Federal Retirement Elections – Decisions For Life, Better Get Them Right!

Federal employees face a number of benefits options when retiring, and it is important that they fully understand them to ensure they make the best selections.

When planning and making retirement elections for a federal employee, there are several critical decisions that will be asked of you. These decisions can affect your overall net income, your monthly take-home pay, your surviving spouse if married, and even your retirement savings lifetime performance.

Survivor Benefits

The initial retirement form (SF 3107) will ask you almost immediately if you are married, and if so what your decision is for the survivor benefit. There is no warm-up; just make a decision!

Without proper knowledge of the costs and options, you may be making an ill-advised decision. Understand what the survivor benefit is; it is a benefit for your survivor, your spouse, if you pass away. What will happen to that monthly pension, and how much will your surviving spouse be eligible for?

Survivor Benefits Options – Pros and Cons

Let us list the options as well as the drawbacks and advantages to each one:

  1. 50% Survivor Benefit. Although costly (-10% of your pension), this will allow your spouse access to 50% of your pension if you pass away until they themselves pass. For example, a $3,000 monthly gross FERS Pension will be reduced by 10% or -$300, netting you $2,700. Your surviving spouse would receive $1,500, or half of your pension (50%), upon your death.
  2. 25% Survivor Benefit. Certainly less costly than the 50%, the 25% option is exactly half the cost and half the benefit. In the above example, a $3,000 pension would now be reduced by 5%, or -$150, netting you $2,850. Keep in mind though that your surviving spouse will only receive 25% of the pension or now just $750 per month.
  3. 0% Survivor Benefit. No benefit equals no cost, and no income replacement for your mate, and no further access to the Federal Employees Health Benefits program (FEHB) upon your passing.

I understand there are many factors to consider, not the least of which being the life expectancy of you and your mate, health considerations, and other pensions and sources of income.

Sometimes the Federal Employees Retirement System (FERS) pension is the smallest of all, and many families have already purchased the Military Survivor Benefit and/or other pension Survivor Benefits for their spouses, and they’ve decided this one is not substantial enough to worry about. Other times this FERS pension could represent the largest source of monthly income.

Serious planning and consideration should be given if anyone intends not to purchase the full 50% Survivor Benefit at retirement time. It’s why the spouse must have their signature notarized, indicating they accept less than the full Survivor Benefit. You can’t move forward without the consent of your spouse unless you purchase the whole enchilada. There may be other options for income replacement.

Federal Employees Group Life Insurance (FEGLI)

There are many misunderstandings about FEGLI, especially the Basic life insurance benefit. Many believe it is too expensive and should never be purchased. Remember though that while working, the Basic benefit, and only the Basic premium, was subsidized 33% by your benefits package. This is not the case with the other options, especially option B, but the Basic group life benefit, and even the option A for that matter, you may want to re-examine before making any hasty decisions upon retiring.

The Basic group life insurance contains a provision which stipulates that if you select a 75% reduction, you will pay the exact same premium as you did while working with no price increase. Better yet, at age 65, the premium will disappear, and so will 75% of your life insurance benefit, but you will have essentially a paid-up life insurance policy at 65 years old, reducing until age 69 and 2 months old. If your Basic benefit was $140,000, your paid-up amount by the time you reach age 69 would be $35,000 (equal to 25% of the original death benefit because you selected a 75% reduction).

One gentleman decided that he no longer wanted Basic group life insurance when he retired despite working for 15 years at a military base. Although he was advised that selecting the 75% reduction would eliminate his premium at age 65, he elected NO group life insurance in retirement, eliminating Basic all together. He was 62 when he made this election and retired, and he passed away shortly thereafter, leaving his widow without a penny of this life insurance. The true irony was that it would have paid the entire Basic amount as it does not start reducing until age 65 when the premium goes to zero.

Be informed before making any of these life decisions, as they will be final.

Military Service and Temp Time Buy Back

If you have military service time, you can “buy back” the military time provided it was active-duty. If you had time spent as a temp before 1989, you buy this back too. It is just a wonderful tool to boost your pension for life. Yes, it will require a deposit of money or monthly payments (if you have the time) to get credit for this time, but the results are tremendous.

Your agency can help process the forms. You will be allowed to make a deposit of the entire buy back amount or a portion and make payments for the balance directly from your paycheck.

I have seen employees filing for retirement that realize they have active-duty military time and scramble to buy it back. A gentleman that worked for US Federal Courts realized he had 16 months of active duty from the Air Force the he could get credit for after he attended retirement training. He was retiring in 4 weeks because there was an offer of $25k Voluntary Separation Incentive Payments (VSIP) if he retired, but he had to retire in 4 weeks to receive the extra incentive money. His agency accommodated him by withholding his retirement packet for 6 weeks until he was informed that his time in the Air Force had been bought back. Although his retirement check was delayed, he got full credit for the active duty time paid into his pension calculations for life.

There are other decisions you will have to make regarding the Thrift Savings Plan (TSP) and taxes, but adjustments can be made to these elections post-retirement.

Again, be thoroughly informed of any permanent choices you have to make, and get it right for life!

About the Author

Charles Dzama is the principal founder and director of CD Financial, the host of the CD Financial YouTube channel, and the author of FedWise, a free monthly newsletter focused on topics of importance and interest to federal employees. He has been assisting federal agencies and federal employees for well over 15 years in fully understanding their benefits. For a complimentary 15-minute phone call, click here to schedule. To request retirement training at your agency, email Charles your workforce development or HR trainer’s contact info.