Key Takeaways:
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Reducing your FEGLI costs doesn’t have to mean losing essential coverage—you have options to lower premiums while keeping the protection you need.
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Reviewing your coverage regularly and making strategic adjustments can help you save money in retirement without sacrificing financial security.
Understanding How FEGLI Costs Impact Your Retirement Budget
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1. Assess Whether You Still Need Maximum Coverage
When you first enrolled in FEGLI, you may have chosen higher coverage levels to protect your dependents. But as your financial responsibilities shift over time, you may not need as much insurance. Reviewing your coverage regularly can help you determine whether you’re paying for more protection than necessary.
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If your children are financially independent, your mortgage is paid off, or you have other savings, you might not need the highest level of coverage anymore.
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Reducing or canceling optional coverages, such as Option B (additional coverage based on salary multiples), could lower your premiums without affecting your basic life insurance.
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Consider adjusting your coverage before retirement to ensure a smoother transition into lower-cost options.
2. Understand the Cost Increases at Retirement
One of the biggest surprises for federal retirees is the sharp increase in FEGLI premiums as they age. Unlike your Basic coverage, which has options for reduced cost after retirement, additional coverage (like Option B) sees dramatic premium hikes in your later years.
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FEGLI premium increases occur every five years after age 50, with the highest jumps coming after age 60.
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Retirees can avoid these sharp cost increases by reducing or eliminating extra coverage before hitting these premium spikes.
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Planning ahead by evaluating projected costs can help you avoid budget strain in retirement.
3. Choose the Right Post-Retirement Reduction Option
When you retire, you have a choice regarding your Basic FEGLI coverage:
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75% Reduction – Your coverage decreases by 2% per month until it reaches 25% of the original value, but the government continues to cover the cost after age 65.
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50% Reduction – Your coverage is cut in half after age 65, and you pay a lower premium than full coverage but more than the 75% reduction option.
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No Reduction – Your coverage remains the same, but premiums increase substantially.
Many retirees choose the 75% reduction because it offers lifelong coverage with no out-of-pocket costs after 65. Understanding these options can help you plan for the best financial outcome.
4. Consider Alternatives to Option B Coverage
Option B allows you to buy extra life insurance based on multiples of your salary, but it becomes increasingly expensive as you age. If you’re looking for ways to save, consider these approaches:
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Reduce the number of multiples – If you initially chose five times your salary, lowering it to one or two multiples can significantly cut costs.
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Compare other insurance options – Some federal retirees opt for alternative coverage outside of FEGLI that may offer level premiums or additional benefits.
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Time your reductions carefully – If you drop Option B before retirement, you might be able to lock in a lower-cost alternative while still covered by FEGLI.
5. Use Open Season to Make Adjustments (If Available)
FEGLI Open Seasons are rare, but when they occur, they provide an opportunity to increase or decrease your coverage. If an Open Season is announced, it may be the perfect time to:
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Reduce your optional coverage to avoid unnecessary costs.
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Adjust your policy based on changes in your financial situation.
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Drop coverage without needing to prove medical eligibility.
Since Open Seasons don’t happen often, keeping an eye out for announcements can ensure you take advantage of these adjustment periods.
6. Consider Spousal Coverage Needs
If both you and your spouse are federal employees, you may have overlapping life insurance policies. Assessing whether both of you need full FEGLI coverage can help you find savings.
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If one spouse has a more affordable plan, shifting coverage to that policy may lower household costs.
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Spouses should consider survivor benefits and existing financial resources when determining how much coverage is necessary.
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Adjusting coverage for both partners strategically can create long-term savings.
7. Plan for Long-Term Affordability
Federal employees often focus on short-term affordability, but considering long-term costs is just as important. Planning for FEGLI costs in retirement includes:
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Reviewing projected premium increases based on your age.
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Factoring in other retirement expenses like health insurance and long-term care.
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Keeping track of key age milestones (such as 60 and 65) when costs can rise or benefits change.
Making informed adjustments now can prevent financial strain later and help you keep the right amount of coverage without overpaying.
Making Smart Choices About Your FEGLI Coverage
FEGLI is an essential benefit for federal employees, but it’s crucial to manage it wisely—especially in retirement. By reviewing your coverage, understanding cost increases, and making adjustments before key milestones, you can save money without sacrificing the protection you need. Taking a proactive approach to your life insurance planning ensures you stay financially secure while keeping premiums under control.
Need help deciding on the right FEGLI adjustments? Get in touch with a licensed agent listed on this website to explore your options and find the best strategy for your retirement needs.
