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One key point to consider for married retirees is the election of a
survivor annuity for your spouse. If you elect a full survivor's annuity
under CSRS your spouse will receive 55% of your annuity when you die.
FERS employees can elect to provide their spouse with an annuity of
either 25% or 50% of their annuity upon the death of the annuitant. The cost for
this is just under 10% of your annuity for CSRS retirees and either 5%
or 10% for FERS retirees. Some retirees consider
alternatives such as a large insurance policy. There are risks to that
approach.
Another concern is that if you don't elect a survivor annuity for
your spouse under both CSRS and FERS retirement programs, she/he won't be eligible to participate in your Federal
Employees Health Benefits plan (FEHB) after your retire.
Also learn about
what happens to your annuity if the survivor predeceases the retiree.
Read on for complete information.
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Survivor Concerns Menu
Many approaching retirement debate whether or not to take a full survivor’s
annuity – which reduces their annuity by close to 10% for CSRS and a full 10%
for FERS employees – or to simply purchase a
large insurance policy, at less cost, instead. There are a number of options for
you to consider and each option has its own potential risks that need to be
evaluated.
Retirees can take a full or partial survivor annuity depending on their personal
situation and how much they saved through prudent investing. Regardless of what you decide you need to know several key facts. Your spouse
MUST agree to a reduced annuity and sign the waiver form included with your
retirement application. Also – and this is a critical issue – if you and your
spouse elect NO survivor’s annuity your spouse will not be covered under your
federal health insurance coverage when you retire. You MUST elect a minimum
annuity as described on your retirement application for your wife to be covered
under your Federal Group Health Insurance program. View the
CSRS and FERS minimums before electing your survivors benefits if you want
your spouse to be covered by the FEHB program.
I consider the insurance option too great a risk for most spouses. The
survivor's annuity is backed by the federal government. There isn't any third
party involved. If you and your spouse choose an insurance policy rather than
have your annuity reduced research the insurance company thoroughly before
making this decision. Insurance companies can go bankrupt and your spouse could
be left with nothing. I'm not saying that insurance should not be considered at
all, what I'm saying is that you must be very careful. If you decide to buy
insurance instead of electing a survivor's annuity you can check the insurer's
financial stability with several rating services. Make sure that the company you
intend to work with is rated high on their lists. A.M. Best ratings are free as
long as you register on-line and they are very easy to use. They rate the
financial strength of Insurance companies from A++, Superior to S (Rating
Suspended) and everything in between. Several services such as Weiss Ratings
charge a small fee for a comprehensive rating. I found the A.M. Best site very easy
to use and all that I had to do was register to obtain unlimited ratings.
A.M. Best http://ambest.com/ratings/search.html
Moody's Investor's Service
http://www.moodys.com/
Standard and Poor's
http://www.standardandpoors.com
- CSRS - To elect a full 55% survivor annuity for your spouse your
annuity will be decreased by just under 10%. For example, if your
annuity is $40,000 your reduction is as follows:
.025 x $3,600 = $90 (2.5% of the first $3,600 of your gross annuity)
.10 x 36,400 = $3,640 (10% of the gross annuity less the first $3,600)
TOTAL REDUCTION = $3,730 or $310.83 per month annuity reduction
- FERS - To elect a full 50% survivor annuity for your spouse your
annuity will be decreased by 10%. If your annuity is $40,000 your
annuity will decease by $4,000 or $333.33 per month.
NOTE: Your spouse will receive 55% of $40,000 for CSRS annuitants when
you die and a FERS spouse would receive 50% of $40,000. However, the benefit
amount increases each year a
COLA is provided.
If the survivor predeceases the retiree, the survivor deduction to the
annuity stops. There is not a reimbursement of the prior deductions. The prior
deductions from the retiree’s monthly annuity for the survivor benefit are very
similar to payments made for a life insurance policy that was never used and
canceled because it was no longer needed. Here is a link to more information:
http://www.opm.gov/retire/pubs/pamphlets/forms/RI20-59.pdf
A spouse is eligible for a reduced annuity after the death of a annuitant
if the annuitant elected a spousal benefit when he/she retired. Typically,
the spouse MUST sign the retirement forms concurring with a
"No Spousal Annuity Election."
If a spousal annuity is elected; when the annuitant's death is reported
to OPM, the annuity will be adjusted to the reduced amount and sent to the
spouse of record. A surviving spouse can call OPM to find our if a
spousal annuity was elected. There number is 1-888-767-6738. The spouse will
need the annuitant's SSN and/or CSA retirement account number. Call early in
the morning, otherwise you will get a busy signal. This information will
also be on the original retirement application that the annuitant should
have a copy of with their estate paperwork.
Another issue to consider is when an annuitant married their
current spouse after they retired. If the annuitant married after retirement
they can elect a survivor's benefit for their new spouse if desired; this
election must be made within two years of the date of marriage. Retirees
that remarry and make this election will see their annuity reduced by 10% to
cover the spousal election.
NOTE: Many of these rating reports are also available at
public libraries.
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