Delivered on: Thursday, January 20, 2022
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The Strategy of the Survivor Benefit Plan
The art of protecting income for your spouse
- ELIGIBILITY: Who can be protected under this program
- AMOUNT: The maximum protection available to a spouse
- CONNECTION: The effect this decision has on other benefits
- DECISIONS: When and how this irrevocable decision is made
- CHANGES: How divorce and remarriage before/after retirement affect this benefit
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Prefer to read instead? A transcript of this webinar is below:
Hello everybody. And welcome to this webinar on the strategy of the Survivor Benefit Plan. As you’re approaching retirement, you might have been curious how this program works and what alternatives there might be. So that’s what today’s session is all about.
I’m your ProFeds presenter, Chris Kowalik. I am the founder of ProFeds here and the developer of, not only our workshop, but the host of the FedImpact podcast as well. I have lots of fun training with federal employees, and offer some of that candid perspective where we don’t just regurgitate what OPM decides to tell you, but really dig in.
What does this mean in real life? What are some examples, and how can you use this for your future? That’s what we aim to do in all of our training, no matter what platform we happen to be on, but to be able to provide that very direct, no-nonsense kind of approach. Again, our support team is awesome. They’re standing by for any of your questions in the Q&A area.
The Strategy of the Survivor Benefit Plan: The art of protecting income for your spouse
Today’s topic is the strategy of the Survivor Benefit Plan, the art of protecting income for your spouse. This whole idea of the Survivor Benefit Plan means you’re gone, and we need to help you know what decisions you can make before that happens so that your spouse continues to have the income that they need.
Agenda
For today’s agenda, just a quick overview. First, we’ll start with eligibility, who can be protected under this program. How much can be protected? Are there any weird connections to other benefits? When and how are these decisions made if you decide to change your mind or a life event happens, what happens after that? And some bonus material here. So, if you don’t love this benefit, what’s the alternative?
This is the basic agenda. These topics are not going to be delivered quite in a straight line. We will kind of hop among them, but the topic is really important. This is a topic in our workshop that really has people glued to the presenter in the material, because you don’t get a lot of straight information about the Survivor Benefit Plan. And of course, that’s what we aim to do.
What this webinar will NOT cover
Quickly, what this webinar will not cover. We’re not going to be talking today about how to be eligible to retire. We’re not going to talk about how to calculate your pension. We are going to assume that you are eligible to retire when you’re making this decision, you already know what your pension is. We’re going to show an example, but we’re not going to go into the nitty gritty of those calculations of the pension itself.
This also is not all-inclusive training where everything you ever needed to know about the Survivor Benefit Plan is going to be presented in this webinar. We only have a limited amount of time to be able to do this. And this is a huge decision that you are going to be making as you step into retirement. It deserves your attention, not just today, but to dig into the rest of the details that you are really going to need to know.
Of course, we’re also not going to be talking about children or other people outside of your spouse that you may want to protect income for. That’s not what this program does, and it’s certainly not going to be included in today’s material because of that reason. This benefit that we are talking about today is the Survivor Benefit Plan for your spouse. That’s it.
OVERVIEW OF THE SBP IN RETIREMENT
Let’s start with the Survivor Benefit Plan, and do just a brief overview in general, of what this program is. The Survivor Benefit Plan in retirement protects a portion of your pension for your surviving spouse. This assumes you die first, and this program allows part of your pension to continue to be paid to your spouse.
We’ll get into the details here in a moment, but it’s important to know that you as a retiree must elect and consequently pay to keep this protection in place on the actual retirement application. That’s where the decision’s going to be made.
I want you to understand that the Survivor Benefit Plan is the government solution to your spouse’s income problem when you die. Otherwise, if you don’t have the survivor benefit in play, when you die, your pension dies with you. We’re going to see the way the government’s willing to solve this problem for you. And it might open up some ideas of other ways that that problem can be solved as well.
The Maximum Survivor Benefit
Let’s look at the highest amount of the survivor benefit that can be protected. Of course, there’s a difference between the CSRS and FERS program. I’ll review both of these briefly, and then we’re going to stay focused on the first side, since the vast majority of federal employees are FERS these days, I still have mad love for you CSRS employees, but there’s just very, very few of you out there. We’ll give you the basics, and then we’ll focus on the FERS side.
