According to the Bureau of Labor Statistics (BLS), approximately 60% of married couples have a two-income household. If this describes you and your life partner, you’ll likely receive multiple sources of income when you both retire. But have you prepared for losing a significant amount of retirement income when one spouse passes away?
The FERS Survivor Benefit
Under FERS, a spouse automatically gets a 50% survivor benefit unless they sign a waiver consenting to a partial benefit of 25% or no benefit at all. For the 50% benefit, 10% is deducted from federal retiree’s monthly pension. For the 25% benefit, it’s reduced by 5% each month.
If the federal retiree predeceases their spouse, their widow(er) will lose 50% to 75% of the FERS pension and as much as half of their household Social Security income. If the non-federal spouse passes away first, the money deducted from their monthly pension for the FERS survivor benefit is lost forever along with one of two Social Security checks.
“For surviving spouses, the same TSP or 401(k) withdrawal rules apply including taxes, RMDs and early withdrawal penalties.”
TSP & 401(K) Survivor Benefits
Any funds remaining in a federal worker’s TSP upon their death will go to their designated beneficiary. Once the spouse is confirmed as the beneficiary, a Beneficiary Participant Account will be established in their name. Although the beneficiary can’t make contributions to their account they can withdraw from the balance or transfer funds to an eligible retirement account.
A private sector 401(k) usually passes to the designated beneficiary. If the designated beneficiary is the account holder’s spouse, they can transfer 401(k) assets into their own eligible retirement accounts. Non-spouse beneficiaries cannot transfer assets and they must close the 401(k) within 10 years of inheriting the account. For surviving spouses, the same TSP or 401(k) withdrawal rules apply including taxes, RMDs and early withdrawal penalties.
Social Security Survivor Benefits
If both spouses were at full retirement age and receiving benefits when one spouse dies, the surviving spouse will receive the higher amount of the two Social Security benefits. But the lower amount will be lost for rest the window(er)’s life.
The Big Question: Can You Afford To Lose Your Spouse’s Retirement Income?
After you crunch the numbers, does it look like the surviving spouse will struggle to cover expenses after the other spouse dies? If this is the case you need to take action while you’re both still working. Solutions can range from delaying retirement a few years longer to purchasing insurance products like a lifetime annuity with long-term care coverage and a death benefit. To learn more about protecting a surviving spouse in retirement, connect with an FRC® trained advisor.
