As a federal employee, you know that your annuity will someday comprise a significant portion of your retirement income. But those payments also end when you pass away. So, what would happen to your spouse, if both of you are dependent upon that income, but you are the first to die?
Obviously, life insurance is one option. And your spouse will still have access to your Thrift Savings Plan distributions, along with spousal Social Security benefits (or their own benefit, if it’s higher). But you also have the option of passing along at least part of your annuity payments.
It’s called the Survivor Annuity. When you retire, you will face these options with regard to your annuity payments:
- Receive your full annuity payment, but no Survivor Annuity. This means if you pass away first, your annuity payments stop entirely.
- Full Survivor Annuity; you accept a 10 percent reduction in your annuity payments, but your spouse receives annuity payments at 50 percent the original amount if you die first.
- Partial Survivor Annuity; you accept a 5 percent reduction in your monthly payment, but your spouse receives annuity payments at 25 percent the original amount after your death.
Survivor Annuity vs Life Insurance. So, why would you choose the Survivor Annuity rather than life insurance? First of all, you don’t have to choose only one or the other. You could certainly opt for both.
The big difference is that life insurance pays out one lump sum, whereas the Survivor Annuity is a monthly payment. It’s not that one is necessarily better than the other; just that each provides for your surviving spouse in different ways. If you want to ensure a monthly income that lasts the rest of your spouse’s life, however long that may be, then the Survivor Annuity fits the bill.
For more information on the Survivor Annuity, and other issues regarding retirement planning, give us a call. We can help you evaluate your income plan, and show you different ways to provide for both yourself and your spouse within different potential scenarios.
