One major decision that you make at retirement (right on your retirement application) is whether to leave your spouse a survivor benefit.
In other words, do you want your spouse to keep a piece of your FERS pension if you pass away first?
But before you answer. There is a catch. A couple catches actually.
Survivor Benefit Options
As a FERS federal employee, there are 3 survivor benefit options:
-Full Survivor Benefits: Your spouse would receive 50% of your pension if you passed away and it costs you 10% of your pension while you are both alive
-Partial Survivor Benefits: Your spouse would receive 25% of your pension if you passed away and it costs you 5% of your pension while you are both alive
-No Survivor Benefits: This option doesn’t cost you anything but of course your spouse would receive nothing as well
The default option for this choice is the full survivor benefits and for you to elect one of the other options you will have to get notarized spousal consent.
So you’ll certainly have to have a conversation with your spouse if you are considering anything but full benefits.
Two Big Reasons to Elect Survivor Benefits
Health Insurance
If you elect to leave your spouse no survivor benefits then once you pass away, they will no longer be able to stay on your FEHB (Federal Employee Health Insurance).
For those that rely on this insurance in retirement, this is a big deal and a reason to at least elect a partial survivor benefit.
However, this may not be a factor if you have other insurance such as Tricare.
Income
The second, and more obvious, reason to elect a survivor benefit is to give your spouse income if you pass away first.
But for you to know if your spouse will need this income, you’ll want to think through all the income sources that will stick around if you pass.
For example, what Social Security income will they have? What investments will they have?
Once you know how much income they’ll have without you then that will help you decide how much income they’ll need from your pension.
Can I Just Get Life Insurance Instead of The Survivor Benefit?
The vast majority of the time, life insurance is not a good replacement for survivor benefits simply because it is difficult to make the numbers work.
Or in other words, most of the time survivor benefits are more cost effective than life insurance.
One of the reasons that survivor benefits are hard to replace is that your pension (and your spouse’s survivor benefit if you pass away) increases every year with inflation and the payment is guaranteed to last for your spouse’s entire life.
When You Should Only Leave a Partial Survivor Benefit
A common situation when it may make sense to elect the partial survivor benefit is when your spouse relies on your health insurance but may not rely on the income.
When You Shouldn’t Leave a Survivor Benefit
The only time you won’t want to leave any survivor benefit at all is when your spouse doesn’t need your health insurance or the income if you were to pass away.
Most people do not fall in this category.
What Happens if I Elected a Survivor Benefit on My FERS Pension but My Spouse Dies First?
If you elect a survivor benefit but you end up living longer than your spouse then you will no longer have to pay for the benefit from your pension. But you won’t be able to get a refund for all the money that you paid for it over the years.
For example, if your gross pension is $2,000/month and you elected the full survivor benefit then you would be paying $200/month for the survivor benefit.
If your spouse passes first then you will no longer need to pay the $200 from your pension every month.
