Retiring as a Federal Employee

Plan ahead to take advantage of a wide range of benefits.

There are things to consider when planning for your retirement as a federal employee.  Besides planning an income stream for yourself, if you have dependents, you will need to explore the different options when making decisions on your benefits so that your loved ones can be protected.

Understanding Your Federal Employee Benefits

There are many different categories of federal employees. These can include military personnel, as well as civilians who are employed at veterans’ hospitals, the National Aeronautics and Space Administration (NASA), etc.

Federal employees are typically eligible for a variety of insurance and financial benefits, including:

  • Retirement Savings
  • Pension
  • Health Insurance
  • Life Insurance
  • Long-Term Care Insurance
  • Flexible Spending Accounts

In addition to yourself, others who are dependent on you for financial support may also be covered via federal survivor benefits. These individuals could include a spouse, child(ren), and dependent parent(s).

For instance, if you are actively working and enrolled in the Federal Employees Retirement System (FERS) or the Civil Service Retirement System (CSRS), monthly survivor annuity payments can be paid to your unmarried dependent children upon your death, until the child(ren) reaches age 18, marries, or passes away. If the child is a full-time student, these benefits can continue until he or she reaches age 22.

If you are already retired, no monthly benefits are payable to your child(ren). However, they can instead receive any remaining retirement contributions in your plan, along with applicable interest.

For federal workers who pass away while they are still employed, a surviving spouse may be eligible for the Basic Employee Death Benefit, which is equal to 50% of your final salary, plus $15,000. The surviving spouse may also qualify for monthly survivor benefits if they are at least age 60 and had been married to you for at least nine months at the time of your passing. 

The eligible spouse of a deceased federal employee who is under age 65 may also be able to receive monthly survivor income that is equal to 50% of your base monthly salary.  However, the amount of this survivor income will be reduced by any monthly survivor benefits that the spouse receives from Social Security.

Today, sexual orientation no longer plays a role in access to federal retirement and survivor benefits. Therefore, LGBTQ couples are allowed to access the same benefits as opposite-sex couples.

In any case, though, there are many “moving parts” that are associated with federal retirement and survivors’ benefits, so it can be difficult to determine exactly what benefits may be received in various situations. Having a knowledgeable financial professional on your side can help you work towards building a strong financial plan for you and your loved ones.

The Importance of Beneficiary Designations

If you pass away while still covered by your federal benefits, either as an employee or a retiree, your survivor(s) could be protected financially—if you have chosen the proper plan options.

Unless you specifically designate a beneficiary on your federal life insurance and retirement benefits, these funds will be distributed according to the “order of precedence.” And this may or may not be the recipient(s) you had intended to receive these funds.

For instance, if there is not a valid beneficiary designation on file when you pass away, your federal group life insurance proceeds would be paid out in the following order:

  • To your widow(er)
  • If there is no widow(er), to your child or children in equal shares (with the share of any deceased child being distributed among his or her descendants)
  • If there are no children, to your surviving parent(s)
  • If your parent(s) are no longer alive, to the administrator or executor of your estate
  • If there is no executor or administrator, to the next of kin under the laws of the state where you resided at the time of your passing.

This is the same order in which the retirement funds in your Thrift Savings Plan (TSP) will be paid out.

Your survivors will generally have the option of receiving federal life insurance and retirement savings in either a lump sum or a series of regular payments over time. Note that if the amount of federal life insurance proceeds is under $5,000, though, the beneficiary will receive a check for these proceeds. These life insurance benefits are also received income tax free.

However, if the life insurance benefit amount is $5,000 or more, then the beneficiary has the option of receiving a check or setting up an interest-bearing account in his or her own name via the insurer that pays claims for the Federal Employees’ Group Life Insurance Program.

Setting Up a Plan that Works for You

There are many moving parts and decisions to be made when planning for retirement as a federal employee including survivor benefits.  With that in mind, it would be a good idea to work with a financial professional so he or she can help you work towards your goals and wishes.

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Grace S. Yung

Grace S. Yung, CFP, is a certified financial planner practitioner with experience in helping domestic partners plan their finances since 1994. She is a principal at Midtown Financial LLC in Houston and was recognized as a “Five-Star Wealth Manager” in the September 2017 issue of Texas Monthly.
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