Securing financial stability for your surviving spouse in FERS retirement is a crucial element of financial planning. Here’s a comprehensive guide to help you understand and strategize these benefits effectively:
Survivor Benefits in FERS
In FERS, you can choose to allocate either 50% or 25% of your base annuity to your surviving spouse upon your passing. Opting for a survivor benefit results in a reduction in your annuity, with a 10% reduction for the 50% option and a 5% reduction for the 25% option. It’s important to understand that the base annuity refers to the amount before any other deductions.
While selecting a survivor benefit reduces your retirement annuity, it provides your spouse with a guaranteed income after your death and ensures their coverage under the Federal Employees Health Benefits (FEHB) program. If your spouse passes away before you, you need to inform the Office of Personnel Management (OPM) to stop the survivor benefit deduction from your monthly annuity.
Social Security Survivor Benefits
Your surviving spouse can apply for Social Security survivor benefits between the ages of 60 and their full retirement age. Starting benefits earlier results in a reduction, while waiting until full retirement age entitles them to 100% of your benefit. If you claimed Social Security early, their benefit will be based on the reduced amount, but if you delayed until age 70, they’ll receive the increased amount.
If both spouses were receiving Social Security benefits at full retirement age, the surviving spouse will receive the higher of the two benefits.
TSP Spouse Beneficiaries
Once your spouse is confirmed as the TSP beneficiary, they’ll establish a Beneficiary Participant Account. They can’t take out TSP loans or contribute to this account, but withdrawals and inter-fund transfers are allowed. However, standard TSP withdrawal rules apply, including taxes on distributions, required minimum distributions (RMDs), and early withdrawal penalties.
If there’s an outstanding TSP loan, funds won’t be distributed until the loan amount is repaid. The distributed funds are considered taxable income to your estate, not your beneficiaries.
Understanding and optimizing these survivor benefits are essential for ensuring financial stability for your spouse after your retirement. Consulting with an FRC® trained advisor knowledgeable in federal benefits can offer tailored guidance for informed decision-making.
