First let’s set the record straight. If you are married when you retire (and there is no court order requiring that you provide a survivor annuity to your former spouse), you are required by law to elect a full survivor annuity for your current spouse. You can only elect less than a full annuity (or none at all) with your spouse’s written consent. To help the two of you decide if that written consent should be forthcoming, we need to look at the pluses and minuses of a survivor annuity.
From your personal point of view, the major downside to electing a survivor annuity is that you will get less in your own annuity. How much less that will be depends on the amount of survivor annuity you provide. The range of possibilities under CSRS is enormous. The two of you can agree on any amount from $1 per year up to 55 percent of your base annuity. Sadly for FERS retirees there are only two choices: 50 percent of your base annuity or 25 percent.
Regardless of the amount you elect, the reduction in your annuity is permanent. Under CSRS, electing a full survivor annuity results in a reduction in your own annuity of around 10 percent; under FERS it is exactly 10 percent. A reduced survivor benefit costs proportionately less. To see how much that reduction would be, use the following formulas:
◦ CSRS – 2.5 percent of the first $3,600 of your base annuity plus 10% of any amount over $3,600
◦ FERS – 10 percent of your base annuity, which can either be 50 percent or 25 percent
If you elect a survivor benefit and die, your widow(er) will be entitled to receive an income for as long as he or she lives, unless he or she remarries before age 55. That initial survivor benefit will be increased by every cost-of-living adjustment (COLA) you received since you retired. And it will continue to be increased by COLAs in each succeeding year.
Further, 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. Note: It makes no difference if the amount of survivor annuity you elect is sufficient 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.
While it is tempting to thing about keeping your full annuity and purchasing life insurance instead, most employees don’t do that unless their spouse’s own retirement benefit entitlements are more than adequate. That’s because the government’s survivor benefit package 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.