Key Takeaways:
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Small oversights in your retirement planning could significantly reduce survivor benefits for your spouse or dependents.
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Understanding your pension elections, beneficiary designations, and service history ensures your loved ones receive the full benefits they deserve.
Mistake #1: Not Electing the Right Survivor Benefit Option at Retirement
One of the most critical decisions you make when retiring under the Federal Employees Retirement System (FERS) or Civil Service Retirement System (CSRS) is how much of your pension will continue to your survivor. If you don’t actively elect a survivor benefit at retirement, your spouse could be left with little to no pension income if you pass away first.
The Cost of a Wrong Decision
- Also Read: 3 Reasons Federal Employees Should Pay Close Attention to How Social Security Works With Their Pension
- Also Read: Four Ways Military Buyback Programs Are Transforming Federal Employee Retirements
- Also Read: If You Think TSP Withdrawals Are Easy, These Tricky New Rules Will Change Your Mind
When you retire, you typically have three survivor benefit options under FERS and CSRS: full, partial, or no survivor annuity. If you choose the no survivor benefit option, your pension stops entirely when you die, leaving your spouse with nothing. While this might seem like a way to maximize your monthly pension, it could create a financial crisis for your loved ones.
Opting for a partial survivor benefit (25% under CSRS, 50% under FERS) reduces your pension slightly but ensures your spouse receives an ongoing income. The full survivor benefit provides maximum protection but at the highest pension reduction. If you fail to make an election at retirement, the default option may not align with what you or your spouse intended.
Can You Change This Decision?
In most cases, survivor benefit elections are permanent once retirement begins. However, if you get married after retiring, you may have a limited window (usually one year) to elect a survivor benefit for your new spouse. This option often requires repaying amounts received without reductions plus interest.
To avoid unexpected losses, discuss survivor benefit options with your spouse before finalizing your retirement paperwork. Review the cost, reduction in pension, and the long-term security it provides for your spouse.
Mistake #2: Overlooking Beneficiary Designations on FEGLI and TSP
Even if you elect a survivor pension, failing to update your beneficiary designations on other financial accounts could mean your survivor loses additional benefits.
Federal Employees’ Group Life Insurance (FEGLI)
FEGLI benefits don’t automatically go to your spouse unless they are listed as the designated beneficiary. If your designation is outdated, benefits may go to an ex-spouse, a deceased individual, or even your estate—delaying payment and creating legal issues. Always update your FEGLI form SF-2823 when major life events occur, such as marriage, divorce, or the birth of a child.
Thrift Savings Plan (TSP)
Your TSP funds will also be distributed based on the most recent beneficiary designation on file, not necessarily your will. If you don’t have a valid beneficiary listed, TSP follows a standard order of precedence (spouse, children, parents, etc.), which might not match your preferences.
The Fix
To avoid these mistakes, review your FEGLI and TSP beneficiary forms at least once a year or after any major life change. It’s an easy step that can ensure your benefits go directly to the right person without legal complications or delays.
Mistake #3: Miscalculating Your Service Credit and Impact on Benefits
If you don’t properly calculate your federal service time, your survivor benefits could be reduced due to gaps in service or unpaid deposits for temporary or military service.
Military and Temporary Service Buybacks
Many federal employees don’t realize that certain service periods, such as temporary appointments or military time, don’t automatically count toward retirement benefits. To have these years included in your pension calculation, you must buy back the time by making a deposit to the retirement system. If you don’t complete the buyback before retirement, you may not receive full pension credit, reducing your survivor’s future benefits.
Breaks in Federal Employment
If you had a break in service, your past contributions may have been refunded, meaning those years won’t count unless you redeposit the withdrawn amount. If your spouse is depending on a survivor annuity, a missing service credit could result in a smaller payout than expected.
The Fix
Request an official retirement estimate from your agency’s HR office before retirement to ensure all service credit is counted. If you have military or temporary service, check the deposit status and complete any necessary payments before retiring. The earlier you address these issues, the easier it is to correct any shortfalls.
Ensuring Your Survivor Benefits Are Secure
Making the wrong choices at retirement or overlooking key details can lead to unnecessary financial hardship for your loved ones. By actively managing your survivor benefit election, keeping your beneficiary designations up to date, and ensuring all your service time counts, you can secure the financial future of those who depend on you.
For personalized guidance, get in touch with a licensed agent listed on this website. They can help you review your options and make the best decisions for your survivor benefits.
