Are you a federal employee? Are you married? Are you thinking about retiring any time soon? If the answer to those three questions is yes, you have an important decision to make. Should you elect a survivor benefit for your spouse and, if so, how big should it be? Just remember, if you want to elect a reduced survivor benefit for your spouse (or none at all), you can only do so with his or her written consent.
To help you better understanding the implications, I’ll go over some major pluses and minuses of electing or rejecting a survivor benefit. The principal disadvantage is that it will reduce your own annuity. How much depends on whether you elect a full survivor benefit or a reduced one. Under CSRS you can 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 permanent reduction in your annuity to pay for a CSRS full survivor benefit amounts to around 10 percent; under FERS it’s exactly 10 percent for the maximum 50 percent survivor benefit. Obviously, a reduced survivor benefit will cost you proportionately less. You can figure out how much less by using the following formulas:
- CSRS – 2.5 percent of the first $3,600 of your base annuity plus 10 percent of any amount above $3,600
- FERS – 5 percent of your base annuity for the 25 percent survivor benefit
The principal advantage of electing a survivor benefit is that your spouse will receive an income for as long as he or she lives, unless he or she remarries before age 55. Under CSRS, your spouse will receive 55 percent of the annuity base you selected; under FERS it will be 50 percent. And that base will be increased by every cost-of-living adjustment (COLA) you received since you retired.
A secondary advantage of electing a survivor benefit is this. If you are eligible to carry your Federal Employees Health Benefits (FEHB) program coverage into retirement and your spouse is covered under the self and family option, he or she will be to keep that coverage after you die. A survivor who isn’t entitled to an annuity won’t be eligible to continue that coverage, unless he or she is separately entitled, for example, by being a federal employee or retiree who had been covered under your enrollment.
While it would be tempting to turn down a survivor benefit, most retiring employees don’t do that unless their spouse’s own retirement benefit entitlements are more than adequate. The reason is obvious. The government’s survivor benefit deal is hard to beat. Investing the extra money you receive in your monthly annuity or purchasing an insurance policy to make up the difference will seldom produce an income stream that can match what Uncle Sugar will give your spouse. And, if your spouse dies before you, your annuity will be restored to what it would have been had you never made a survivor benefit election.