How Spousal Survivor Benefits Work for a Pension

Pension plans often include spousal survivor benefits, which allow surviving spouses to receive part of the pension payments after the pension holder’s death. These benefits can play a key role in long-term financial planning for married couples, as they provide continued income for surviving spouses. You should know how these benefits work if you or your spouse are part of a pension plan.

If you want to create a retirement plan, a financial advisor could work with you to develop a strategy based on your goals and needs.

A pension plan is a retirement account provided by an employer that pays out a fixed amount of money to the employee after they retire. Unlike other retirement savings vehicles such as 401(k)s that permit withdrawals only so long as money remains in the account, a pension provides a steady stream of income for life. 

Most pension plans also offer spousal survivor benefits. Spousal survivor benefits allow the spouse to continue receiving a portion of the pension payments after the death of the pension holder. 

Specifics vary by plan, but benefits are typically offered as a percentage of the original pension payout. Common percentages are 50% and 75% while some pay 100% of the pension holder’s benefits to a surviving spouse.

In most pension plans, the pension holder must choose whether to include spousal survivor benefits at the time of retirement. In some cases, the spouse must also provide written consent if the pension holder opts out of providing survivor benefits. This option allows couples to plan together for the best financial arrangement based on their circumstances.

When a pension holder passes away, the surviving spouse will need to follow certain steps to claim spousal survivor benefits. The first step is to notify the pension plan administrator of the pension holder’s death. This usually requires providing a copy of the death certificate and completing some paperwork to begin the claim process.

Once the pension plan administrator is informed, they will typically guide the surviving spouse through the steps necessary to start receiving benefits. This may include filling out forms to confirm eligibility for the survivor benefits and selecting how the payments will be made, such as choosing a lump-sum payout or ongoing monthly payments. The pension plan’s specific requirements for claiming survivor benefits should be outlined in the plan documents, so it’s important to review them carefully.

Spousal survivor benefits are generally taxable, though tax treatment may vary depending on the specific pension plan and the surviving spouse’s tax bracket. Consulting with a financial advisor or tax professional can help you understand and manage the tax implications of the benefits.

In the event of a divorce, spousal pension benefits may be affected depending on the terms of the divorce agreement and state laws. Typically, spousal survivor benefits can be included in a divorce settlement, meaning that the ex-spouse may still be entitled to a portion of the pension benefits after the divorce is finalized.

Many divorces involving pensions require a qualified domestic relations order (QDRO), a legal document that specifies how pension benefits will be divided between the two parties. The QDRO outlines whether the ex-spouse is entitled to survivor benefits and how much they are entitled to. Without a QDRO, an ex-spouse may not be able to claim pension benefits, so it’s essential to have this document in place if the pension benefits are to be divided.

In some cases, the ex-spouse may waive their rights to the pension benefits as part of the divorce settlement. If the pension holder remarries after the divorce, the new spouse may be entitled to survivor benefits instead. Each situation is different, so you should consult with a legal professional when handling pension benefits in a divorce.

In many pension plans, the pension holder can choose to opt out of spousal survivor benefits, but it often requires the spouse’s written consent. Opting out of survivor benefits may increase the monthly pension payment during the pension holder’s lifetime, but it leaves the spouse without ongoing income after the pension holder’s death.

Yes, spousal survivor benefits are generally considered taxable income. The exact tax treatment may vary depending on the pension plan and the surviving spouse’s tax situation. It’s a good idea to consult a tax professional to understand the specific implications.

If you remarry after your spouse passes away, you will typically continue to receive survivor benefits. However, pension plan rules may vary, so it’s essential to review your specific plan’s policies regarding remarriage and survivor benefits.

Spousal survivor benefits are part of pension plans, offering financial support to surviving spouses after the pension holder’s death. While most plans include these benefits, decisions by the pension holder and spouse can impact how they are paid. Knowing how spousal survivor benefits work, how to claim them and what happens in a divorce helps couples make informed retirement planning decisions.

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• If spousal benefits play a key role in your retirement finances, you may want to consider retiring in a state that is especially welcoming to retirees. SmartAsset’s tax guide for best states to retire will give you an overview for all 50 states.

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