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Spousal Benefits

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If you are married, have you begun to evaluate the kinds of benefits under CSRS and FERS that your spouse will be eligible for if he or she lives longer than you? Providing an annuity for a surviving spouse is generally a win-win situation, and the federal government has very generous benefits in this area. The catch is that these benefits come at the price of a reduction in your retirement annuity of either 10 percent (in FERS) or a little less than that (in CSRS). Also, you need to think about what happens if your spouse dies first, and to remember that health benefits for surviving spouses are connected to the choice of survivor benefits. Also, keep in mind that under the law, you need your spouse's notarized consent not to sign up for spousal benefits when you retire. Example

Let's look at how the surviving spouse benefit works in real life. The table at the bottom of this page shows FERS and CSRS examples of employees who elect to receive full spousal survivor benefits.

In looking at the table, keep in mind that cost of living adjustments for survivor benefits are applied before and after the death of the retiree. FERS and CSRS annuities are adjusted for COLAs after the reduction for the survivor annuity.

FERS survivor annuities are increased by COLAs even if the survivor annuitant is not yet 62. If the retiree had received no COLA increases because he or she was under 62, there is no increase in the survivor benefit until after the survivor begins receiving the benefit. Under CSRS, while the retiree is alive, the potential survivor benefit receives the same COLA increases the retiree receives. Points to Consider

When evaluating whether to choose the maximum survivor benefits for your spouse, be sure to consider the following:

  • In the event of the death of a retiree, the survivor annuity provides a valuable replacement of income that is adjusted annually for inflation.
  • The survivor benefit is paid to the surviving spouse for life -- whether the spouse outlives you by two months or 22 years. (With one exception: If the marriage lasted less than 30 years and the surviving annuitant remarries before age 55, the annuity ends.)
  • The reduction in your retirement is also a reduction in your taxable income in retirement. Because of this, the cost of choosing this benefit is not as high as it appears.
  • Having a survivor annuity ensures health benefits will continue for the surviving non-federal spouse, as long as the retiree was enrolled in a family plan on the date of death.
  • The age and health of the retiree and the survivor are not factors in the process. The retiree does not have to prove "insurability" when electing to receive the benefit and even if the spouse is significantly younger than the retiree, the cost is the same.
  • Unlike in many private-sector plans, the annuity of the retiree can be restored if his or her spouse dies first.
  • Survivor annuities receive COLAs for life to ensure the benefit retains its "buying power."
  • The survivor annuitant does not have to make investment decisions in order to have a lifetime stream of income.
  • Getting the benefits is simple and automatic.
There are a few disadvantages to the spousal survivor annuity:
  • There is no "cash value" of the benefits if the potential survivor dies before the retiree. The reduction to the annuity would be stopped, but there is nothing to show for the money that was paid for the unused benefit. So signing up is like paying for term life insurance: The benefit is payable only upon your death. (However, if a retiree remarries after retirement, the survivor benefit can be reinstated within two years of the date of marriage.)
  • The annuity is only payable to a surviving spouse or eligible former spouse. Retirees can elect for someone other than a spouse to receive a survivor annuity, but it costs more and the retiree has to prove insurability.
  • If the retiree has a former spouse with a court-ordered entitlement to the survivor annuity, then it is "first come, first served." A current spouse will not be entitled to the benefit unless the former spouse dies or remarries prior to age 55 (if he or she has been married less than 30 years). If partial benefits were awarded to the former spouse, the remainder of the benefit can be paid to the current spouse.
  • If the retiree and the spouse both die within a short time of each other, there is nothing left to pay any remaining survivors, such as children.
  • The survivor benefit is taxable to the surviving spouse.
  • The choice to receive the benefits is permanent. There is a short window after retirement when changes can be made, but after that, the benefits will only end if there is a death or divorce.
Partial Annuities

If a surviving spouse will not need the income of a full annuity, the employee may elect a partial annuity (with the notarized consent of the spouse).

Under FERS, the partial benefit is equal to 25 percent of the FERS retirement. The reduction in gross retirement benefits is 5 percent rather than 10 percent.

Under CSRS, the retiree can elect for the spouse to receive 55 percent of any "base amount" up to the full retirement. For example, the election could be 55 percent of $10,000 or 55 percent of $3,600 or 55 percent of $1, for that matter. The amount of the base is the foundation for the reduction to the retirement. So, if the base is $3,600, then the retirement is reduced by 2.5 percent of $3,600, or $90 per year. The size of the base is adjusted annually to account for COLAs.

Providing a partial survivor annuity also will allow the surviving spouse to continue coverage in the Federal Employee Health Benefits Program as long as the retiree dies with family coverage. If the survivor annuity is not enough to cover the cost of premiums, the survivor annuitant may pay the difference directly to the Office of Personnel Management.

Resources

Checklist
  • Office of Human Capital: Request a retirement estimate showing the reduction and benefit of the spousal survivor election.
  • Home: Discuss the benefit with your spouse and include this decision in your financial planning discussions. Consider all the "what-if" scenarios. For example, "What if I die shortly after retirement? How will my spouse pay the bills?" Or "What if I live another 25 years and then my spouse outlives me for 10 more years? How will he or she manage financially?"
  • Financial Planner: If you use the services of a financial planner, discuss this benefit with him or her. But beware of a planner who sells life insurance. There may be an ulterior motive for their advice to elect partial or no survivor annuity for your spouse.

    Surviving Spouse Benefits Under CSRS and FERS

    CSRS Yearly Monthly
    Retirement benefits 40,000 $3,333
    Reduction to provide maximum survivor annuity: 2.5% of first $3,600, 10% of remainder of CSRS annuity $3,730 $311
    Reduced retirement benefits $36,270 $3,022
    Spousal survivor benefit: 55% of $40,000 $22,000 $1,833
    FERS Yearly Monthly
    Retirement benefits (does not include Social Security or Thrift Savings Plan) $20,000 $1,666
    Reduction to provide maximum survivor annuity: 10% of FERS annuity $2,000 $167
    Reduced retirement benefits $18,000 $1,500
    Spousal survivor benefit: 50% of $20,000 $10,000 $833
 

Tammy Flanagan is the senior benefits director for the National Institute of Transition Planning Inc., which conducts federal retirement planning workshops and seminars. She has spent 25 years helping federal employees take charge of their retirement by understanding their benefits.

For more retirement planning help, tune in to "For Your Benefit," presented by the National Institute of Transition Planning Inc. live on Federal News Radio on Mondays at 10 a.m. ET on WFED AM 1500 in the Washington-metro area. Archived shows are available on NITPInc.com.

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