanent life insurance policy. By taking Option 1 and applying the difference toward life insurance, some members may find they’re able to provide similar or even broader protection for their families at a lower net cost. This can depend on age, health status, and the type of insurance purchased.

2. Flexibility If the Spouse Passes Away First

Under Option 3, the retiree's monthly income is permanently reduced — even if the spouse predeceases them. With life insurance, the policy can be adjusted, cancelled, or repurposed depending on changes in family structure or financial goals. That added flexibility is often a significant consideration.

3. Control and Legacy Planning

Life insurance proceeds are typically paid tax-free and can be structured to go to one or multiple beneficiaries, including children or trusts. Pension Option 3 is limited to one named beneficiary at the time of retirement. For members thinking about multigenerational legacy planning, this can be an important difference.

Important Caveats

It’s important to note that this strategy won’t be right for everyone. Life insurance comes with underwriting requirements and may not be available at favorable rates for individuals with health concerns. Additionally, some members may prefer the fixed nature of Option 3, regardless of cost or flexibility.

Final Thoughts

Choosing between Pension Option 1 and Option 3 — and whether to supplement with life insurance — is a highly personal decision that should be considered in the broader context of your retirement goals, family needs, and retirement plan. What works for one member may not work for another. This is why it is important to discuss your options and retirement plans with a financial professional knowledgeable of how your benefits work.