When you buy an annuity from an insurance company, you pay one or more premiums to the insurance company in exchange for guaranteed future income payments. One type of annuity is the joint and survivor annuity, usually purchased by married couples. This annuity continues to pay the survivor after one person dies.
You can buy an annuity that continues payments as long as you or your spouse is alive, or you can buy an annuity that pays for a specific number of years, ranging from 10 to 30. The disadvantage of a joint and survivor annuity is that the payments you receive are lower than those of a single life annuity, because the payments are based on the life expectancy of both you and your spouse. However, you can choose a reduced payment for the surviving spouse, which increases the payments while you are both alive.
Pension Survivor Annuities
Another type of joint and survivor annuity is the pension survivor annuity, also called a Qualified Joint and Survivor Annuity (QJSA). This type of annuity pays retirement benefits as a life annuity to the retiree; when that person dies, the QJSA pays a survivor annuity to the surviving spouse for her lifetime. A QJSA may also pay benefits to a former spouse, child or dependent subject to a Qualifed Domestic Relations Order (QDRO). A QDRO is a judgment, decree or order for a retirement plan to pay child support, alimony or marital property rights to a spouse, former spouse, child or other dependent of the retiree.
Same Sex Couples
The law does not allow a QJSA to define “spouse” as a same-sex spouse or domestic partner. However, a plan has the option to let a participant designate a same-sex domestic spouse or partner as the beneficiary of a survivor benefit other than the survivor annuity portion of a QJSA.
Survivor Annuity vs. Life Insurance
In deciding whether a survivor annuity or life insurance is a better choice to provide income for a surviving spouse, consider how long you expect your spouse to live after you die. If you spouse is likely to live a long time, a survivor annuity might be the best choice because it would likely pay more than the income from invested insurance proceeds. However, if your spouse is unlikely to live much longer than you, life insurance may be a better option. Some things to consider in analyzing this decision include your age difference, the fact that women tend to live longer than men, both of your health histories and the longevity of your families.
Federal Employee Pensions
Another consideration for federal government retirees is health insurance for the surviving spouse. If you want your spouse to continue enrollment in the Federal Employees' Health Benefit Program if you die first, you must elect a survivor annuity when you retire.