Understanding Retirement & Pension Benefits After Death
Thinking about what happens after your death can be difficult, especially when you’re the primary provider for your family. However, taking the time to create a plan can ensure your loved ones are taken care of and give you and your family peace of mind. After death, retirement and pension benefits can be transferred to named beneficiaries or to the estate if none are named.
Key Takeaways
- Retirement benefits may be employer-funded or employee-funded.
- After death, your remaining benefits transfer to designated beneficiaries.
- To claim survivor benefits as a beneficiary, you must notify the plan administrator.
Retirement Benefits After Death
Retirement benefits are payments received by those meeting certain eligibility criteria as defined by the specific retirement plans. Typically, this is defined by reaching retirement age, but other factors may affect it.
What Happens to Your Retirement When You Die?
After death, any remaining retirement benefits you haven’t received may be passed on to designated beneficiaries if the retirement plan allows for it.
Survivor Benefits & Payments
Beneficiaries receive survivor benefits based on the plan’s details. Individual plans may offer options such as lump-sum payments or regular installment payments to beneficiaries who inherit the retirement funds. In some cases, your plan may have you choose how to disburse payments to your chosen beneficiary. This requires careful consideration when setting up your retirement plan to ensure appropriate payout options for your beneficiary.
Defined benefit plans guarantee a set monthly benefit upon retirement. They may define the exact benefit as a set dollar amount or based on a formula considering factors such as how much you earned or how long you worked with the company.
Defined contribution plans don’t have a guaranteed payout. Rather, your benefits are determined by the amount you (and/or your employer) pay into the account. These include 401(k) and IRA retirement accounts. Each plan will have its own terms surrounding inheritance to designated beneficiaries.
Ways to Maximize Retirement Benefits (for Your Loved Ones)
Retirement benefits can become an important part of the inheritance you leave behind for loved ones. With careful planning, it’s possible to maximize the amount in your account. Methods to do so include:
- Starting retirement contributions early to take advantage of compound interest
- Participating in employer-sponsored retirement plans, such as maximizing matching contributions
- Contributing to and maxing out IRAs
- Increasing contributions to your retirement accounts over the course of your career as your income grows
- Delaying retirement while you’re still comfortably able to work to maximize Social Security benefits
- Minimizing investment fees so more of your investments go into your account instead
Consider delaying your retirement if you’re still healthy. Your Social Security benefit can increase by up to 8% per year until you turn 70.
Kris Lamey, MBA & Corporate Finance Director
Pension Benefits After Death
Pension plans are defined-benefit plans offered to provide retirement income. These are typically funded by the employer based on how long an individual has worked for the company. While these are becoming increasingly less common in favor of defined-contribution plans, they still provide a steady income stream during retirement.
What Happens to Your or Your Loved One’s Pension When You Die?
How pension benefits pay out to your beneficiaries will depend on the agreement you signed with your particular company. If you’re looking to double-check or refresh your memory, either locate your signing documents or check with your company’s Human Resources administrator.
On the other side of the coin, if you are one of the assigned beneficiaries of someone’s pension benefits, you may need to notify their company of their passing, and have them inform you of any particular steps you may need to take, as well as their process and anticipated timeline.
Survivor Benefits & Payments
Survivor benefits can typically be constructed either as a percentage of the original pension amount or a dollar amount. In some cases, pension plans structure their survivor payments as lump-sum death benefits, in which your designated beneficiary receives a one-time payment.
Ways to Maximize Pension Benefits (for Your Loved Ones)
Like retirement benefits that you pay into, certain strategies can allow you to maximize pension benefits for your loved ones, including:
- Working the maximum number of years to receive the full pension benefit. The longer you work, the more benefits you are entitled to.
- Purchasing additional service credits. If you’ve worked in public service, you may be eligible to purchase additional years to be factored into your retirement benefit.
- Reviewing pension buy-backs. These work differently based on the specific pension plan but typically allow you to pay to receive a set number of years of service added to your pension while you are still employed.
Navigating the Claiming Process of Retirement and Pension Benefits After a Loved One Dies
The period after a loved one passes away can be riddled with logistics and paperwork. Part of that includes claiming any retirement or pension benefits if you are the beneficiary. This process begins with contacting the decedent’s employer or plan administrator. You will likely need to provide a copy of the death certificate at this time. Based on the type of plan and whether the decedent passed away before or after retirement payments began, you will be notified of your next steps.
This notification will include how much your benefits will be and how they will be delivered (whether as a lump sum or in payments). You will also learn whether you can roll over the death benefits into another retirement plan, such as an IRA or 401(k), as well as what that process looks like. Typically, there is a set time period when the plan may be rolled over, which the plan administrator must inform you of.
Your Financial and Retirement Planning Extends Beyond Death
Death is an inevitable part of life, and it’s always tough on loved ones. While you can’t be there to comfort them, you can prepare accordingly to ensure they are taken care of financially during this difficult time. Because of the complexity and variance between retirement plans, it’s strongly recommended to seek professional advice to ensure your beneficiaries can claim the benefits they are entitled to.
Written by Serena Tanner
Serena Tanner attended the University of Washington, where she earned a degree in philosophy after many detours delving into human rights, law, psychology, and social work. Health and holistic wellness topics continue to hold a special place in her heart. When she's not reading or writing, she can be found exploring the Pacific Northwest with her two children and dogs.
Edited by Katelynne Shepard
Katelynne Shepard is a writer, editor and SME who is proficient at crafting and reviewing content. She has been a full-time copywriter and editor since 2011 and has written content for Fortune 500 companies, independent law firms, indie publishers, small-business owners and mainstream websites. She specializes in parenting, lifestyle, family law, personal injury, criminal law, immigration law, astrology, personal finance, education and health care. In addition to thousands of e-commerce product and category descriptions, Verle's work includes SEO blogs, social media posts and long-form informational articles.
Subject Matter Expert Kris Lamey
Kris Lamey is a seasoned writer and subject matter expert (SME) in finance, holding a degree in Journalism and an MBA. Alongside her roles in radio and journalism, Kris has enjoyed over 15 years of success in the FinTech industry. She's a Real Estate investor (former broker) who currently freelances as a writer, boasting over 15 years of experience, and she eagerly welcomes new clients and challenging topics. Kris is also actively involved in the health care industry, specializing in mental and behavioral health. She is well-versed in various content formats, including articles, blogs, website marketing copy and press releases.