When you retire, your FERS annuity (pension) is subject to a number of deductions – from your FEHB and FEDVIP premiums to deductions for your federal income taxes. When you add in the deduction for a survivor annuity, it can really reduce your monthly benefit. As a result, many pre-retirees are considering electing no survivor annuity at all to save money. Let’s look at the pros and cons.
Con: A Survivor Benefit Reduces Your Base Annuity By 5% to 10%
Under FERS, you can elect to have your survivor receive 50% of your base annuity when you pass away (a full annuity), or 25% of your base annuity (a partial annuity). The reduction of your base annuity is 10% for the 50% survivor benefit and 5% for the 25% survivor benefit. If you choose a partial annuity or no annuity at all, your spouse must give their written consent.
“Otherwise your widow/widower will have to pay the full cost of premiums for Medicare.”
Pro: A Survivor Annuity Ensures Your Spouse Has FEHB Coverage When You Die
You must elect a 50% or a 25% survivor annuity in order for your spouse to continue their FEHB coverage when you pass away. Considering the fact that Uncle Sam continues to pay as much as 75% of your FEHB premiums, this may be reason enough to elect a survivor annuity. With healthcare inflation outpacing inflation on other expenses in retirement, the value of your spouse’s FEHB coverage may be well worth the cost of a survivor annuity. Otherwise, your widow/widower will have to pay the full cost of premiums for Medicare.
Con: Money Spent On A Survivor Annuity Is Lost If You Outlive Your Spouse
The longevity and health of you and your spouse come into play when deciding on a survivor annuity. If your spouse dies before you, all of the money withheld from your FERS annuity for the survivor benefit is lost forever. It’s important to crunch the numbers to see if the 5% or 10% deduction from your pension is worth the risk of outliving your spouse.
Pro: The FERS Survivor Annuity Gets Cost-Of-Living Adjustments (COLAs)
In addition to continuing their FEHB coverage when you pass away, a spouse receiving a survivor annuity is eligible for COLAs. COLAs help mitigate the loss of purchasing power when inflation spikes while other sources of retirement income are more vulnerable to inflation.
Before you make a decision about electing a survivor annuity, take the time to calculate how much income your spouse can count on once you’re gone. If you need help crunching the numbers, connect with an FRC® trained advisor.
