Retirement & Financial Planning Report

One of the more difficult choices that federal employees face as they move into retirement is whether to provide for a survivor benefit on their annuities. The choice has important financial ramifications, not only for the employee but also for family members. But there also are important benefit implications, all the more so now that the federal long-term care program is launching.

The financial side is relatively easy to quantify. Choosing to provide the standard survivor annuity as a CSRS retiree results in a reduction to the annuity of about 10 percent. In return, the survivor would receive an annuity equal to 55 percent of the unreduced annuity upon the annuitant’s death. Smaller survivor benefits, with associated smaller reductions in the primary annuity, also can be elected.

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Under FERS, the retiree can choose two types of survivor annuity: a 50 percent benefit, which results in a 10 percent reduction of the primary annuity, or a 25 percent benefit, which results in a 5 percent reduction.

From a financial viewpoint, deciding whether to provide a survivor benefit can be a complicated matter that depends on, among other factors, total assets and any benefits the spouse earned on his or her own accord. If you and your spouse choose not to provide a survivor benefit, you in effect are saying that you’re satisfied with the income your spouse will have without it. If you aren’t satisfied, how will you replace the value of a survivor benefit? It could be very difficult—remember, both you (in the form of a reduced annuity) and the government fund the value of a survivor benefit. How will you replace the government’s share if you choose to give that up?

From a benefits viewpoint, the major factor in the decision always has been that in general, if a survivor benefit is not elected, the survivor—and possibly certain eligible children—would not be able to remain covered under the FEHB program upon the primary annuitant’s death. This factor alone has made the difference for many retirees in the election decision.

A similar consideration comes into play regarding the new federal long-term care insurance program, as well: a widow or widower of a federal annuitant who never elected a survivor annuity will not be eligible to apply for the LTC insurance. However, if that person had enrolled while the spouse was still alive, coverage would continue as long as the premiums are paid, even if the federal annuitant spouse later died without electing a survivor annuity.