Q. I am retiring Jan. 11 and have five years under CSRS and 26 years under FERS. I am confused about survivor option benefit for my spouse (three years older than I am) called insurable interest. It appears to me that for a 10 percent reduction in my retirement annuity, he would receive 55 percent of my retirement annuity at my death compared to 50 percent for the same 10 percent reduction under the regular survivor option. My spouse has his own pension and savings. I cannot find a comparison of the advantages and disadvantages for both kinds of survivor options, or any restrictions. Can you help?
A. An employee in good health can elect to provide an insurable interest annuity for a spouse instead of a regular survivor annuity but only with the spouse’s written consent to that election. While it might seem that the insurable interest annuity provides a higher benefit than the regular survivor annuity, it doesn’t. That’s because the FERS regular survivor annuity is based on 50 percent of the annuitant’s unreduced benefit, while the insurable interest annuity equals 55 percent of the annuitant’s benefit after it is reduced to provide that benefit. For example, if the retiring employee’s annuity without a survivor benefit equals $60,000 a year and the spouse is the same age or older, the maximum survivor annuity would be 50 percent of $60,000, or $30,000. However, the insurable interest annuity would only be 55 percent of $54,000 ($60,000 minus the 10 percent reduction to provide the benefit), or $29,700.