How federal employees can protect a spouse in retirement

Planning for retirement involves more than picking a last working day or exploring new goals and hobbies. It also means understanding how your retirement choices affect your spouse if unexpected events arise.

Federal retirement systems—including Social Security, Federal Employee Health Benefits, the Thrift Savings Plan and federal pensions—are complex and highly interconnected. Decisions made years before retirement can significantly affect a surviving spouse’s financial stability, access to healthcare and administrative burden.

Below are key areas federal employees should address well before retirement to protect their spouse.

Ensure both spouses understand the retirement plan

In many households, one spouse takes primary responsibility for financial decisions. While common, this approach can create risk if retirement planning depends entirely on one person’s knowledge.

Both spouses should be familiar with:

• Who manages your financial life
• Primary income sources in retirement
• Key benefit elections
• Major accounts and where they are held

For example, a federal employee who managed all accounts and benefits passed away shortly after retirement. Their spouse, who had never interacted directly with FEHB, TSP or pension systems, faced time-sensitive decisions regarding survivor benefits, tax withholding and healthcare coverage. Although assets were sufficient, the lack of shared knowledge led to delays and missed opportunities, permanently affecting income and benefits.

Shared understanding of the plan is critical for smooth transitions in the event of a spouse’s death.

Avoid the widow’s penalty with smart federal tax planning

Discussions about death are uncomfortable, but planning ahead for the financial realities a surviving spouse may face is essential—particularly for federal employees and retirees.

After a spouse passes, the survivor typically moves from married filing jointly to single filing status, which can lead to higher marginal tax rates and reduced deductions. Meanwhile, certain sources of income—such as a federal pension, TSP withdrawals or Social Security—may be reduced or eliminated.

This combination of lower income and higher taxes is known as the “widow’s penalty.”

Strategies to reduce its impact

Advance tax planning can help mitigate the widow’s penalty. Federal employees can:

• Manage the timing and type of retirement income
• Consider Roth conversions earlier in retirement
• Coordinate Required Minimum Distributions to avoid large tax spikes

While taxes cannot be eliminated, proactive planning reduces the likelihood of a surviving spouse facing a significant, unexpected increase.

Optimize Social Security timing for survivor protection

For married federal employees, Social Security planning is about more than maximizing benefits—it’s about ensuring long-term income for a surviving spouse.

When one spouse passes, the surviving partner generally keeps the higher of the two Social Security benefits. The higher-earning spouse’s claiming decision directly affects survivor income.

For federal employees, Social Security decisions often interact with federal pensions, including Civil Service Retirement System or Federal Employee Retirement System, which may reduce benefits under the Windfall Elimination Provision or Government Pension Offset. Understanding these rules is critical for both current and survivor benefits.

Delaying Social Security benefits can meaningfully increase the survivor’s lifetime income. Coordinating Social Security with pension payouts and other retirement accounts can maximize protection for a spouse.

Since claiming decisions are permanent, it’s essential to assess both spouses’ benefits, income needs and federal retirement factors carefully.

Choosing the right pension survivor option

Pension elections are permanent and highly consequential. One of the key choices is the survivor annuity, which can directly impact a spouse’s financial security and FEHB coverage after the employee’s death.

A surviving spouse often must be entitled to a survivor annuity to continue FEHB coverage. While reducing or skipping the survivor benefit increases the monthly pension, it introduces long-term risks that can jeopardize healthcare access and guaranteed income.

What a survivor benefit provides

• Ongoing pension income: Guaranteed monthly payments after death
• Continued FEHB eligibility: Maintains health coverage without disruption
• Financial stability during transitions: Helps cover daily expenses, medical costs and retirement obligations

Key considerations

• FEHB coordination: Survivor coverage often hinges on a pension survivor election
• Spousal age and health: Younger or less healthy spouses increase the value of survivor benefits
• Pension offsets and Social Security: For CSRS retirees, GPO can reduce Social Security survivor benefits; a survivor annuity can partially offset the loss
• Permanent election: Once made, it cannot be changed, making careful evaluation critical

Evaluate whether life insurance still makes sense

Many federal employees assume life insurance is unnecessary after retirement. In reality, the need depends on financial risk, not age.

Life insurance may still be valuable if:

• Your spouse would lose significant income at your death
• You elected a reduced pension survivor benefit
• You want to replace lost pension or Social Security income
• You need liquidity for taxes, debts or estate planning

The role of FEGLI

Federal retirees can continue Federal Employees’ Group Life Insurance coverage, which can:

• Supplement a reduced pension survivor benefit or Social Security
• Provide liquidity for estate taxes, debts or unexpected expenses
• Fill gaps that pensions or Social Security alone may not cover

Planning tips

• Evaluate before retirement: Costs and coverage options are generally better before retirement
• Focus on risk, not age: Decisions should be based on exposure, such as income replacement needs
• Coordinate with federal benefits: FEGLI, survivor annuities and Social Security interact—reviewing all together ensures long-term protection

Protection is a process, not a one-time decision

Protecting a spouse in retirement is not a single decision, but a coordinated approach across:

• Income planning
• Tax strategy
• Benefit elections (FEHB, pensions, Social Security)
• Insurance (FEGLI or private life insurance)
• Estate planning

When one piece is overlooked, the entire system becomes more vulnerable.

Retirement planning does not need to be perfect. What matters most is building a coordinated strategy that ensures both spouses are protected and that benefits and resources can support either partner when they are needed most.

This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.

Neil Cain is a certified financial planner with Capital Financial Planners. To discuss your investments, including your TSP, register for a complimentary Retirement Readiness Meeting.  For topics covered in even greater depth, see our YouTube Channel.