Shutterstock

Be Careful of Who is Providing Your Retirement Advice

If they’re pushing alternatives to federal benefits like survivor annuities, be wary.

I recently exchanged emails with a loyal reader who told me he had attended a couple of retirement seminars in which the presenter suggested that federal employees at least consider “something else” other than providing a spousal survivor benefit, with its 5% to 10%  reduction to a Federal Employees Retirement System benefit.

I’m not sure what the “something else” was, but I imagine it might have been a type of annuity product available through the presenter’s firm. It’s a tall order to replace the government spousal survivor annuity. Although there’s nothing wrong with offering alternatives to federal benefits, it’s important to understand the tradeoffs and consider the advantages government benefits like the spousal survivor election have to offer.

Let’s look at a hypothetical example of an employee who retires under FERS at age 60:

  • Retirement benefit: $29,750 per year or $2,479 per month (assuming 35 years of service x 1% x $85,000 high-three average salary)
  • Reduction to provide the maximum spousal survivor benefit: $2,975 a year or $247.92 a month (10% x $29,750)
  • Surviving spouse would be entitled to: 50% of the unreduced FERS annuity at the time of the retiree’s death (50% x $29,750 = $14,875 per year or $1,239.58 per month for the life of the surviving spouse) 
  • Reduction to provide a partial spousal survivor benefit: $1,487.49 per year or $123.95 per month (5% x $29,750)
  • Surviving spouse would be entitled to: 25 percent of the unreduced FERS annuity at the time of the retiree’s death (25% x $29,750 = $7,437.50 per year or $619.79 per month for the life of the surviving spouse).

Consider the following benefits of this election:

  • Providing a spousal survivor annuity ensures that the spouse can continue coverage under the Federal Employees Health Benefits Program, as long as they are covered on the date of the annuitant’s death. This coverage lasts for the life of the surviving spouse, regardless of their age, and the spouse can change plans during open season or as a result of a qualifying life event.
  • The spousal survivor benefit is adjusted for inflation under the FERS rules for cost of living adjustments
  • The reduction to provide the spousal survivor annuity also reduces the taxable annuity to the FERS retiree. 
  • If the spouse dies before the retiree, the retiree’s FERS annuity is restored to its unreduced value.

All of this comes at a cost: Providing a survivor benefit involves a substantial reduction to the FERS retirement benefit. But the value of the benefit is difficult to replace, since it’s paid for the life of the surviving spouse. Also, an alternative annuity might not be protected by annual COLAs. 

If you need help making a decision about a survivor annuity or another financial planning question, be sure to find someone who is looking out for your best interests. Your agency’s retirement office or benefits division is a good place to start. They can’t provide advice on making retirement decisions, but they can provide information about the rules and laws that govern federal benefits.

If you’re going to engage with a professional financial adviser, here are some tips to keep in mind:

  • It’s important to hire someone who is both qualified and will look out for what’s in your best interest. This is called a fiduciary responsibility. 
  • There’s a clearinghouse of information at Investor.gov that can help you learn more about hiring a financial planning professional. 
  • Don’t become a victim. Federal employees aren’t immune to scammers. For a real-life example, read the story of Kenneth Wayne McLeod, who was to federal employees what Bernie Madoff was to private sector investors.
  • If you want to attend a retirement planning training event, check with your agency to find out what’s available through agency-sponsored training programs. 

I have recently partnered with Micah Shilanski, a certified financial planner who specializes in helping federal employees get the most out of their retirement benefits to host a podcast called Plan Your Federal Retirement, in which we discuss the issues that are important when planning your retirement from government service. You can find it on Stitcher, Apple podcasts or wherever you find your podcasts. 

X
This website uses cookies to enhance user experience and to analyze performance and traffic on our website. We also share information about your use of our site with our social media, advertising and analytics partners. Learn More / Do Not Sell My Personal Information
Accept Cookies
X
Cookie Preferences Cookie List

Do Not Sell My Personal Information

When you visit our website, we store cookies on your browser to collect information. The information collected might relate to you, your preferences or your device, and is mostly used to make the site work as you expect it to and to provide a more personalized web experience. However, you can choose not to allow certain types of cookies, which may impact your experience of the site and the services we are able to offer. Click on the different category headings to find out more and change our default settings according to your preference. You cannot opt-out of our First Party Strictly Necessary Cookies as they are deployed in order to ensure the proper functioning of our website (such as prompting the cookie banner and remembering your settings, to log into your account, to redirect you when you log out, etc.). For more information about the First and Third Party Cookies used please follow this link.

Allow All Cookies

Manage Consent Preferences

Strictly Necessary Cookies - Always Active

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data, Targeting & Social Media Cookies

Under the California Consumer Privacy Act, you have the right to opt-out of the sale of your personal information to third parties. These cookies collect information for analytics and to personalize your experience with targeted ads. You may exercise your right to opt out of the sale of personal information by using this toggle switch. If you opt out we will not be able to offer you personalised ads and will not hand over your personal information to any third parties. Additionally, you may contact our legal department for further clarification about your rights as a California consumer by using this Exercise My Rights link

If you have enabled privacy controls on your browser (such as a plugin), we have to take that as a valid request to opt-out. Therefore we would not be able to track your activity through the web. This may affect our ability to personalize ads according to your preferences.

Targeting cookies may be set through our site by our advertising partners. They may be used by those companies to build a profile of your interests and show you relevant adverts on other sites. They do not store directly personal information, but are based on uniquely identifying your browser and internet device. If you do not allow these cookies, you will experience less targeted advertising.

Social media cookies are set by a range of social media services that we have added to the site to enable you to share our content with your friends and networks. They are capable of tracking your browser across other sites and building up a profile of your interests. This may impact the content and messages you see on other websites you visit. If you do not allow these cookies you may not be able to use or see these sharing tools.

If you want to opt out of all of our lead reports and lists, please submit a privacy request at our Do Not Sell page.

Save Settings
Cookie Preferences Cookie List

Cookie List

A cookie is a small piece of data (text file) that a website – when visited by a user – asks your browser to store on your device in order to remember information about you, such as your language preference or login information. Those cookies are set by us and called first-party cookies. We also use third-party cookies – which are cookies from a domain different than the domain of the website you are visiting – for our advertising and marketing efforts. More specifically, we use cookies and other tracking technologies for the following purposes:

Strictly Necessary Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Functional Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Performance Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Social Media Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Targeting Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.