Ensuring financial security for your surviving spouse post-retirement is a vital aspect of FERS retirement planning. Here’s a comprehensive overview to assist you in understanding and strategizing these benefits:
FERS Survivor Benefits
Under FERS, you have the option to designate your surviving spouse to receive either 50% or 25% of your base annuity upon your demise. Opting for a survivor benefit entails a reduction in your annuity, with a 10% reduction for the 50% survivor benefit and a 5% reduction for the 25% survivor benefit. It’s crucial to note that the base annuity refers to the annuity amount before any other deductions.
While selecting a survivor benefit diminishes your retirement annuity, it furnishes your spouse with a guaranteed income stream post your demise, ensuring coverage under the Federal Employees Health Benefits (FEHB) program. In the event of your spouse predeceasing you, you must contact the Office of Personnel Management (OPM) to discontinue the survivor benefit deduction from your monthly annuity.
Social Security Survivor Benefits
Your surviving spouse is eligible to apply for Social Security survivor benefits between the ages of 60 and their full retirement age. Commencing benefits earlier incurs a reduction, while waiting until full retirement age entitles them to 100% of your benefit. If you opted for an early Social Security benefit, 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
Upon confirmation of your spouse as the TSP beneficiary, they’ll establish a Beneficiary Participant Account. While they cannot avail TSP loans or contribute to this account, withdrawals and inter-fund transfers are permissible. However, standard TSP withdrawal rules apply, including taxes on distributions, required minimum distributions (RMDs), and early withdrawal penalties.
In case of an outstanding TSP loan, funds will not be disbursed until the loan amount is settled. The distributed funds are deemed taxable income to your estate, not your beneficiaries.
In essence, comprehending and optimizing these survivor benefits is integral to ensuring financial stability for your spouse after your retirement. Consulting with an FRC® trained advisor well-versed in federal benefits can provide tailored guidance for an informed decision-making process.
