If you are retiring from the Florida Retirement System (FRS) Pension Plan and you are married, one of the biggest decisions is how your pension continues after you die. Option 3 protects your spouse for life but lowers your check. Some retirees take the higher Option 1 benefit and use life insurance to protect their spouse instead. This page helps you test whether that works for you, and shows when it does not.
The four FRS payment options
- Option 1: the maximum monthly benefit for your lifetime. It stops when you die; your beneficiary receives only any refund of your contributions not yet paid out.
- Option 2: a reduced benefit for your lifetime. If you die within 10 years of retirement (including any DROP period), your beneficiary receives the same benefit for the rest of the 10 years.
- Option 3: a reduced benefit for your lifetime; after your death, your joint annuitant receives the same amount for life.
- Option 4: an adjusted benefit while you and your joint annuitant are both living; after either death, the survivor receives two-thirds of it.
The choice is final once you cash or deposit your first benefit payment or begin DROP.
Source: FRS Pension Plan, “What option should I choose?” Use the benefit amounts from your official FRS estimate.
Option 1 plus life insurance: test the numbers
Enter the Option 1 and Option 3 amounts from your FRS estimate, your ages, and how long your spouse’s income should last.
What Option 3 costs you
| Monthly difference (Option 1 minus Option 3) | |
|---|---|
| Yearly difference | |
| Option 3 reduction |
Your cost-of-living adjustment (COLA)
| Estimated yearly COLA on your benefit | |
|---|---|
| Option 3 monthly benefit in the survivor's last year, with COLA |
Life insurance needed to replace Option 3's survivor benefit
| With COLA (recommended) | |
|---|---|
| Without COLA |
What to consider
Choosing Option 1 plus life insurance only works if the policy costs less each month than the difference above, stays in force for as long as your spouse could outlive you, and you can qualify for it. Get the policy approved and in force before you retire.
Option 3 is usually the safer choice if your health would make coverage expensive or unavailable, if your spouse is much younger, if the difference is small, or if your spouse would struggle to manage a lump sum.
The option becomes final once you cash or deposit your first benefit payment or begin DROP.
Option 1 is the maximum benefit for your lifetime and stops at your death; Option 3 pays a reduced benefit for your lifetime and the same amount to your joint annuitant for life. The FRS COLA is 3% a year times your service before July 1, 2011 divided by your total service; members with service only after that date get no automatic COLA, except that Special Risk retirees get at least 1.5% after five years of retirement. This estimate applies the COLA once a year and assumes it continues on the survivor's payment; confirm with FRS. The amount needed is the present value of the Option 3 payments at the interest rate you entered, assuming you die at retirement; it ignores taxes. Use the amounts from your official FRS estimate. Lifeworth Insurance Agency is an independent agency and is not affiliated with the Florida Retirement System or the State of Florida.
When Option 1 plus life insurance can work
- You are healthy enough to qualify for coverage at a good price.
- The policy’s monthly cost is clearly less than the difference between Option 1 and Option 3.
- The policy lasts as long as your spouse could outlive you. That often means permanent coverage, or a term long enough to reach your spouse’s later years.
- Your spouse is comfortable managing a lump sum, or the policy pays out as income.
When Option 3 is the safer choice
- Your health would make life insurance expensive or unavailable.
- Your spouse is much younger than you.
- The difference between Option 1 and Option 3 is small.
- You want a guaranteed lifetime income for your spouse with no policy to keep paying.
We will tell you when Option 3 is the better answer. Either way, get any policy approved and in force before you retire, because the option cannot be changed afterward.
Frequently asked questions
When do I choose if I enter DROP?
You choose your payment option when you begin DROP, and it becomes final then. Start the life insurance review before you apply.
Can I change my joint annuitant later?
Under Options 3 and 4 you may change your joint annuitant only twice after you retire, and your benefit is recalculated each time.
Does this apply to the FRS Investment Plan?
No. These payment options are for the FRS Pension Plan.
Lifeworth Insurance Agency is an independent agency and is not affiliated with the Florida Retirement System or the State of Florida. This is general information, not tax or legal advice.
Contact Lifeworth Insurance
Lifeworth Insurance Agency
2881 E Oakland Park Blvd, Fort Lauderdale, FL 33306
(954) 834-5433 · contact@lifeworthinsurance.com