Choosing a survivor annuity option is one of the biggest decisions made at federal retirement, and the default choice isn't always the right one. A full survivor annuity gives a spouse 50% of the unreduced pension, at a 10% reduction to the retiree's own annuity. A partial survivor annuity gives a spouse 25%, at a 5% reduction. Electing no survivor benefit keeps the annuity at 100%, but ends the spouse's FEHB coverage after the retiree passes away. The right option depends on the spouse's income, savings, and existing life insurance.
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When you retire from federal service, one of the biggest decisions you'll make is what happens to your annuity after you're gone. It sounds simple, but it's not. The default option isn't always the right option, and getting this wrong can have real consequences for your spouse.
Let's walk through what you're actually choosing between. Under FERS, you have three options.
A full survivor annuity gives your spouse 50% of your unreduced pension after you pass, and it costs you a 10% reduction to your annuity. A partial survivor annuity gives your spouse 25%, and it costs you a 5% reduction. Or you can elect no survivor benefit at all, and your annuity stays at 100%, but your spouse gets nothing from your pension.
Here's the part that catches people off guard. If you don't elect at least some survivor benefit, your spouse loses their federal health insurance after you're gone. Lifetime FEHB coverage for your spouse is tied to this decision.
But the default option isn't automatically right either. Full survivor is the standard choice, and it's not free. That 10% reduction is permanent, every month, for the rest of your life. And if your spouse passes away before you, that money is lost. For some couples, that partial option is a better fit, especially when a spouse has their own pension or strong outside income.
Survivor annuity is one of those decisions that gets made once and lived with forever. As you can see, the scenarios get complicated fast. The right choice depends on your spouse, your income, your insurance, the whole picture.
If you want to actually run the numbers before you decide, that's exactly what we're here for. Give us a call for a free consultation, and we'll walk through what each option looks like for your situation. You only get to make this choice once, and it's worth making carefully.
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