Reg Jones Expert's View

Once upon a time, a retiring federal employee had the sole authority to decide whether to provide a survivor annuity for a spouse, and how much it would be. Those days are gone forever. Now if you want to provide a reduced survivor annuity (or none at all), you need to have the written consent of your spouse.

Downside of Electing a Survivor Annuity

The main sticking point for most employees in electing a survivor annuity is that it reduces the amount of their own annuity. How much it is reduced depends on whether they choose 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. FERS is far less flexible. You only have two choices: 50 percent of your base annuity or 25 percent.

The reduction for a full CSRS survivor annuity amounts to around 10 percent; under FERS it’s exactly 10 percent. The reason for the slight difference is that under CSRS, there is a reduction of 2.5 percent for any amount up to $3,600 chosen as a base and 10 percent for any amount above $3,600.

Whatever level of survivor annuity you elect, the reduction will be made in your base annuity, i.e., the amount to which you are entitled before any deductions are taken out for such things as health benefits premiums, taxes, etc. So, for example, if you were a FERS employee whose base annuity at retirement was $50,000 and who elected a full survivor annuity, your own annuity would be $45,000 ($50,000 reduced by 10 percent). That’s the amount to which future cost-of-living adjustments (COLAs) would be added.

Upside of Electing a Survivor Annuity

The principal advantage of electing a survivor annuity is that it will provide an income to your spouse for as long as he or she lives, unless your spouse remarries before age 55. The amount of income he or she receives will be determined by the amount of your base annuity you elect to provide, increased by all the COLAs you received since you retired. For example, if you were a FERS employee who had elected a full survivor annuity and were receiving an annuity of $54,000 when you died, your spouse wouldn’t receive an annuity of $27,000 ($54,000 x .50); instead, he or she would receive 50 percent of your base annuity or $30,000 ($60,000 x .50). In addition, that survivor annuity would be increased by all future COLAs.

Selecting a survivor annuity in most cases is necessary to keep your survivor eligible for Federal Employees Health Benefits program coverage, as well.

Should I or Shouldn’t I?

Having more money in your own annuity is terribly tempting. After all, you could invest the extra dollars or purchase an insurance policy for your spouse. However, very few retiring employees do that. And then only when their spouse is already well provided for. For everyone else, a federal survivor annuity is a hard deal to beat. After all, not only is it generous but it’s backed by the full faith and credit of the government.