Federal employees spend years calculating whether their retirement income will cover their expenses. But there’s another calculation married couples should run before retirement: what happens to household income when one spouse dies? A FERS survivor election can determine not only how much of the pension continues, but whether the surviving spouse can keep FEHB coverage. Here’s what the numbers can look like.
Why the Survivor Benefit Decision Matters More Than It Seems
When you retire under the Federal Employees Retirement System (FERS), you choose how much of your pension continues to your spouse if you die first: a full survivor benefit, a partial one, or none at all. If you’re married at retirement, the full survivor benefit is generally the default(opens in new tab); your spouse must consent to an election of a partial survivor benefit or no survivor benefit.
That choice should be made carefully. Although OPM allows an opportunity to increase survivor coverage within the first 18 months(opens in new tab) after the annuity begins, changing an election can be limited and costly. The decision affects several things at once: how much pension income your spouse keeps, whether your spouse can remain eligible for Federal Employees Health Benefits (FEHB) coverage as a survivor, and how the household’s Social Security income changes after one spouse dies.
Because the effects compound, the same decision can look inexpensive on paper and still leave a surviving spouse with far less income than either of you expected.
The Three Elections
Under OPM’s FERS survivor annuity rules(opens in new tab), married retirees generally have three choices:
- Full survivor benefit: your pension is reduced by 10% while you’re alive; your spouse generally receives 50% of your unreduced pension for life and may remain eligible to continue FEHB as a survivor.
- Partial survivor benefit: your pension is reduced by 5% while you’re alive; your spouse generally receives 25% of your unreduced pension for life and may remain eligible to continue FEHB as a survivor.
- No survivor benefit: you receive your full, unreduced pension while alive; your spouse receives no FERS survivor annuity after you die and generally cannot continue FEHB as your survivor unless eligible for coverage another way.
A FERS surviving spouse annuity generally continues for life, but it can terminate in certain circumstances, including remarriage before age 55. OPM provides an exception when the surviving spouse was married to the deceased retiree for at least 30 years and the remarriage occurred after January 1, 1995. You can read OPM’s survivor benefit FAQs(opens in new tab) for more details.
What the Real Numbers Look Like
Here’s a worked example (for illustration only, not a specific case) for a couple where the FERS retiree’s unreduced annual pension is $40,000, the retiree’s own Social Security benefit is $28,800 a year, and the non-federal spouse’s own Social Security benefit is $14,400 a year.
For simplicity, the example assumes the surviving spouse is entitled to a Social Security survivor benefit equal to the deceased spouse’s $28,800 annual benefit, rather than receiving both Social Security benefits. Actual Social Security survivor benefits depend on factors including the survivor’s age and claiming history.
| Election | Pension while both alive | Household income while both alive | Survivor’s pension income | Survivor’s total income (pension + SS) | FEHB for survivor* |
|---|---|---|---|---|---|
| Full survivor benefit | $36,000 | $79,200 | $20,000 | $48,800 | Eligible to continue |
| Partial survivor benefit | $38,000 | $81,200 | $10,000 | $38,800 | Eligible to continue |
| No survivor benefit | $40,000 | $83,200 | $0 | $28,800 | Generally not eligible through deceased retiree |
*FEHB continuation assumes the surviving spouse meets OPM’s requirements, including being covered as an eligible family member under the retiree’s Self Plus One or Self and Family enrollment at the time of death.
Look at what happens to the surviving spouse’s income relative to what the household had while both spouses were alive: about 62% under the full election, 48% under the partial election, and 35% under no election at all — before considering any change in health coverage costs.
None of the three options cuts income exactly in half. And the no-survivor-benefit option, while providing the largest pension while the retiree is alive, produces the biggest drop in survivor income and can also eliminate the spouse’s ability to continue FEHB through the deceased retiree.
Be Careful With “Pension Maximization”
You may come across a strategy sometimes called pension maximization: skip the survivor benefit, keep your full pension, and use some or all of the additional income to buy a life insurance policy for your spouse instead. It can work in some circumstances, but the comparison is more complicated than simply comparing the cost of life insurance with the 5% or 10% FERS annuity reduction.
If someone proposes this strategy, treat it as a starting point for analysis, not a settled recommendation. Compare the insurance death benefit, premiums, policy guarantees, life expectancy assumptions, FEHB consequences, and the income your spouse would actually have after your death before deciding.
The FEHB Trap
If a retiree elects no survivor benefit and dies first, the surviving spouse generally cannot continue FEHB as a survivor annuitant. OPM says a surviving spouse can continue FEHB coverage after the retiree’s death(opens in new tab) when a monthly survivor annuity is payable, the deceased retiree was enrolled in Self Plus One or Self and Family on the date of death, and the surviving spouse was a covered family member under that enrollment.
That can make the FEHB consequences much bigger than the loss of pension income alone, particularly for a spouse who does not have other employer-sponsored coverage. The availability and cost of alternatives — including Medicare for an eligible spouse — should be part of the survivor-benefit calculation before retirement.
This is why comparing the survivor elections only by looking at the 5% or 10% pension reduction can be misleading. Health coverage may be one of the most valuable pieces of the decision.
Social Security Doesn’t Stay the Same Either
Social Security also changes when one spouse dies. A surviving spouse who qualifies for both their own retirement benefit and a survivor benefit generally does not receive both full benefits added together. Instead, Social Security coordinates the benefits so that the survivor generally receives the higher applicable amount, subject to the program’s claiming rules.
That’s one reason the higher earner in a household delaying their own Social Security retirement benefit can matter to the surviving spouse. Delayed retirement credits earned by the deceased worker can increase the Social Security survivor benefit payable on that worker’s record. A claiming strategy that produces the most household income while both spouses are alive therefore isn’t automatically the one that provides the most protection after one spouse dies.
Four Documents Worth Checking
Beyond the FERS election itself, four documents are worth reviewing as part of survivor planning: a will, a trust where appropriate, a financial power of attorney, and an advance medical directive.
Also review the beneficiary designations attached to accounts and insurance policies. Assets with valid beneficiary designations generally pass according to those designations rather than instructions in a will. An outdated beneficiary designation on a retirement account or life insurance policy can therefore produce a result that is very different from what your estate-planning documents say.
Where to Start
Start with a single page: list your assets and income sources, note what happens to each one if either spouse dies, and run the household budget using the reduced income levels you expect after that death. Then ask a simple question: if our household income drops from X to Y, can the surviving spouse still cover housing, health care, taxes, insurance, and the lifestyle we expect in retirement? That exercise can expose a gap that isn’t obvious when retirement planning focuses only on whether the couple has enough income while both spouses are alive.
Download the FERS Survivor Benefit Planning Checklist
Want to work through this with your spouse? Download the free FERS Survivor Benefit Planning Checklist(opens in new tab) — a one-page worksheet that walks through your numbers, your survivor benefit election, the reduced-income test above, and the four documents and beneficiary designations worth double-checking.