For CSRS employees, the very most that can be protected is up to 55% of your pension. It’s going to cost you just under 10% of your pension while you’re living to have this protection in place for your spouse. Again, while you’re living, you give up about 10% of your pension. When you die, your spouse continues to receive 55% of what you were drawing.
Under the FERS side, it’s much clearer. You can protect up to 50%, and it’s going to cost you exactly 10% of your pension. They certainly changed a lot of things under the first side to make it simpler, but simpler doesn’t always mean better. You see, you obviously have a little less coverage for your spouse and it’s costing you a little bit more. Maybe not the kind of simplicity you were hoping for. We always hope simplicity adds to our benefit and not subtracts from it, but this is the way this program works.
A couple of things, some notes at the bottom that I think are worth pointing out. The first is that every time you, as the retiree receive a cost-of-living adjustment to your pension, the coverage that your spouse is expecting to receive when you die increases.
But so does the cost that you are paying as the retiree while you’re still living. Both of those are going to go up in tandem. We like to tell folks, you don’t lock in your coverage, and you don’t lock in your price. You lock in your percentages. That’s what you’re opting in for when you elect the Survivor Benefit Plan.
It’s also worth noting that the Survivor Benefit Plan premiums that you pay are with pre-tax dollars, which is a nice perk. It may not outweigh some of the disadvantages of this program that we’re going to talk about. That’s really up to you to decide.
But it is nice to know that at least you don’t have to pay taxes on the pension that you give up, that 10% or so, or whatever level it is that you elect that will not be taxable income to you. That’s the general overview of how the Survivor Benefit Plan works, at least in a nutshell.
Eligibility
But let’s talk about eligibility, who is eligible to receive this benefit. There are two people. Let’s start with the first one. The first is your current spouse. A current spouse is entitled to a full survivor benefit. If they choose something less than what they’re entitled to, they must provide their notarized consent.
This happens on the application to retire that you’re going to complete when you get close to that time, but your spouse has to be on board with this decision. You can’t make the decision that you’re not going to provide a survivor benefit to your spouse. That is their decision to make, and it must be notarized. That’s the first person that can be eligible for this benefit.
The second person that can be eligible for this benefit, or some of you might have multiples of these people, which is a former spouse. A qualifying court order must have very explicit language in the order that grants the survivor benefit to a former spouse. If there’s no language in your divorce decree or your court order, there’s no benefit provided by OPM.
It has to be very specific for OPM to execute. It’s worth mentioning that a former spouse can get that benefit by court order, or you can voluntarily elect for that former spouse to get the benefit. One’s voluntary, one’s involuntary, but both are permitted.
There are some special rules when it comes to a former spouse that are worth mentioning here, because I think it hangs up a lot of people. And that is unless you’ve been married to one another for at least 30 years, if a former spouse remarries prior to the age of 55, their benefits are completely forfeited from that court order.
Any benefit that you originally elected reverts to the current spouse. We had to have done the paperwork correctly to make sure that that’s all set up that way, but it is important to know that that former spouse does have a timeline of actions that they take on their side, like getting remarried and how that affects the survivor benefit that they’ve been awarded by the court.
If the entire survivor benefit, so up to 55% for CSRS and up to 50% for FERS, if the entire benefit is awarded and is being paid to a former spouse, the current spouse is entitled to nothing. There won’t be anything to give if the entire benefit has already been given to one person or maybe a series of people, if you have multiple former spouses, your current spouse won’t get anything because the bucket’s empty, it’s already been given to these other people, or this other person.
It’s very important to realize a current spouse and a former spouse are the only two people eligible for receiving the spouse’s Survivor Benefit Plan. We ask the question in our workshop, what’s a person you are hoping would be on this list that you don’t see on this list.
And everybody says, their kids. Your kids cannot receive this benefit, period. It doesn’t matter if they’re disabled. It doesn’t matter if they’re minor children or adult children. They will not receive this benefit. There are other benefits that they may be able to receive, but it won’t be nearly as rich as the benefit we’re going to talk about today.
Example of FERS Survivor Benefits
Let’s talk about an example here. I mentioned before that, although we love our CSRS employees, there are very, very few of you left and we want to focus our example and the majority of the effort here today on the group that is mainly making up our session today, which are FERS employees.
Set’s take a look at an example of a FERS employee that is retiring at age 60, and they’re going to have a starting pension of $30,000 a year. We’re not going to get into the specifics of what their high three was and how many years of service they had and all of that.
