3 Common Mistakes That Could Reduce Your Survivor Benefits Without You Realizing It

Key Takeaways

• Failing to designate the right survivor benefit options can leave your loved ones without financial support.

• Small missteps, like missing deadlines or underestimating cost-of-living adjustments, could significantly reduce your survivor benefits.

How Small Errors Can Lead to Big Survivor Benefit Losses

Survivor benefits are a critical part of your retirement planning, ensuring financial security for your spouse or dependents when you are no longer around. However, many government employees make mistakes that reduce or even eliminate these benefits—without even realizing it. The consequences can be severe, leaving your family struggling with unexpected financial gaps. Let’s go over the three most common mistakes and how to avoid them.

1. Not Electing a Survivor Benefit at Retirement

The Irrevocable Nature of Your Decision

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When you retire, you must decide whether to provide a survivor benefit for your spouse or dependents. This decision is usually irrevocable once made. Some retirees opt out, thinking they can rely on life insurance or personal savings, only to find out too late that these resources are insufficient. If you don’t elect a survivor annuity at retirement, your spouse loses eligibility for continued health insurance coverage under your plan.

The Spousal Consent Requirement

Under federal retirement systems like FERS and CSRS, if you choose less than the full survivor annuity, your spouse must sign a notarized consent form. Failing to obtain this consent means your election could be voided, automatically defaulting to the maximum survivor benefit deduction from your pension.

The Cost of Not Electing a Survivor Benefit

Many retirees fail to realize that survivor benefits act as long-term income protection for their spouses. Without them, your spouse may need to downsize, move in with family, or significantly alter their lifestyle. The financial impact can be particularly severe for long-lived spouses who outlive their personal savings.

How to Fix This Before It’s Too Late

• Make sure you understand survivor annuity options before finalizing your retirement paperwork.

• Discuss your decision with your spouse and consider long-term financial needs.

• Seek guidance from a retirement expert or benefits counselor to ensure you make an informed choice.

• Consider supplemental income strategies to support your spouse’s financial security.

2. Miscalculating Cost-of-Living Adjustments (COLAs)

The Hidden Impact of Inflation

Many retirees underestimate how much inflation will erode their purchasing power over the years. Survivor benefits are subject to cost-of-living adjustments (COLAs), but the increase may not always keep up with real-world expenses. If you opt for a reduced survivor benefit, your spouse may struggle to afford healthcare and living costs a decade or two into retirement.

The Difference Between Full and Partial COLAs

FERS survivor benefits receive partial COLAs, meaning the increases may not always match inflation rates. CSRS retirees generally get full COLAs, but failing to account for long-term expenses can still result in financial shortfalls. The difference in these adjustments can have a dramatic effect on purchasing power after 20 or 30 years of retirement.

Rising Healthcare Costs and Survivor Benefits

Medical expenses are one of the biggest financial burdens on retirees, and they tend to rise faster than general inflation. If your spouse depends on survivor benefits for healthcare coverage, misjudging COLAs could result in significant out-of-pocket costs down the road.

How to Protect Your Survivor’s Future

• Use a retirement calculator that factors in inflation over 20-30 years to estimate future expenses.

• If your spouse depends on your pension for most of their income, consider electing the full survivor benefit rather than a reduced one.

• Keep an eye on legislative changes, as survivor COLA adjustments can be modified over time.

• Plan for additional healthcare expenses that COLAs may not fully cover.

3. Overlooking Survivor Benefit Changes Due to Divorce or Remarriage

The Risk of Losing Benefits Without Noticing

If you get divorced after retirement, your survivor benefit designation may not automatically update. This could mean your former spouse continues receiving benefits even if you remarry, leaving your new spouse without financial protection. Many retirees assume their benefits will be adjusted when their marital status changes, but failing to file the proper paperwork can result in serious complications.

Survivor Benefits and Remarriage Rules

• If you remarry before age 55, your survivor annuity is typically terminated unless specific exceptions apply.

• If you remarry after age 55, your survivor benefits remain intact.

• You must notify your retirement system if you wish to change your survivor annuity recipient after divorce or remarriage.

• If you want to ensure your current spouse receives benefits, you may need to re-elect survivor coverage after remarriage.

How a Divorce Agreement Affects Survivor Benefits

In some cases, divorce settlements include court-ordered survivor benefits for former spouses. This means your pension could still be providing income to an ex-spouse, even if you remarry. If your settlement doesn’t specify who should receive survivor benefits, it could result in confusion and legal disputes.

Steps to Take Now

• Regularly review your beneficiary designations and survivor annuity elections after major life events.

• Consult a benefits expert if you’re remarrying or getting divorced to avoid unintended loss of survivor benefits.

• Ensure your spouse understands the impact of remarriage on their survivor benefits before making financial commitments.

• Work with a legal professional to clarify survivor benefits in any divorce agreements.

The Importance of Regular Benefit Check-Ins

Your survivor benefits should never be treated as a one-time decision. Life circumstances change, and failing to update your elections, beneficiary designations, and financial plans can create unnecessary complications for your loved ones. Conducting an annual review of your benefits will help ensure everything is in order.

Securing Your Survivor Benefits for the Long Run

Planning ahead is the best way to ensure your spouse or dependents receive the benefits they are entitled to. By avoiding these common mistakes, you can safeguard their financial well-being and prevent unpleasant surprises down the road. Survivor benefits are too important to overlook, so take action now to make sure your loved ones are protected.

To get personalized assistance in planning your survivor benefits, reach out to a licensed agent listed on this website. They can help you navigate the details and ensure your choices align with your long-term financial goals.