For Richer or Poorer: Final Words

By Tammy Flanagan

March 18, 2011

Evaluations and critiques are very useful tools to those of us who present information. I always appreciate constructive comments so I know where I've hit the mark and where I've fallen short in my presentation. (In that spirit, thanks for the math error correction last week!)

For the past two weeks, I've written about spousal survivor annuities. In response, I've received a lot of requests for follow-up on specific scenarios. It's hard to do that, because there are so many variations in individual circumstances. But I can provide some general guidance for people in a couple of broad categories.

Married Employees

First of all, you should remember that your spouse is entitled by law to a survivor annuity. If you don't want or need to provide one, he or she will have to give notarized consent.

The basic question you should ask each other is, "How important is my retirement income to you if I happen to die first?" If not receiving a survivor's annuity would mean that your spouse would have to sell the house and move in with your kids, that's a big deal. If you spend more than you receive in retirement and your spouse is willing to live on less income, then it might not be as much of a concern. Keep in mind that you need income no matter how long you live, especially if you want to maintain your current lifestyle in your own home.

Also, remember that as you get older, one of your biggest expenses can be health care. Is your spouse dependent on you for coverage under the Federal Employees' Health Benefits Program? If so, it's very important that you provide at least a partial annuity so he or she can continue FEHBP coverage if you die first.

Unmarried Employees

One of the big questions for people in this category is whether anyone besides a spouse is entitled to receive a survivor annuity. Both the Civil Service Retirement System and the Federal Employees Retirement System allow you to designate someone who has an "insurable interest" in you to receive a survivor's annuity, valued at 55 percent of your retirement after the reduction has been applied to pay for the annuity. Couples who are living together (including same-sex partners) but not federally recognized as married, can choose this option by submitting an affidavit to OPM explaining the relationship and how one person is providing for the other financially. The federal employee must be retiring in good health to take advantage of this option and provide evidence of your insurability.

The reduction to your retirement under this scenario will be based on the difference between your age and that of the person receiving the annuity. If he or she is the same age, older, or less than five years younger than you, the reduction is 10 percent of your retirement benefit. If he or she is more than five years younger than you, then the reduction increases to as high as 40 percent. This selection can be made only at the time you retire, and it does not provide entitlement to health benefits unless the person you've named is a current federally recognized spouse, or dependent child. Here's more information from the Office of Personnel Management.

If you have previously been married, your former spouse might be entitled to a survivor annuity based on the language spelled out in a court order. If your former spouse is deceased, then this annuity is no longer payable. If the spouse remarried prior to age 55 (and you were married less than 30 years), then he or she lost entitlement to the survivor annuity even if it was awarded in a divorce agreement.

If your former spouse is entitled to a survivor's annuity because of a court order, and you remarry, you should choose a survivor's benefit for your current spouse when you retire based on what you would want to happen if your former spouse lost entitlement through death, or remarriage prior to turning 55. The benefits awarded to the former spouse would be paid first, but any amount of the survivor annuity remaining up to the maximum amount payable would be paid to your current spouse. If the former spouse loses entitlement to this benefit, your current spouse would receive the elected benefit amount.

Thrift Savings Plan

Besides CSRS and FERS retirement benefits, you also might have a substantial balance in your Thrift Savings Plan account at your death. This money is paid to your designated beneficiary or beneficiaries, and can be another source of retirement income for them.

If your spouse inherits your TSP and it contains more than $200, the TSP's administrators will establish a beneficiary participant account in his or her name. If a nonspouse beneficiary inherits the account, then the balance will be paid directly to the beneficiary, or to a beneficiary individual retirement account.

You also can purchase a TSP annuity after you separate from federal service. It can include a survivor benefit option, or a cash refund, or you can purchase an annuity payable only during your lifetime. Here's more information about TSP annuities.

Social Security

Your surviving spouse also might be eligible to receive widow's benefits based on your Social Security record. And you might be entitled to Social Security benefits as a widow, as well as Social Security retirement benefits on your own work record. You usually will receive the higher of the benefits to which you are entitled, not both. Here's more information from the Social Security Administration.

If your spouse is still working at the time of your death and he or she is under the full retirement age for Social Security (65-67, depending on year of birth), an earnings limit might prevent your spouse from receiving the benefit you've earned for them. For 2011, this limit is $14,160. So your Social Security benefit would be reduced by $1 for every $2 you earn over the limit. If your earnings drop below the limit, stop working, or are past the full retirement age, the limit no longer is applied.

If your spouse also is receiving a CSRS retirement benefit of their own, their widow's (and spousal) benefit from your Social Security might be offset by two-thirds of their retirement due to the Government Pension Offset. The GPO does not affect surviving spouses who retired under FERS, or CSRS Offset.

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 Monday mornings at 10 a.m. ET on or on WFED AM 1500 in the Washington metro area.

By Tammy Flanagan

March 18, 2011