That’s for another webinar. We’re simply going to come in with these parameters of the example here. And, of course, we’re going to assume that they’re going to receive cost of living adjustments to their pension each year in retirement.
Scenarios
Let’s take a peek at the very first year of retirement and what that looks like. Follow along here, in that very first year of retirement, this employee is 60 years old, they would receive a pension of $30,000 per year. While living, the retiree would pay 10% of that $30,000 or $3,000 per year to have this coverage in place for their spouse.
Once that retiree dies, the spouse would receive $15,000 per year. This $15,000 number only comes into play if, in fact, the retiree died within that very first year of retirement. This is what things look like in a snapshot of year one. But nobody wants to believe that they’re going to retire and die shortly after.
Let’s fast forward the example to the 20th year of retirement. Same scenario, now we are 80. The pension would now be about $41,000 a year. The retiree would pay 10% of that number as a cost to have this protection in place. So, $41,133 a year. And if the retiree were to die in that 20th year of retirement, the spouse would receive half of the pension amount, just under $21,000 per year.
To date this couple would’ve paid about $74,000 into the Survivor Benefit Plan. Keep that number in mind. We’re going to circle back to it here in a bit, but it’s important to understand that we’re not locking in a dollar amount of a price, and we’re also not locking in a dollar amount of coverage for the spouse, these both go up in tandem.
Hopefully that example gives you a sense of the math behind how all of this works with a quick example.
Connections
But leave it to the government to connect the Survivor Benefit Plan with another benefit that’s crucially important for most retirees and their family. And that is the Federal Employees Health Benefits program.
If your spouse is reliant on your FEHB coverage, if you decline the survivor benefit altogether and say, no, thank you, your spouse is no longer eligible for FEHB coverage once you die. This is very, very important to understand this weird connection. Why did they choose to do this? I don’t know. I came from the military side of the house and the Survivor Benefit Plan over there has no connection to their health coverage under TRICARE.
Why did they choose to do this under CSRS and FERS? I do not know, but it’s a critically important piece that even if we don’t love the Survivor Benefit Plan and the way I’m going to describe that it works today. Most of the time feds have to select at least something in the Survivor Benefit Plan, so that they’re securing health insurance for their spouse after they’re gone.
Let’s talk about what that minimum level is. To retain that FEHB coverage for your spouse, again, once you’ve died, you must elect at least the minimum coverage, at least the minimum coverage. For CSRS, the minimum that can be protected for a spouse to keep health insurance is 55% of $22. And that is a very bizarre combination of numbers there.
Let me explain. If we take 55% of $22 that gives the spouse, the surviving spouse, $1 per month, that they are receiving in a pension, in the survivor pension. That means that they are a survivor annuitant and puts the check in the box for health insurance.
This pension isn’t going to be enough to actually pay for the health coverage. They’re going to have to pay that out of pocket, but it at least gives them access to the coverage. And of course, it costs very little while you’re living to have that protection in place.
For FERS, the minimum is quite different. We know the maximum was 50% of the pension. The minimum is 25% of the pension. They have a much bigger requirement under FERS to be able to keep that FEHB coverage for your spouse after you die. If you’re still living your spouse and any eligible children can stay on your FEHB plan, that’s no problem, regardless of what you’ve chosen on the Survivor Benefit Plan.
The question is when you die, do they can continue to be an eligible family member? And this is the way to make sure that they are, or specifically that your spouse is. Presumably, your children are grown unless we have a disabled child, and then that has all sorts of other rules to it.
The “What-If”
We’ve talked about the maximum. Here we’ve talked out the minimum. Let’s now talk about all the what ifs. I imagine you’ve already thought about these as I’ve been talking, but what about this? And what about that? What if I do this? What if this happens? Let’s talk about the most common ones that we hear in our workshops, so that you all can benefit from these types of questions that were commonly asked.
What if… Your Spouse Dies First?
The first is, what if your spouse dies first? If your spouse predeceases you, I have good news and I have bad news. The good news is you no longer have to pay the premium from that point forward. That 10% that was being reduced out of your paycheck in retirement, you no longer have to pay that. You’re going to be brought back up to the 100% level. The bad news is all of the premiums that you’ve already paid are lost.
In the example that I gave before, where we showed the first year versus 20th year of retirement, that couple had paid about $74,000 into the Survivor Benefit Plan by the time the retiree’s 80. If the spouse were to die at that point, the $74,000 that’s already been paid is not refunded. It’s just lost in the program.
