Any of you who are married know that one of the first things you’ll have to decide after you decide to retire is whether to elect a survivor annuity for your spouse. It’s a topic that never grows old. In the old days, it was a decision that was left entirely to you. However, the world changed rather dramatically in the mid-1980s with the Spouse Equity Act.
Now if you are married when you retire (and there’s no court order requiring you to provide a survivor annuity to your former spouse), you must elect a full survivor annuity for your current spouse. You can only elect less than a full survivor annuity (or none at all) with your spouse’s written consent.
So, how do you decide what is best for the two of you? Let’s start by looking at the pluses and minuses of a survivor annuity.
The major “minus” is a personal one. You will get less money in your own annuity. How much less that depends on the amount of survivor annuity you elect. The possibilities under CSRS are enormous because you and your spouse can agree on any amount from $1 per year up to 55 percent of your base annuity. On the other hand, under FERS there are only two possibilities: a full survivor annuity (50 percent of your base annuity) or a partial survivor annuity (25 percent of your base annuity).
No matter what level of survivor annuity you elect, the reduction in your own annuity will be permanent. Under FERS the reduction is precisely 10 percent for the full (50 percent) survivor annuity and 5 percent for the partial (25 percent) survivor annuity. Obviously, a reduced survivor benefit will cost you proportionately less.
Under CSRS, electing a survivor annuity will reduce your own annuity by 2.5 percent of the first $3,600 of your base annuity plus 10 percent of any amount over $3,600. Thus, for a full annuity, the reduction ranges from 2.5 percent to just shy of 10 percent, depending on the size of your annuity and the size of the survivor benefit you choose.
Now here’s a big “plus.” If you elect a survivor benefit and die, your widow(er) will receive a guaranteed income for as long as he or she lives, unless he or she remarries before age 55. That initial survivor benefit will be calculated from your base annuity before any reduction for a survivor annuity, and it will be increased by every cost-of-living adjustment you received after you retired. Further, it will be increased by annual COLAs from that point on.
And here’s another “plus.” 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 when you die, he or she will be able to keep that coverage. On the other hand, a survivor who isn’t entitled to an annuity won’t be eligible to continue that coverage, unless he or she is separately entitled by being a federal employee or retiree who had been covered under your enrollment.
By the way, there’s no problem if the dollar amount of survivor annuity you elect is insufficient to cover the health benefit premiums. As long as he or she is receiving any survivor annuity, the premiums can be paid directly to OPM.
Well, there you have it – a rough cut at the pluses and minuses of electing a survivor annuity. I imagine that the big question lingering in your mind is whether it would make better financial sense to keep your full annuity and use the extra income another way. Most employees don’t do that because the government’s survivor benefit package is almost impossible to beat. Investing the extra money or purchasing an insurance policy hoping will make up the difference seldom produces a result that can match it.
One last point. If your spouse dies before you, your annuity will be restored to what it would have been had you never made a survivor annuity election.