The Survivor Annuity Election

If you are married and approaching retirement, you’ll be facing a big decision. Should you elect a survivor benefit for your spouse? Once upon a time, that was your decision to make, yours alone. Not anymore. Today, if you want to elect a reduced survivor annuity (or none at all), you may only do so with the written consent of your spouse.

So, what are the pluses and minuses? The main downside of electing a survivor annuity is that it reduces the amount of your own annuity. The impact depends on whether you elect a full annuity or a reduced one. Under CSRS you may elect any amount from $1 per year up to 55 percent of your base annuity. Under FERS there are only two choices: 50 percent of your base annuity or 25 percent. The reduction for a CSRS full survivor annuity amounts to around 10 percent; under FERS it’s exactly 10 percent. Obviously, a reduced survivor annuity will cost you proportionately less. Whatever level of survivor annuity you elect, the reduction is made in your base annuity, i.e., the amount to which you are entitled before any deductions are made for such things as health benefits premiums, taxes, etc.

The main advantage of electing a survivor annuity is this: It will provide an income to your spouse as long as he or she lives, unless he or she remarries before age 55. That income will be derived from your base annuity, increased by all the cost-of-living-allowances (COLAs) you received since you retired. For example, if you had elected a full survivor annuity and were receiving a base annuity of $45,000 when you died, your spouse wouldn’t receive an annuity of $22,500 ($45,000 x .50); instead, he or she would receive $25,000 ($50,000 x .50). In addition, the survivor annuity would be increased by all future COLAs.

While it may be tempting to turn down the offer of a survivor annuity and either invest the extra money or purchase an insurance policy to make up the difference, very few retiring employees do it. That’s because the government’s financial deal is hard to beat. Another reason is that unless your survivor is otherwise eligible to enroll in the Federal Employees Health Benefits program (such as if she or he is an active federal employee) a survivor benefit must be chosen so that your spouse can remain covered by FEHB.

Note: If you are divorced and a court has given a survivor annuity to your former spouse, you may still elect a survivor annuity for your current spouse. Doing this can protect him or her if your former spouse loses entitlement to that annuity, for example, by remarrying before age 55.