Why is it that things that should be obvious are as usually clear as mud? Let me cite two examples of questions I’ve recently answered that fall in that category. They both dealt with survivor annuities. The first question was, “If I elect a survivor annuity, does the reduction in my annuity increase every year to pay for it?” The second was, “Is the survivor annuity a percentage of the annuity I received when I retired or the one I’m getting now?” Let’s deal with them one at a time.
When you retire, your base annuity will be computed. If you elect a survivor annuity, the amount of the reduction will be calculated and applied. After that’s done, you will have a new base annuity. For example, if your original base annual annuity were $30,000 and you elected a full survivor annuity for your spouse, that figure would be reduced by 10 percent. So your new base annuity would be $27,000. That’s the annuity amount that would be increased each time you were eligible for an annual cost-of-living adjustment. As you can see, your new base annuity is not decreased annually to pay for the survivor annuity benefit.
Now, if you died before your spouse, your spouse would be entitled to the percentage of your annuity that you elected. That percentage would be applied to the annuity you would have been receiving on the day you died had you not elected a full survivor annuity. Using the example above, if your original base annual annuity were $30,000, your survivor would receive x percent (that is, whatever percentage you chose) of that annuity increased by all intervening COLAs. On the other hand, if your spouse died before you did, your annuity would be increased to what it would have been had you never elected a survivor annuity, including all the intervening COLAs between your retirement and when your spouse died.