Retirement: Providing for your survivors

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Feds, you have a range of options for guaranteeing a source of income for others in the event of your death, as Tammy Flanagan explains.

So far this year, the Office of Personnel Management reports it has received nearly 70,000 retirement claims for processing. There will likely be another 30,000 to 40,000 more by the end of the year. Are you planning to retire soon? If so, one of the critical decisions you’ll have to make involves what type of retirement benefit you want. 

Do you want a benefit payable only during your lifetime? Or do you want a retirement that will provide a payment to someone else if you die before them? If you decide on the latter approach, you have five choices when it comes to how your future benefit will be handled. Let’s look at each of them. 

A reduced annuity with maximum survivor annuity for your spouse.

If you’re married on the date of your retirement, your spouse is entitled by law to this annuity. It provides 50% of your unreduced Federal Employees Retirement System  benefit to your spouse if they outlive you. The benefit is payable for the life of your surviving spouse, regardless of how long they live.

On your retirement paperwork, you indicate if you are currently married by providing your spouse’s name, date of birth, Social Security number, the place and date you were married, and who performed the ceremony. You also must provide a copy of your marriage certificate. 

If you get married after your retirement date, your spouse does not have a right to the survivor benefit. You have two years to decide whether you want to provide it for them. The decision on whether to do so is important, because once you provide one, no changes are permitted unless your marriage ends through death or divorce. In the case of divorce, you have two years to choose to provide a survivor annuity for your former spouse.

The reduction to your retirement benefit to provide the maximum survivor annuity benefit is 10% of your unreduced retirement benefit. 

A reduced annuity with a partial survivor annuity for your spouse.

If you choose this option, your FERS retirement benefit will be reduced by only 5%, but your surviving spouse will only be entitled to 25% of your benefit, rather than 50%. The partial survivor election generally is used if your spouse needs your health benefits, but not necessarily the income from your annuity. 

Note that this choice requires the notarized consent of your spouse, because they are entitled to a full annuity as outlined above. There are limited exceptions to this, such as if your spouse can’t be located or under other exceptional circumstances as determined by a court. I once met a woman who told me her husband was in prison for attempting to murder her. I hope this would meet the “exceptional circumstances” requirement!

An annuity payable only during your lifetime.

This requires no reduction to your retirement. But when you die, your retirement annuity and health insurance coverage ends (unless there is a child entitled to a children’s survivor annuity who survives you). 

This election requires your spouse’s notarized consent. They will not be able to continue health benefits coverage unless they’re entitled to their own federal retirement benefit.

A reduced annuity with survivor annuity for a person with an “insurable interest” in you. 

If you are deemed insurable and can provide medical evidence of your good health, you can name someone to receive 55% of your reduced FERS retirement benefit to receive a survivor annuity. The person named must be a first cousin or closer relative, or have a financial need based on your life expectancy. For example, if you are engaged to be married, your fiance probably has some financial dependency on the income from your retirement benefit.

If you name your current spouse as your insurable interest, you must both jointly waive the current spouse survivor annuity. This option offers a way to provide for your current spouse if there is a court order providing a spousal survivor annuity to your former spouse. 

How much your retirement is reduced to provide an insurable interest annuity depends on the age difference between you and the person you name. If the person is older than you or less than five years younger than you, the reduction to your FERS retirement benefit is 10%. For every additional five years that they are younger than you, the reduction increases by 5% up to a maximum of 40% if the person named is 30 or more years younger than you.

A reduced annuity with survivor annuity for your former spouse.

 If you’re married, you will need your current spouse’s consent to make this election. Any benefit that you elect for your former spouse will limit the amount you can provide for your current spouse. Be careful or you may end up with two former spouses! You can choose 25% or 50%, but the total of the annuities must equal either 25% or 50% of your unreduced FERS annuity. 

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