Which Survivor Benefit Is Right For You?
Which survivor benefit is right for you?
When you retire from federal service, one of your primary income streams will be your FERS pension (FERS annuity). You can elect to receive your full FERS pension, which will pay you a monthly income until your death. You have options, however.
You can elect what’s called a Survivor Benefit. With a survivor benefit, you take a reduction in your FERS pension, but if you pre-decease your spouse, they will receive a monthly income for the duration of their life. You can also elect someone other than your spouse (who has an insurable interest in you) for the survivor benefit, although we won’t cover all the details of those scenarios here.
You’ll make this decision as part of your retirement packet. If you elect any option other than the Maximum Survivor Benefit, it must be signed by your spouse and notarized.
Let’s jump into each option below…
Maximum FERS Survivor Benefit
The maximum survivor benefit would reduce your pension by 10%, and give your spouse 50% of your full monthly pension at the time of your death. The reduction to your pension is permanent, and your time or date of death doesn’t matter. Let’s look at an example with some easy numbers to illustrate.
Full FERS Pension: $2,000
(minus 10%): $200
Reduced FERS Pension: $1,800
Surviving Spouse Monthly Income: $1,000
By choosing the maximum survivor benefit, instead of receiving $2,000 for your FERS pension, you receive $1,800. At your death, your spouse will receive $1,000 for the rest of their life.
Minimum FERS Survivor Benefit
The minimum survivor benefit would reduce your pension by 5%, and give your spouse 25% of your full monthly pension at the time of your death. An example for the minimum FERS survivor benefit is below.
Full FERS Pension: $2,000
(minus 5%): $100
Reduced FERS Pension: $1,900
Surviving Spouse Monthly Income: $500
By choosing the minimum survivor benefit, instead of receiving $2,000 for your FERS pension, you receive $1,800. At your death your spouse will receive $500 for the rest of their life.
Again, both of these reductions under the Maximum and Minimum Survivor benefit options are permanent.
It’s also important to note that these FERS pension numbers are ‘gross’ numbers, which means they aren’t taking into account and taxes or deductions (health insurance, etc).
No Survivor Benefit
It’s not required to choose any of the survivor benefits. You can simply elect to receive your full, unreduced FERS pension. As stated previously, you will need your spouse’s consent when electing no benefit (which is a section in your retirement packet).
Even if you’re in a position where you spouse might not need the money, it might make sense to consider one of the survivor benefits for one reason — health insurance.
Health Insurance Implications
Your spouse can continue coverage under your FEHB (health insurance) when you retire. However, they will not be eligible to continue FEHB after your death unless they are receiving either the minimum or maximum survivor benefit.
The cost of getting private insurance could be extremely high. It might make sense to consider the survivor benefit solely for this purpose.
Making Changes After Retirement
What happens if you made a survivor benefit election at retirement but changed your mind?
According to OPM, If you want to change your election option, and it’s within 30 days of your “first regular annuity payment” you may change your election in writing to OPM.
If the change you’re making is to anything other than the maximum benefit, you must obtain your spouse’s consent.
If it’s less than 30 days, as stated above, you can cancel or reduce the survivor benefit. However, if more than 30 days has passed, you cannot cancel the survivor benefit previously elected.
After 30 days, but less than 18 months have passed, you can choose to elect a survivor annuity if you didn’t previously, or you can increase the survivor annuity from the minimum to the maximum.
It’s always good to know your options before you decide to retire.
Our expert staff fields questions and walks through situations like these every day.
If you’d like to learn more, schedule your complimentary federal benefits review and retirement analysis here with a licensed insurance professional.
For additional information, you can also contact your friends at GPIS by calling 866-201-7829 or by sending an e-mail to email@example.com.
-Sam Wiss, RICP
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