Many of you are considering retiring this year. And, if you are married, you’re also considering whether to provide a survivor annuity for your spouse and, if so, how much it would be.
However, the days when that decision was entirely up to you are gone. Now if you want to provide a reduced survivor annuity (or none at all), you’ll need to have the written consent of your spouse.
Electing a survivor annuity reduces the amount of your own annuity. How much it’s reduced depends on whether you chose a full annuity or a reduced one. Under CSRS you can 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 difference is that under CSRS, there is a reduction of only 2.5 percent for any amount up to $3,600 elected as a base, then 10 percent for any amount above $3,600. For FERS, it’s a flat 10 percent on your entire annuity.
Whatever level of survivor annuity you elect, the reduction will be made in the amount you are entitled to 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 annual annuity at retirement was $20,000 and you elected a full survivor annuity, your own annuity would be $18,000 ($20,000 reduced by 10 percent). That’s the amount to which any future cost-of-living adjustments (COLAs) would be added.
The 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 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, when you die your spouse would receive 50 percent of your annuity before it was reduced. In addition, that survivor annuity would be increased by any COLAs you had already received, plus all future COLAs.
While you and your spouse could agree not to have you elect a survivor annuity and instead invest the extra dollars or purchase an insurance policy, very few retiring employees do that. And as a rule they only do that 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.