It can be critical to making decisions about how to outline the choices federal employees have to make when electing Civil Service Retirement System or Federal Employees Retirement System benefits at the time of retirement. These can include:
- Spousal survivor benefit elections for a maximum or partial survivor annuity.
- No survivor benefit in the form of an annuity payable during your lifetime
- An insurable interest election to provide for a person who has an insurable interest in you [as in a financial need for income that you provide
- The option to provide for a former spouse despite the survivor annuity possibly not having been awarded in the court order at the time your divorce was finalized
It is essential to understand the potential cost and value of these elections and the impact they may have throughout the rest of your life, as well as the life of your spouse.
Understand that happens to your benefits when one spouse passes on before the other, is vital. This includes life insurance, Social Security, health insurance, and the profits of the Thrift Savings Plan as well as the election of the survivor’s annuity benefit under FERS or CSRS.
Taking the time to ask each other “If I die before you, will you have enough income to continue your lifestyle?” when electing the spousal survival benefit. Making assumptions as to who will die first because of age or health is not sensible. Nothing is certain.
If both spouses receive Social Security retirement, only the highest Social Security benefit of the two are payable. If the widow’s benefit is payable first the surviving spouse may put off their own earned benefit for a time.
Other important things to ask:
Who, between the spouses, is the spender? Who is the saver? While the saver may find themselves lonely, they would be more financially stable.
Upon the death of a spouse, is there any other income from the sale of property of life insurance? Is there other income from life insurance or the sale of property that would come into play upon the death of one spouse?
When the spouses are no longer two, but one, is there a source of income that will become available? Such as the choice to delay Social Security for one spouse while both are still living so that you are not used to having an additional source of income. The benefits of delaying Social Security benefit may provide a greater widow’s benefit to the surviving spouse. You may want to consider “switching on” the second spouses Social Security at age seventy. Unless one spouse happens to pass away at a younger generation.
Pension Maximization Use For Spouses Who Are Both Federal Retirees
Pension maximization can be viewed as a risky strategy for retiring couples seeking to secure the best possible annuity payout and balance the risk with life insurance.
What makes it “risky?” Because life insurance (a product of pension maximization) value is dependent upon asking the following:
When will you be dying?
If at all, how long will your spouse outlive you?
What will inflation look like over the lifetime of both you and your spouse?
Are you young and healthy enough to, at a cost that may be less than the reduction to your CSRS or FERS annuity, purchase this product?
Will the beneficiary be able to manage the proceeds in such a way that they will be sure to maintain enough income if they should survive you?
There is a limited value of life insurance on the date it is sold. Generally, the amount will be the same on the date that it is paid. There no income guarantee or cost of living adjustment on a whole life or term life insurance policy. Some annuity products will provide a lifetime stream of income. However, there are some caveats. Such as age and health at the time of purchase, as well as how long you intend to delay receiving annuity payments from the date of purchase. As well as the health of the insurance company selling the product. These products can prove very complicated, so be cautious and diligent.
The need to provide protection to a surviving spouse for health insurance continuation is another facet related to the election of FERS or CSRS survivor benefit. To continue coverage for a surviving spouse under the Federal Employees Health Benefits program, they need to have entitlement from their federal salary or retirement. Or they must have entitlement to a survivor annuity, either full or partial spousal election, or be named as the insurance interest election, based on your FERS or CSRS retirement. It may be necessary to elect a minimum spousal survivor annuity, even if you provide a life insurance benefit so that your spouse might maintain FEHB in the event you pass away before them.
“Spousal protection” does not exist on the pension maximization product. Coverage may be changed or canceled without spousal consent. However, this is not so with a spousal survivor annuity under FERS or CSRS, as the federal law protects them under the spouse equity provisions.
Use caution when considering substituting pension max for the spousal survival benefit. There is a commission on the sale of insurance products. If you choose the survivor benefit under FERS or CSRS, there is no go-between or middleman.
Be sure to ask questions when you don’t understand something before you sign anything. It is also highly recommended to get a reference to a resource or policy when you have questions. Be sure to get their answer in writing. Getting documentation in any government work is essential. And that includes your retirement.