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Something about this logic bothers me, but I can't put my finger on it:
Basically, my co-worker says the spousal annuity option offered in the CSRS retirement system (with full COLA) is a great value because it is calculated on a "one time reduction to your base" and "not a percentage." For example, if your base retirement yearly annuity is $76,000, the survivor benefit can be fully funded if you reduce your base about $7,000; so your pension becomes $69,000 in year one.
My co-worker says since that $69,000 will be getting COLAs year after year, and the $6,000 was a "one time" reduction, the cost of the spousal annuity eventually becomes very cheap - say in year 20 the annuity has risen to $100,000+ per year but the spousal annuity "is still $6,000."
But wouldn't that $6,000 in year one, if one considers it too would have been COLAd each year essentially be worth more than a straight $6,000 multiplied by 20?
The CSRS spousal annuity option is a great value in many ways, but is really "not a percentage", so that it becomes a better value as time goes on? (Just in the sense that x amount of money provides for spouse if I die, not considering the actuarial likelihood(s) of someone actually using it.)
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