What if… You Marry (or Remarry) in Retirement?
What’s next? Well, like I already mentioned, there are no refunds issued of premiums that you’ve already paid, and nobody else can be named. You can’t name your children, or your niece or nephew, brothers, sisters, parents, you can’t name anybody else when that happens, unless you marry or remarry in retirement.
You can add a new spouse to be covered under the Survivor Benefit Plan, but there’s a catch, and the catch is pretty big. You must pay the back premiums from the date of marriage to your new spouse, all the way back to either the date of retirement, or if you had already been married and that spouse subsequently died, the death of that previous spouse, whichever time period is shorter.
Let me give a quick example. Let’s say that you’re married at the time that you retire. Your spouse lives five years into retirement and they pass. Subsequently, you, 10 years later decide to get remarried. If that’s the case, you have to go from your current marriage, your new marriage, back to the death of the previous spouse.
You have 10 years of premiums that you have to pay to allow your new spouse to come onto the Survivor Benefit Plan. This is not something that you just wait as long as possible, and then get them in at the last minute, you are going to be responsible for all of those back premiums.
They’re not all paid at one time, so that’s good. They spread these payments out, but it’s still an obligation that you have in something that you should pay special attention to if you’re thinking about adding a new spouse to the Survivor Benefit Plan.
Now keep in mind, just like we had the FEHB coverage issue before with a current spouse, adding your new spouse to the Survivor Benefit Plan is the only way to make sure that that new spouse continues to have access to FEHB after you die. It works exactly the same as the current spouse. Your new spouse is going to need to be covered under SBP. If they’re not, when you die, their FEHB coverage goes away.
What if… You Are Married to Another Federal Employee?
The next what if scenario is, what if you are married to another federal employee? Here we have a fed married to another fed. Both spouses maintain their own right to FEHB, the coverage that they earned, as long as both of them, both, let me express both, very important, both of them will retire from federal service with an immediate pension. And that both spouses were enrolled in FEHB at least five years prior to their own retirement.
It does not matter whose coverage they are under. The government does not care. You can be under two self onlys or a self plus one or a self plus family. It does not matter, as long as they were covered under the FEHB umbrella for at least five years prior to their own retirement. That would mean that the both of you have earned your own right to FEHB.
What that means to you is that you don’t have to select the survivor benefit to protect FEHB for your spouse. They’ve already protected it for themselves by virtue of retiring from federal service under an immediate annuity and being enrolled in FEHB for five years prior to their own retirement.
I want you to pay special attention. If you’re a fed married to another fed, this is a bullet that you might need to re- read a couple of times. If both of you were to select the Survivor Benefit Plan to protect income, we know you don’t have to protect it for FEHB, but to protect each other’s income for one another, one of you is paying for a benefit that will never, ever, ever pay out anything, because we don’t know which one of you will die first.
Let me be very clear here. We want to make sure that you know exactly how this works if you’re married to another fed. Having said that, federal employees married to other federal employees need to make decisions about the Survivor Benefit Plan with all of that in mind.
Decisions & Changes
Let’s talk a little bit about these decisions and changes to these decisions and what’s allowable. At the time that you retire, that’s when this decision is going to be made. It’s right on the application to retire. You can’t get out without making this decision.
For CSRS employees, you will use the SF-2801-1. This is the application for immediate retirement. And in this case, you are going to select, it’s kind of a bizarre election. It’s 55% of blank, whatever that number is. And that number is somewhere between $1 and the full pension amount.
Remember 55% of $22 is what’s guaranteed to your spouse, the FEHB coverage. If that’s what you’re trying to do, make sure you don’t fall below that number. But CSRS, these folks get a little bit sideways because they say, “I don’t even know what I’m electing because of the way the form is laid out.”
But for FERS employees, this election is going to be made on their version of the retirement application, which is the SF-3107-1. They can choose to protect either 50% of the pension or 25% of the pension.
I don’t have it on the slide, but of course another choice is no, thank you. If you don’t want the survivor benefit and your spouse is willing to sign off, that they’re willing to take none of it. Then zero is an acceptable answer here. We just want to make sure that we know if we’re not doing this, how is it that we’re protecting income for our spouse?
When it comes to changing your mind, there is a really small window to change your election. And it’s based on when OPM finalizes your pension. Most of you know that when you first retire, you get these weird checks called interim payments. And it’s a part of what OPM thinks you’re probably going to get, but they haven’t gotten to your file yet. That’s all interim retirement.
