What Happens To Your FERS Pension When You Kick The Bucket?

Your FERS pension has a survivor benefit. The survivor benefit allows your spouse (or someone else with an insurable interest) to receive a portion of your pension when you pass away in retirement. If you’re married when you retire, you’ll need to make an election. However, deciding which benefit to select can be challenging as there are costs and other implications that must be considered.

Making An Election

When you retire, you’ll have the option of electing which survivor benefit, if any, you would like to leave to your survivor. The election you make will determine how much your survivor will receive from your FERS pension. It is worth noting that the law requires you to provide a full survivor annuity for your spouse unless they agree in notarized writing to a lesser amount or none at all.

Three Options:

There are three different survivor annuity options you can choose, they are:

  1. Full FERS Survivor Annuity – The name of this option is a bit deceiving because the benefit to your survivor is only 50% of your unreduced monthly pension, not the full pension. If you are married, you will need your spouse’s written permission to choose anything other than the full survivor annuity.
  2. Reduced FERS Survivor Annuity – This election will provide your survivor with 25% of your unreduced monthly pension after you pass away. If married, spouse’s written permission is required.
  3. No Survivor Annuity: When no survivor annuity is payable, any unpaid balance of retirement contributions is payable under the order of precedence (spouse, children, etc.). If married, spouse’s written permission is required.

Insurable Interest

Suppose you’re in good health and didn’t retire under the FERS disability option. In that case, you can elect to provide a survivor annuity to someone with an insurable interest (someone who benefits financially from you). Your spouse’s consent is not required if you’ve also elected a full survivor annuity for your spouse.

Post Retirement Marriage

If you get married after retirement, you can elect to provide a survivor annuity for your spouse. However, the election must be made within two years of your marriage date.

COLA

The survivor is increased annually by cost-of-living adjustments (COLAs).

Eligibility

Your surviving spouse would be eligible if you completed at least ten years of creditable service, with at least 18 months of civilian service. Additionally, you must have been married for at least nine months. However, if the death occurred before nine months, your survivor may still be eligible if your death was accidental, or you and your spouse had a child.

The monthly annuity payments will generally continue for life unless your spouse remarries before age 55. But, if your marriage was for at least 30 years, your spouse could remarry, and their monthly payments would not be affected.

Cost

There are no free lunches! Let’s look at the cost of each election.

  1. Full FERS Survivor Annuity: If you elect the full survivor benefit, which equals 50% of your regular pension, your annuity will be reduced by 10%.
  2. Reduced FERS Survivor Annuity: If you elect the reduced survivor benefit, which equals 25% of your regular pension, your annuity will be reduced by 5%.
  3. No Survivor Benefit: Although there is no direct cost at the waiver of this benefit, there may be some cost down the road related to healthcare (see considerations section).
  4. Insurable Interest: If your survivor is someone other than your spouse, your cost will be determined by their age and may be higher than 10%.

Considerations

Here are things you should consider when making an election:

  • Your spouse’s future retirement benefits based on their employment
  • Other sources of income
  • Whether the other sources of income have cost-of-living adjustments
  • Your spouse’s need for continued coverage under the Federal Employees Health Benefit  (FEHB) program. If your spouse is not receiving a survivor annuity benefit, they will not be eligible for FEHB health insurance after you die.

Final Thoughts

Determining the survivor election that is right for you and your family will depend on many factors, including your family’s composition, income needs, and whether Federal Employees Health Benefit coverage is desired. Making this decision is no easy task, and plenty of time and planning should be given to weighting the tradeoff between a reduced pension and your spouse’s income and healthcare needs. If you have a complex need or want a professional opinion, you should consult with a qualified financial planner.

Author: Jose Armenta, MsBA, CFP®, ChFC®, EA

Hi, I’m Jose Armenta, a Certified Financial Planner practitioner. For over 14 years, I have worked with or among federal employees, from serving in the Marine Corps to my stint as a police dispatcher and now as a financial planner specializing in helping FERS federal employees. In that time, I have spoken to hundreds of federal employees about their benefits and retirement. Helping federal employees maximize their benefits, reduce taxes, and live confidently is a passion of mine. When I am not perfecting financial plans, you’ll find me at the shooting range, playing the drums, or breaching blanket forts with my three little ones.