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Planning for Your Spouse

By Mike Causey
Washington Post Staff Writer
Thursday, June 20, 1996; Page C02

Providing a survivor benefit for a spouse (assuming you love or even like him or her) is a no-brainer for most people.

In most situations, it is a win-win deal. The government program is one of the most generous in the nation. The fact that both annuities and survivor benefits are indexed to inflation makes it unbeatable.

By taking a reduction of about 10 percent in your monthly annuity, you can provide the maximum benefit, which would be 55 percent (under the Civil Service Retirement System) or 50 percent (under the Federal Employees Retirement System) of your unreduced annuity should you predecease your spouse. Your annuity, and your spouse's survivor benefit, are indexed to inflation -- for life.

Unlike many private-sector plans, whose annuity reductions for survivor benefits are permanent, your federal annuity will be restored to its unreduced full value if your spouse dies first.

Equally important, by providing a survivor benefit for your spouse (of any amount), you protect his or her right to retain coverage under the federal health benefits program even if you die first, assuming you had family coverage. And the U.S. government, as it does for you as a worker or retiree, will pay about 72 percent of your spouse's health insurance premium. Again, for life.

By law, the decision to provide a survivor benefit is not yours alone. Any election less than the full amount requires your spouse's notarized permission. It doesn't matter if your spouse is older or in poor health. It doesn't matter if your spouse is receiving his or her own federal retirement benefit. Your spouse has rights by law to a full survivor benefit.

In her pre-retirement seminars, benefit expert Tammy Flanagan uses this checklist of things to consider when evaluating the value and cost of electing a survivor annuity:

*The reduction in annuity also reduces taxable retirement income.

*Cost-of-living adjustments for survivors' benefits are applied before and after the death of the annuitant.

*Having a survivor benefit ensures health benefits protection for the surviving spouse.

*Age and health are not factors for spousal survivor benefits; it is a set formula. The younger and healthier the spouse, the better the value (at least statistically).

*Workers under CSRS and FERS can elect partial survivor benefits, with the spouse's consent. This would cause less of a reduction of the employee's annuity, while still protecting health insurance for a surviving spouse.

*Unlike many private-sector plans, in which the survivor benefit reduction is for life, the annuity of the federal retiree is restored if his or her spouse (the intended survivor) dies first.

*Private, permanent life insurance (in lieu of a survivor benefit) can be an option. Be aware that whole or permanent life insurance may be prohibitively expensive, or unavailable, because of the age or health of the potential policyholder. There also is the risk of inflation eroding the value of the policy.

*If you are unmarried when you retire but get married later, you can elect to take a reduced annuity to provide a survivor benefit for the new spouse. But you have to act within two years of the marriage, and you have to pay some money upfront.

If you have questions, Flanagan can be reached at 703-715-9083.

1996 The Washington Post Co.

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