Once OPM finalizes your pension and you start getting your regular annuity payments. That’s the mark in time that we’re basing these changes on. It might take OPM 3, 4, 5, 9, 12 months to finalize your pension. We don’t know that, but that is the mark in time that we’re talking about here.
If you want to make a change within 30 days of your first regular annuity payment, meaning OPM has finalized your pension and you’re starting to get your normal amount, you can simply file a new election. You’re going to do that in writing. You’re going to send it over to OPM, and you can make any change that you wish. You can enroll in survivor benefits. You can cancel your previous enrollment. You can increase, you can decrease. Lots of choices that you have there. But that’s all within 30 days.
If it’s between 31 days and 18 months after that first regular annuity payment, so again, after OPM has finalized your retirement, the only two choices that you have at that point is to enroll or increase your coverage. You are not permitted to cancel or reduce your coverage within this window.
We need to be on the ball, making these decisions because once these times pass, there’s no looking back. This is an irrevocable decision from that point forward, and you are really stuck and hope that you made a good decision. What happens a lot of times is feds don’t really realize what they’re doing when they make these decisions on the retirement application.
They might make one choice, and then later, maybe shortly after retirement realize I think I made a mistake. You just better hope you figured out you made a mistake within these timelines based on the decision that you’re trying to make, the change that you’re trying to make in Survivor Benefit Plan election.
The Alternatives
The next section I want to review is the alternative. When we think about alternatives, oftentimes we think I either do this, or I do that. And sometimes that’s the way alternatives work, but not always. In fact, you’re going to see in what I’m going to share with you about some of the perspective of the Survivor Benefit Plan, that you very well may have some of the apple and some of the orange when it comes to what you end up with in your strategy to protect income for your spouse.
Before we look at other solutions or other alternatives, we must first appreciate how this specific plan behaves. This is the government Survivor Benefit Plan. I want to ask you a question that will put some perspective around this. What do we call a program that we pay for while we’re living so that when we die, our family gets money?
All of you know that to be life insurance. But this program doesn’t really look like life insurance. There are a lot of big differences between the way the government Survivor Benefit Plan is paid out, and the way a life insurance policy is paid out, but they both serve the same purpose.
We’re going to show you some examples here of comparing the two, just so you have a little bit of perspective. In addition to knowing how the plan behaves, we also need to understand the conditions of this plan, how it works. From a timeline standpoint, you need to understand that you start paying for this benefit when you retire, and you stop paying for this benefit when you die, and your spouse receives the survivor benefit payments for the rest of their life.
That’s the way this program is structured. But from a purely economic standpoint, what’s the best way to get your money’s worth out of this program? If we are all in a room together, someone would’ve shouted out that you should die early. And then someone else will say, and we want your spouse to live a really long time.
I’m not advocate of this strategy. In fact, I hope that you have no control over who dies and when. But the reality is purely from a money standpoint, if you were to pass shortly after you retire, you would’ve paid very little into a program that ends up paying out your spouse a boatload of money.
I’ve worked with my fair share of widows who have lost their loved ones shortly after retirement. And so, I don’t take this lightly, but I do want you to understand from an economic standpoint, what has to happen in your circumstances, who dies and when, for this program to look attractive?
If we know that to get our money’s worth, we need the fed to die relatively soon, and we need the spouse to live a long time after that. Most people aren’t excited about signing up for a program like that. It doesn’t sound all that exciting. Now the spouse might have something else to say about that, but as far as the fed, they’re not really excited about that scenario.
Considerations: Government SBP & Private Life Insurance
What I’d like to do is to walk you through a side-by-side comparison of the government Survivor Benefit Plan and a life insurance policy. And we’re not going to talk about any specific product or any specific company, but I want you to understand structurally how they’re similar and different.
There are six main differences between the government Survivor Benefit Plan and private life insurance that I’d like to walk through. We’re going to start with the government Survivor Benefit Plan. You know that in order to get this plan, when you retire, you simply have to elect it on your retirement application. You don’t have to do anything to qualify. You just sign up, which is great. You don’t have to prove that you’re healthy or anything else.
As far as coverage that’s available, we know that there’s a cap to the coverage that’s available. For CSRS retirees, we’re looking at 55% of their pension, and for FERS, it’s 50% of their pension. Is that enough? I don’t know, beats me.
