Episode Transcript
[00:00:00] Speaker A: Any examples used are for illustrative purposes only and do not take into account your particular investment objectives, financial situation or needs and may not be suitable for all investors. It is not intended to predict the performance of any specific investment and is not a solicitation or recommendation of any investment strategy.
Welcome to Reyna Retirement. Reyna Reyes has dedicated her career to helping people make small, smarter financial decisions. Reina retirement is all about breaking down complex financial concepts into language you can actually understand.
Now here's the co founder of American Federal Benefits Consultants, Reyna Reyes.
[00:00:41] Speaker B: So the saying goes that marriage is a great institution. And then the other guy says yeah, but who wants to be in an institution? So many of us are married and want to leave our survivor or surviving spouse a benefit. And if you're in the federal retirement system, whether that's FERS or csrs, you have some options to leave your honey bunches of love. And we want to go through what that means. But there's also some definitions I want you to understand. A survivor benefit does not go to someone who's not your spouse or a disabled child. Because your adult children are self sufficient, there is not a survivor benefit for them. They will be receiving things like life insurance from your fegli, which is federal employee group life insurance, or your TSP or anything you've set up on the outside. Outside of your federal benefits, a survivor benefit goes to a spouse only or a former spouse or someone who has insurable interest in you, which is much more rare to use. And also it could go to a disabled child.
So the choices you have for your sweetheart are as follows. If you are civil service, that is CSRS, that is higher before 1984 ish, you have a choice. You can either leave your spouse absolutely nothing or anywhere up to 55% of what your pension is going to be. So a little over half. Pretty cool. But you've got some interesting freedoms. You can literally pick the exact dollar amount you want to leave your spouse and we can reverse math the percentage of that to give them exactly the amount, which is kind of cool furs that is F E R S first hired after 84 y' all are on the left hand side. And you get three choices. And that's all she wrote wrote. You can leave your honey bunches half or a quarter or none at all.
But you got to remember, if you ain't leave nothing, nobody's getting any health insurance if you pass away. So let's define again survivor, what happened If I have a survivor, I died.
And that's the Same thing that happens with life insurance. Life insurance pays when if I died. And so I want you to remember too, we got a little bit of a teeter totter happening between survivor benefits and fegli life insurance because life insurance pays lump sum tax free and will go to your adult children if both you and your spouse pass away.
Survivor benefit is monthly, is taxable, and does not go to anybody that's not your survivor.
That is no kids, no neighbors, no dogs, no pets, no niece, no nephew. It is only going to your other half or disabled child.
So big teeter totter there in decision making processes and the age of your spouse has a big factor to do with that as well. For example, if my spouse is 79, I'm probably less excited about making sure they have a monthly benefit that's taxable than I am excited about giving a big chunk of say 80 grand or 50 grand or 100 grand. Right. I'd much rather get the lump sum also because odds are they're going to be close behind me. Right. Just based on age, sorry, 79 year olds just in, you know, we got to look at stuff in reality and say, okay, well, let's maybe focus on life insurance. If we're making this decision at that age, let's focus more on that because the benefit can survive longer. It's not taxable. It's lump sum. You get it all in comparison to how many years do I need to live at this monthly benefit to make up for the hundo thousand that I could have made if I'd taken the life insurance? You see the teeter totter. So keep that in the back of your mind as you look at this and say, okay, my choices are if my monthly income, and this is just an example, if my monthly pension before tax tag and title is $2,000 a month, I can leave my spouse half, which is $1,000 a month. But at what cost? It costs you 10% of your pension. So it cost me $200 a month out of my 2,000 to make sure that if I die, my spouse gets $1,000 a month for the rest of their life.
Also, I can choose to do half of that. You can leave your spouse a quarter of your pension, which would be 500 bucks a month, but it cost me a hundred dollars a month for the rest of my life either which of these allow my spouse to keep health insurance if I die.
Now, there's this other choice down at the bottom where I've seen a lot of employees talk to their spouse and say, honey, there's this really good option. It doesn't cost us anything. But if I die, you don't get any money. You don't get any health insurance either. It doesn't sound like a great idea, but some people will think, what a reprobate who would do that? Well, they're not all bad people because there's reasons for that. Sometimes maybe, maybe their spouse is independently wealthy, doesn't need the money. Or maybe their spouse is also is already on Medicare and doesn't need the health insurance and is not worried about that extra thousand dollars a month or $500 a month.
