One of the TSP withdrawal choices is an immediate annuity, in which you give your TSP money to MetLife in exchange for monthly payments for as long as you live. Image: ArDanMe/Shutterstock.com
By: John GrobeOn May 30th, Senator Joni Ernst (R-IA) told a town hall meeting, “We are all going to die.” No truer words were ever spoken, and they got me to thinking about what will happen to our sources of retirement income when we all, inevitably, die.
These sources of income do not all go away and can be passed on to designated survivors or beneficiaries. Let’s take a look at what happens to our benefits when we die.
First, we’ll look at our FERS annuity.
Married employees, at the time of their retirement, can choose a survivor benefit for their spouse. The benefit can be either 25% or 50% of the amount of their FERS annuity. Choosing a survivor annuity will result in a reduction (5% or 10%) in the retiree’s annuity.
Eligible children are also entitled to a survivor annuity. The amounts of the children’s survivor benefits are fixed and announced by OPM each year. Upon the surviving spouse’s death, or the children losing eligibility, payments cease.
Social Security also has survivor benefits available.
A surviving spouse is entitled to 100% of the benefit that was payable to the deceased Social Security recipient. However, they cannot collect both their own and a survivor benefit; they are only entitled to the higher of the two benefits. Therefore, if the surviving spouse’s benefit was less than what they were entitled to on their own earnings record, they would see no increase in benefits. In no event would they amount they receive from Social Security be greater after the deceased recipient’s death than it was prior to the death.
Under Social Security, eligible children can be entitled to a benefit of up to 75% of the deceased recipient’s benefit. As with FERS, upon the surviving spouse’s death, or the children losing eligibility, payments cease.
What about the TSP?
The Thrift Savings Plan is different than both FERS and Social Security. Both Social Security and FERS behave like annuities; that is, they make monthly payments based on formulas – there is no “lump sum option” in either of these income sources.
The TSP is a defined contribution plan, where the way you receive your money from the TSP is up to you. One of the TSP withdrawal choices is an immediate annuity, in which you give your TSP money to MetLife in exchange for monthly payments for as long as you live. This annuity option (the least popular withdrawal choice, by the way), allows you to elect survivor annuities for spouses and others.
If you do not elect the annuity option, or if you die prior to starting your withdrawals, the balance of your account will go to the person, or persons, you have chosen on your TSP designation of beneficiary. If you don’t know who your beneficiary is, go to your TSP account on the Internet and check. This is especially important if you have not checked for several years, as the TSP’s transition to a new record keeper a few years ago screwed up many participant’s beneficiary designations.
So – we’re all gonna die. Let’s make sure we know what will happen to our retirement benefits when we, along with Senator Ernst and others, pass on.
John Grobe is a retired federal employee and retired retirement educator with over 30 years of experience in helping federal employees understand their retirement.
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