But chances are, if you ask your spouse, “Honey, if I die, what percentage of my pension would you like to keep getting?” They’re probably not going to say half. I’m just spit balling here. I’m just going to guess what your spouse is going to say. They’re probably going to say, “Well, I’d like to get all of it.” That’s a conversation that you need to have.
As far as how this benefit is paid for, this will be paid from the monthly pension and the cost increases over time. Because remember, you’re locking in your percentage. You’re not locking in your dollar amount for the cost.
As far as who the beneficiary can be, we know a spouse or a former spouse by court order can be named to receive this benefit. How it’s paid out upon death, these are monthly payments for duration of your spouse’s lifetime. Those monthly payments begin, and however long your spouse lives, they will continue to get that.
That’s probably a perk that they’re interested in, those kinds of guaranteed payments. Now, as far as how the money is taxed. Under the government Survivor Benefit Plan, everything that your spouse receives from this plan is fully taxable to them.
I promised I do a direct comparison to life insurance. Under the private life insurance side, you do have to be healthy enough to qualify. That’s a big sticking point over there, because the insurance company is willing to pay out money on your death, and they want to make sure that when you apply that you’re healthy enough, so you stick around long enough to pay premiums to offset what they’re going to pay.
There’s an unlimited amount of coverage available on the private side. I won’t say there aren’t limits, but there are obnoxiously high limits that average people don’t meet. And so, none of us are going to hit that limit.
As far as how the benefit is paid for, this is typically paid on a monthly basis, as far as your premium. And most often the cost is level. Although there’s some options out there that may allow that premium to fluctuate up or down. You’d want to look at that.
Here’s where it gets interesting. Under a private life insurance policy, you can name any person or entity that you wish. Maybe at the beginning it’s your spouse. And if your spouse were to predecease you, you’ve got your children named as a contingent beneficiary and so on.
But there’s longevity to a life insurance policy that allows you more flexibility and control over what happens to this money. Especially if people don’t die in the right order, and the right spread between them. We want to make sure that the money wasn’t wasted. Like we saw in the survivor benefit example, that couple had paid $74,000 into the Survivor Benefit Plan at that 20-year mark.
Well, we don’t want $74,000 to just be lost. If that were a life insurance policy designed to generate that same kind of income for a spouse, we would want that to be able to go to somebody. And so, we would simply rename the beneficiary as the children. But that only is possible on the life insurance side, not the government survivor benefit side.
Wow. And here’s the last consideration that we haven’t talked about at all yet today. That is how this money is taxed. Under a private life insurance policy, all life proceeds are income tax free. This is a huge deal. And it really changes the game for a lot of people because they’re not worried about yet another thing that’s going to eat away at their money, which is income tax. They simply get all of that money right up front with no taxes.
When we’re thinking about the government Survivor Benefit Plan versus life insurance, which one is better? Well, you might have an answer in your head, but the reality is, they’re different. They’re incredibly different programs that each have their pros and cons. But I do want to point out a little bit of the flexibility on the private side that hopefully gets your brain thinking.
When I’m thinking about whether the Survivor Benefit Plan or life insurance is better for me from a strategy standpoint, let’s get this straight. As long as I’m healthy enough to qualify, I can get as much coverage as I want. I typically lock in my cost. I can name anybody that I please to get it. When I die, they all get it at one time so they can do with it as they wish, and they don’t pay any income tax on it.
Those pieces are incredibly valuable to survivors. And so, if the purpose of all of this is to protect income, specifically for your spouse, but perhaps a little further down the line, if you go the life insurance route, to be able to make sure that money goes to somebody like your children or grandchildren, then looking at a private life insurance policy may give you that flexibility that the government program is lacking.
The Alternative
But a couple of things that I want to point out here, the first is your health and age are huge factors in whether you’re going to be able to pull this off. There are parts of the government Survivor Benefit Plan that are advantageous to keep, for instance, at least the minimum to protect health insurance for your spouse.
Most often we see federal employees who are looking for a real strategy here that they have a mixture of the government solution and the private sector solution, so that they get the best of both worlds. They might take the minimum survivor benefit to lock in the health insurance and some of that income. And then they also have a private life insurance policy that supplements what they’ve given up under the government survivor benefit side.
But here’s the cool part. Remember that conversation that you’re having with your spouse, that you say, “Honey, what percentage of my income would you like to keep getting when I die?” And they say, “Well, I want 100% percent of it.” That can be accomplished with private life insurance. It’s something that can’t be, even at its very best, accomplished under the government’s solution.
