You may have read articles suggesting that using life insurance to replace a FERS survivor annuity eliminates a reduction of your monthly FERS annuity (pension). Though the decision is entirely yours to make, it’s important to understand what happens when you elect “no survivor annuity” on your retirement application.
When You Die, Your Spouse’s FEHB Coverage Is Terminated
Since Uncle Sam continues to pay as much as 75% of your premium when you carry FEHB into retirement, it’s a valuable benefit that helps combat the rising cost of healthcare. For your spouse to keep their FEHB coverage after you die, you must elect a survivor annuity. If you elect “No Survivor Election,” their FEHB coverage is terminated upon your death.
When this happens, they’ll have to rely on traditional Medicare or Medicare Advantage. Of course, Medicare premiums and deductibles continue to rise year after year. Ask yourself this – how much life insurance would you need to buy to make up for the loss of your spouse’s FEHB benefits?
“When you use life insurance to replace a FERS survivor annuity for your spouse, you need to factor in the impact of rising inflation.”
Your TSP Balance May Not Be Enough To Support Your Widow(er)
Let’s face it, the longer you live the less you’ll leave behind in your TSP account for your spouse. Without a FERS Survivor Annuity, your TSP balance may not be enough to cover their living expenses plus healthcare insurance after the termination of their FEHB benefits. You also have to consider your spouse will lose one of two Social Security checks when you pass away.
Inflation Can Erode The Proceeds Of A Life Insurance Policy
When you use life insurance to replace a FERS survivor annuity for your spouse, you need to factor in the impact of rising inflation. Some experts say you need to calculate a 3% to 4% hike each year. If your spouse does not have additional sources of retirement income from their own years of employment, a life insurance policy may not be enough after inflation erodes the proceeds over time.
You Don’t Have Much Time To Change Your Mind Once You Retire
You can’t change your survivor annuity election if it’s more than 30 days from your first regular monthly annuity (pension) payment. However, if you’re still within 18 months after the date of your retirement, you can submit a written request to make one of two changes: elect a survivor annuity or increase the amount of the survivor annuity you originally elected. Once these windows close, your survivor election is permanent.
Before you make a decision on electing a survivor annuity, touch base with an FRC® trained advisor for the latest information.
Source: https://www.opm.gov/
