Should you elect a survivor annuity for your spouse when you retire? Before you say yes or no, remember that the law requires that you provide a full one unless your spouse agrees in writing to a reduced annuity or none at all.
From your point of view, the downside of electing a survivor annuity is that it will reduce the amount of your own annuity. How much depends on whether you elect a full annuity or a reduced one. It also depends on what retirement system you’re in.
Under CSRS you may elect any amount of survivor annuity from $1 per year up to 55 percent of your base annuity. Under FERS, you only have two choices: 50 percent of your base annuity or 25 percent. The reduction for a CSRS full survivor annuity amounts to around 10 percent; a reduced survivor annuity will cost you proportionately less. Under FERS it’s 10 percent for the 50 percent annuity, and 5 percent for the 25 percent annuity.
Whatever level of survivor benefit you elect, the reduction is made in your base annuity, i.e., the amount to which you are entitled before any deductions are made.
The principal advantage of electing a survivor annuity is that it will provide income to your spouse as long as he or she lives, unless he or she remarries before age 55. That income will be derived from your base annuity, increased by all the cost-of-living-allowances (COLAs) you received since you retired. So, if you elected a full survivor annuity under CSRS, your widow(er) wouldn’t receive 55 percent of your current annuity; instead, he or she would receive 55 percent of your unreduced annuity, the one you would have had if you hadn’t elected a survivor annuity. In addition, your survivor spouse’s annuity would be increased by all future COLAs.
Also consider health benefits. If you and your spouse are covered under the Federal Employees Health Benefits Program, your survivor will have to receive some amount of annuity to continue that coverage unless your spouse is also a federal employee or retiree who is separately entitled to that coverage in his or her own right.
While it may be tempting to turn down the offer of a survivor annuity and either invest the extra money or purchase an insurance policy to make up the difference, very few retiring employees do it; the government’s deal is hard to beat.