Neither is bad or good. There’s just advantages and disadvantages on both sides. And the good news is you don’t have to pick and choose. You get to have both. You just have to be proactive in the way that you’re getting it.
A strategy like this where we’re balancing the private sector and the government solution requires skillful execution from a competent professional who specializes in helping federal employees. Do not go to a financial planner or a broker or call some random insurance company and say, “Hey, so I’m trying to do a life insurance policy. Can you help me out?” Because there are a lot of pieces to all of this that need to be sorted out first.
We want to make sure that the person you’re working with actually understands how this decision under, specifically the government Survivor Benefit Plan, affects your spouse, because lots of companies are willing to sell you products. But if they don’t actually understand the predicament that you are in, and the solutions available to you within the government program and looking to marry those up with the outside solution, they will likely give bad or incomplete advice.
Do not do this on your own. Please get the help of a competent professional. We have a network of financial professionals throughout the country. It’s what we specialize in helping feds to do so they can take action on the things that they learn just like in today’s webinar. But quickly, let’s wrap up.
Wrap Up & What’s Next
The wrap up for today is to get clear and get help so that you can weigh those advantages and disadvantages on each part of the solution. Please don’t make any rash decisions that leave you with fewer options. We see feds make knee jerk reactions following training that we’ve given or a webinar, whatever that might be, that they can’t undo.
If you go out and you say, nope, now that I understand how that government survivor benefit works, I’m just going to keep that. I’m going to go ahead and drop my other life insurance.
Well, once you sit down and actually talk through this strategy, you might have found that that life insurance policy would’ve been very helpful to you, and vice versa, making a decision to decline the survivor benefit altogether at the time of retirement and not really understanding how it all works together, leaves you with fewer options. And that’s never good in the world of finding financial planning, the more options the better, we say.
Here’s something that I think a lot of feds fall into, this little survivor benefit trap. And that is you wait until the time that the decision needs to be made to figure out what to do. I would encourage you to make the decision to set up your survivor benefit strategy long before you retire from federal service.
Don’t wait until you need to make the decision to start to figure out what to do, because then you’re going to be stressed. And you’re going to feel like you’re being rushed through the process and you’re not really sure. And we don’t always make great decisions when we feel that way.
Let’s say you’re five years out from retirement and you can see the writing on the wall of what the pension’s likely to be roughly. You can get a sense of assets that you may have and how all that might work. You want to be making that decision now. And when the time comes for you to fill out the retirement paperwork, that’s more of just a formality. You’re officially making the decision on that retirement application for the Survivor Benefit Plan.
But in reality, you made the decision for that strategy long ago. Hopefully that’s helpful. Sometimes we have a little procrastination that sneaks in on us, and all of that happens, but I’m certainly hopeful that you will make those decisions nice and early.
Get the Rest of the Story
Like we always do, we’re going to circle right back to our retirement workshop. This is the heart of the work that we do here at ProFeds. I couldn’t stress this enough to get the rest of the story. This Survivor Benefit Plan is part of a bunch of decisions that you’re going to need to make as you step into retirement. Of course, that’s all we’ve been focused on today, but there’s a lot of moving parts here.
And so please, if you haven’t already, or even if you have, and you need to get back in for a refresher, please attend one of our workshops. We have in-person sessions all over the country, obviously we’ve got challenges with COVID that we are eager to overcome. But this is where we are most effective talking face to face from a good distance away, and all safe to be able to get that training in your hands and have it useful and meaningful for you as you are thinking through all these decisions.
There’s no cost to attend our sessions, and they cover all of the federal benefits topics and the decisions to be made. Better yet, you even have a chance for some one-on-one help after the session, to be able to answer all the questions that are unique to you. You can see all the details for our workshops by going to fedimpact.local/attend.
Thank you all very much for joining us! If you received our newsletter this morning, you know that today is ProFeds’ 13th birthday. We are delighted to be able to do this kind of work and help federal employees through this process. We’re delighted that you joined us today. Don’t forget, find a workshop near you. Go to fedimpact.local/attend. And to sign up for that TSP lifecycle fund webinar, go to fedimpact.local/webinar. Thanks so much. We’ll see you next month!
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For an introduction to a financial professional in our network: FedImpact.com/request-to-meet
Register for our next short webinar: FedImpact.com/webinar
Find a comprehensive retirement workshop for your area: FedImpact.com/attend
