Survivor benefits can often be the difference between a spouse having a comfortable retirement or a stressful one, so getting this one right is crucial.
But does it always make sense to leave your spouse full survivor benefits?
No. I believe that there are specific times where you and your spouse would be better off with partial survivor benefits or no survivor benefits at all.
What are Survivor Benefits?
Before we get too far I thought I’d clarify what I mean by survivor benefits.
Basically, survivor benefits is an election you make when you retire to decide how much of your FERS pension you’d leave to your spouse if you passed away first. There are 3 different survivor benefit options for FERS employees.
But unfortunately, it isn’t free to leave a survivor benefit to your spouse. If you elect one, it will cost you a portion of your pension while you are both alive.
This chart shows the 3 different options and the cost associated.
|Survivor Benefit Option||Cost|
|0% Survivor Benefit||0%|
|Partial (25%) Survivor Benefit||5%|
|Full (50%) Survivor Benefit||10%|
For example, if you elected the full survivor benefit then you would only receive 90% of your full pension while you are both alive, but if you passed away first then your spouse could receive 50% of your pension. If your spouse passed away before you then your pension would be restored to 100%.
But Watch Out
Before you decide to not elect a survivor benefit you have to know how it connects to FEHB (your health insurance).
Basically, if you don’t give your spouse at least a partial survivor benefit then they would not be able to continue your FEHB once you pass away. Because FEHB is so integral to many federal employees’ retirement plans, selecting at least a partial survivor benefit is often a no-brainer.
That being said, if you and your spouse are both federal employees and are both eligible for FEHB based on your individual working records then you may have no need for it.
When You Don’t Need Full Survivor Benefits
There are 2 main reasons that you’d need survivor benefits for your spouse. The first is for FEHB which we discussed in the section above. The second reason is to provide income for your spouse if you were to pass away first.
If your spouse is reliant on your FEHB, then you know that you will need to elect at least a partial survivor benefit, but how do you know if your spouse needs the extra income that would come with a full survivor benefit?
You would want to start with what income sources your spouse would be left with if you passed away. For most federal employees, their spouses will be left with some amount of Social Security as well as your TSP savings. Some folks also have rental income or a pension from a previous job like a military retirement or VA disability.
You will want to know exactly how much (if any) of your income sources will stick around once you pass away.
Once some people think through these numbers they realize that their spouse will have a very comfortable retirement even without the full survivor benefit. If this is the case for you then full survivor benefits may not make sense for you.
Note: In order to elect anything but the full survivor benefits, you have to get your spouse’s notarized consent, so you will have to make sure they are comfortable with your plan.
Again, there is nothing wrong with electing full survivor benefits. That extra income can often make a big difference in a surviving spouse’s life if they need it.
But as a financial planner, I see the survivor benefit as an insurance policy because you pay now for a potential benefit in the future, and if the potential benefit is important for your plan, then by all means take advantage of it. But that being said, sometimes it doesn’t make sense to pay for insurance that you don’t ultimately need.