Or maybe they're Twinkies. Remember what a Twinkie is? That is to the same thing in a little package.
I coined that phrase many, many moons ago saying that if you're married to another postal employee or married to another federal employee, then you have no big reason to spend money out of each of your pensions to leave each other money that you already get to make sure the other person keeps health insurance that they already have and, and will maintain regardless of the survivor benefit. Because if, let's say I'm. Let's say we're married and you had the health insurance under your name, so I'm covered on federal employee health insurance, but it's just under your name.
If you, if we both retire and do not leave a survivor benefit and I stay on your health insurance and you die, well, all I'm doing is transferring the name of that health insurance from your name to, to my name regardless of when it is in the year. Obviously a death is outside of open enrollment in many cases, so I would easily be able to just continue.
That's the key word, continue, not start. I am continuing that health insurance. I'm just changing the enrollment name from yours to mine and that means I'm just continuing the coverage I had all the time and I had it five years before I retired, even if it was under your name. You follow?
So that's a big question mark for a lot of people that are Twinkies now. Side note, if you are Twinkies and there's only the two of you, no kids, you really need to look at self only coverage for each of you because it saves you at least 100 bucks a month on most health insurance plans.
So okay, I'm back from the side note we have returned from to our regular schedule program. What you need to see though is that the survivor benefit compared to life insurance and also what it's going to cost you and what it's going to merit Your spouse. So you look at the spouse and you say, honey, if I die, do you need money? Health insurance, Both or neither? And if the answer is both, you go with the top option. If the answer is I only need health insurance, money's not the problem, then you go with the middle option, the partial. If the answer is I don't need nothing, then you go down to the bottom and don't leave a survivor benefit. And maybe you redirect some of those funds that you would have spent.
Maybe you leave it to have more life insurance because again, life insurance, lump sum, no tax. And don't forget, life insurance has long since been the tax shelter of the wealthy to protect funds, to protect from taxes, to protect their family from being slashed by taxes.
So here we go. And in summary, in retirement and only at retirement, you're going to have choices. Do I leave my survivor benefit to my spouse? 50, 25 or nothing? Or civil service anywhere between zero and 55%.
What do I leave them? Do I leave them anything? What's our situation? What makes the most sense and how can I get the best benefit for me now by keeping the most money but also making sure to leave my spouse the best benefit and the best type of benefit. So reach out to me. We can go over this easily. This is a big conversation on all of my meetings again because I am going to be there one day to process the claims. I do many, many, many claims after people have passed away to help the kids process this stuff in the best way for them and make the most sense and make the choices that benefit them the most, whether that's going into an inherited IRA or starting to pay taxes on things and then in life insurance, that lump sum that they get, big benefit and for a survivor, for a spouse to have that monthly benefit if that's what they needed, can sometimes be a game changer. It is a spirit calming monthly payout that is essentially a love letter you send to them every month, especially if they needed it. Remember, if they don't need it, then we're not talking about anything. But it's, it can be a very, very good thing and many times worth the cost. But we always want to make sure that it is of value to spend the money and to leave the money. Reach out. We can go over all of this and make sure it makes sense for you and yours based on your own situation because nobody's the same. Look forward to talking with you soon. Reach out. We'll get scheduled.
[00:10:17] Speaker A: Thanks for listening to Reyna. Retirement with a strong commitment to ethical standards. Raina works hard to find the right solution for each individual or family who reaches out for advice. To contact Reyna directly, call 850-450-6500. That's 850-450-6500. Or to reach the team at American Federal Benefits Consultants, call 1-800-872-8857. That's 1-800-872- 8857. You can also go online to americanfederal.org not affiliated with the United States Government. Opinions expressed are subject to change without notice. These opinions are not intended as investment advice, nor do they predict future performance of any product. All information provided is pretty believed to be from reliable sources. However, we make no representation or warranty as to the accuracy of any statement. The information is intended to be educational in nature and does not provide a guarantee or specific result. All copyrights and trademarks are the property of their respective owners. American Federal Benefits Consultants is an independent organization, not a government agency or affiliated with the Federal Government or any state government. The terms CSRs, FERs, FELI, and FEHB are all registered trademarks of the U.S. office of Personnel Management. American Federal Benefits Consultants, Agents, consultants, or any independent contractors do not provide tax, legal or investment advice and do not engage in the solicitation or sale of securities. Consult with your tax advisor or attorney regarding specific situations.
