It may be alluring to turn a survivor annuity offer down, taking the money and putting into stocks or buying an insurance policy. However, not many retiring employees will do it because the financial deal the government has to offer isn’t that easy to match.
There is a cost though, and it’s based on the kind of retirement system you’re under – FERS, CSRS/CSRS-Offset and Insurable Interest Annuity.
If you’re under the FERS retirement system, you can choose the standard survivor annuity when you retire. You’ll get a default 50 percent of the basic annuity before any reductions are made. You can also choose a 25 percent survivor annuity and, with a spouse written approval, you can choose the no survivor annuity.
There is a 10 percent reduction of the basic annuity for the full survivor annuity and five percent reduction for a 25 percent survivor annuity.
The full survivor annuity benefit for a spouse is 55 percent of the basic annuity. To get this benefit, an employee’s basic annuity decreases by 10 percent. A partial survivor benefit can start at $1 a year. You could also elect for no survivor benefit. And, with a spouse’s written permission, you may make less than a complete election. If this is what you choose, the annuity reduction amount will be equally less.
Insurable Interest Annuity
The insurable interest annuity is another option to the standard survivor benefits. This is offered to anybody who has a financial interest in the person retiring (presumed relationships such as a spouse, children, etc.) but some relationships will need to be proven. The annuity may be given to a spouse when a court has ordered that directed survivor benefits go to a former spouse.
Under any system, there is a 55 percent insurable interest annuity after it’s been decreased by up to 40 percent based on the survivor’s age and their relationship to the retiree.
Under the systems, the survivor annuity is typically given to survivor to stay eligible for the Federal Employees Health Benefits program coverage. If the spouse dies before the retiree, the annuity decease will cease but not receive a refund for these deductions.
A survivor annuity can still be given to the present spouse in the case where a court orders the survivor annuity goes to the former spouse. This ensures protection for your spouse if the former spouse loses the annuity entitlement for some reasons – such as marrying again before they turn 55 years of age.