After a long career working for Uncle Sam, your retirement benefits are likely the best in the country. You’ll receive guaranteed income from your FERS annuity (pension) and Social Security plus distributions from your Thrift Savings Plan (TSP). However, if you predecease your husband or wife, how much income can your widow(er) count on when you’re gone?
At Best, Your Widow Or Widower Will Get 50% Of Your Pension
As a FERS participant, you can elect to have your surviving spouse receive 50% of your base annuity or 25% of your base annuity. You can also elect no survivor annuity at all but then your spouse will lose their FEHB coverage immediately upon your death. Even if your widow or widower receives income from their own private-sector 401(k) or IRA, they’ll lose 50% or 75% of the income provided by your FERS annuity (pension) when you pass away.
One Social Security Check Will Be Gone Forever
The death of a spouse can significantly reduce household Social Security income for the survivor. Under Social Security rules, a surviving spouse cannot receive their deceased spouse’s benefit in addition to their own retirement benefit. Though Social Security pays the survivor the higher of the two amounts, one benefit check is gone forever. This is yet another reason why you should consider delaying your Social Security to age 70 to maximize the benefit your spouse can receive upon your death.
Income Taxes Are Higher For A Surviving Spouse
Known as the “survivor’s tax penalty,” the income tax burden of a widow or widower is usually higher because they can no longer file as a couple. Although they can still file as “married filing jointly” for the tax year in which their spouse died, their income tax status will change to “single filer” in the following year. As a result, your widow or widower will pay higher taxes on distributions from your traditional TSP account and other tax-deferred retirement accounts.
A Strategic Retirement Plan Can Mitigate The Loss Of Income
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 need to look into ways to mitigate a loss of income for your surviving spouse. Life Insurance is one way to provide tax-free income. Also, consider making Roth TSP contributions to lower your survivor’s tax burden. To learn more, connect with an FRC® trained advisor who can help you develop other solutions that provide your surviving spouse with more financial security.
