FERS Survivor Annuity Plan
Matt: How are you doing? This is Matt Whitten with United Benefits, and in this video we’re gonna talk about your spousal options once you retire under FERS.
Now, under the FERS retirement system you have three options that you can choose for your spouse. The first one is you can choose a 50% spousal benefit. Now, what they’ll do is they’ll reduce your retirement by 10%, and if you pass away before your spouse, your spouse will receive 50% of your FERS annuity.
The second option you can choose is a 5% reduction in your retirement. If you pass away before your spouse, your spouse would get 25% of your FERS annuity if you passed away first. The key on both of those too, is you have to choose one of those for your spouse to maintain your health insurance. The third thing you can do, is you can choose to leave no spousal benefit.
Now, first of all, I want to show you a cost comparison here to show you what it looks like over your retirement. Let’s say, for an example, you’ve got your FERS annuity at $24,000 a year, $2,000 a month. If you chose the maximum for your spouse, that would reduce your retirement by 10%, $200 a month. So your retirement now would be $1,800 a month. If you passed away before your spouse, your spouse would get $1,000 a month, 50% of your FERS annuity, but if you look at that over a 20-year period, that’s gonna cost you $48,000.
So, what they’ve done here is they reduce your retirement to insure your life. The problem is, is if your spouse passes away before you, that money is wasted. There’s not another beneficiary that’s gonna receive anything from it. So, some federal employees do what’s called a pension maximization strategy. Instead of insuring yourself inside a retirement, you can actually insure yourself with life insurance for your spouse.
Some things to consider if you’re gonna consider the pension maximization for your retirement is the FEHB. Your health insurance is probably the most important here. If your spouse needs to maintain your health insurance, you need to leave your spouse part of your FERS annuity. Another thing that you need to think about is your age, your spouse’s age, your health, your spouse’s health, and planning for that.
Also, the SAP, remember that it’s only good for your spouse. So if your spouse passes away first, you’ve wasted that money. You need to think about the insurability of yourself and your spouse. Also, think about how much income your spouse really needs. It may be more than 50% of your FERS annuity, so you need to plan for that. Also, the taxes. The FERS, the way it’s taxed versus the way life insurance is taxed, is a consideration. You also have to think about the type of life insurance that would make sense for yourself and your family.
It’s also possible to (and a lot of federal employees actually) choose both. Instead of doing the 50%, 10% reduction, they may do the 5%, leave their spouse 25%, put in a life insurance policy there as well that can benefit their spouse or kids, grandkids, et cetera. So, there’s a lot of different things to consider.
Please, you can reach out to United Benefits. We can help you analyze and look at the situation there. If you wanna learn more, go to our website. You can watch more videos. Reach out to us and we can be a resource for you. Thank you.
Protecting your paycheck. Protecting your life. Protecting your retirement