Legacy Planning: The Fifth Piece of the Retirement Puzzle - United Benefits

As a Federal Employee you have earned and created many benefits. If or when you pass away some of the benefits are designed to take care of your loved ones. It is up to you to properly designate all of your benefits so that it will go to the proper person. It may be a spouse, children, grandchildren, an organization, or a loved one. Some elections improperly made can forfeit some of the benefits for your beneficiary. If you have a previous spouse of a deceased parent listed as a beneficiary what will happen?

There are many moving components when it comes to legacy planning. Some of the benefits that your family is entitled to will change throughout the course of your career and your elections will determine their impact post-retirement.

First question- Have you properly designated or updated your beneficiaries on all elements of your benefits package?

Benefits that your family or beneficiaries may be entitled to include:

  • Federal Employee Retirement (FERS)
  • Thrift Savings Plan (TSP)
  • Social Security
  • Federal Employee Group Life Insurance (FEGLI)
  • Other Investments (IRA’s, Life Insurance, Outside Investments, ETC.)

Having a will or trust does not guarantee that your beneficiaries will inherit what you have intended for them. That is because your beneficiary designations on certain types of financial assets—including life insurance, retirement plans, and various other accounts—override the will or trust you have created.

Next let’s take a look at the different benefits individually and how they impact your beneficiaries.

Federal Employee Retirement System

One of the most important benefits that you receive as a federal employee is your Federal Employee Retirement System benefits or FERS. OPM sets specific rules and guidelines for when your beneficiaries become eligible to receive your benefits. As an active employee, your beneficiaries may be eligible for a FERS Survivor Death benefit and a FERS Monthly Survivor Annuity.

Once you retire this changes and your beneficiary may receive 25%, 50%, or 0% of your FERS annuity pension. This depends on the elections that you make on your retirement paperwork. If you choose a 50% spousal benefit your FERS retirement income will be reduced by 10%. If you choose 25% spousal benefit your retirement income from FERS will reduce by 5%. If you choose 0% your beneficiaries will be ineligible to maintain your FEHB benefits. In any of these scenarios many Federal Employees will use life insurance to create a pension maximization strategy.

Thrift Savings Plan

If you you have not elected your beneficiaries before the date of your death, your entire account will be distributed according to the following order of precedence required by law:

  1.  To your spouse
  2. If none, to your child or children equally, with the share due any deceased child divided equally among that child’s descendants
  3. If none, to your parents equally or to your surviving parent” (TSP.gov)

Once you retire you may elect a lifetime income with one of TSP’s annuity options. You must choose between:

  • Single Life or Joint
  • Level or Increasing
  • Single Life, 10 Year Certain, or Cash Refund

If you choose Single Life your beneficiaries are eliminated from ever receiving a benefit. If you choose 10 Year Certain the beneficiaries are only in place for 10 years, and if you choose Cash Refund the beneficiaries will only receive what is left in the account. The annuity option you choose will depend on your individual goals and strategy.

Due to these limitations many Federal Employees move part or all of their TSP into an IRA to better suit their personal goals and legacy planning.

Social Security

Social Security’s survivor benefits depend on many factors for eligibility. The possible survivor benefits include, widow or widower, surviving divorced spouse, children, and parents.
Social Security also has a death benefit of $255. Contact us for additional information.

Federal Employee Group Life Insurance

If you do not have beneficiaries selected when you die, the Office of Federal Employees’ Group Life Insurance (OFEGLI) will pay life insurance benefits in a particular order set by law. The order of precedence is as follows:

  1.  To your spouse
  2. If none, to your child or children equally, with the share due any deceased child divided equally among that child’s descendants
  3. If none, to your parents equally or to your surviving parent”

FEGLI changes during your career and will dramatically change upon your retirement.

FEGLI Components

  • Basic
  • Option A
  • Option B
  • Option C

Some of the changes include:

Basic will reduce by 50% in coverage from 35 years to 45 years old. Once you retire and or become 65 or older the coverage will either reduce by another 75%, 50% or no reduction. If you elect no reduction the cost will increase dramatically.

Option A is a $10,000 policy that will reduce down to $2,500 after you retire.

Option B is 1 times up to 5 times your pay. The cost increases every 5 years as your age ends in a 0 or a 5. The cost increases by 3,200% from age 35 till 70 years old. Most federal employees can not afford to keep this as an option into retirement.

Option C is multiples of $2,500 on children and $5,000 on spouses. You may have elected 0-5x, so if you elect the max of 5 times you would have $12,500 on dependents and $25,000 on your spouse. The cost increases on this every five years as well. Children automatically drop off at age 22 unless the child is disabled the child may be eligible to stay on option C.

Need help planning for your legacy?

United Benefits can assist in completing your Legacy Planning and ensuring that you have the proper designations made. Get in touch with a United Benefits Specialist by filling out the form below.
If your loved one has passed away and was a federal employee, you will need to file a death claim to receive survivor benefits. United Benefits is here to help you during a difficult time at no cost. You can view the Federal Employee Beneficiary Guide and get in touch with a specialist by clicking here.

Ensuring that you have the proper beneficiaries for all of your Federal Benefits is a crucial piece to the retirement puzzle. Not having the proper designations in place could result in your benefits going to the wrong person or persons. Every single benefit must be individually designated, as they do not communicate with each other. If you need help designating your beneficiaries or are curious about what benefits that you have please schedule a consultation using the form below.

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