Key Takeaways
- FEGLI is more than a simple life insurance policy—it’s a critical piece of your retirement plan.
- Understanding FEGLI options and potential changes is crucial to securing your financial future.
FEGLI: More Than Meets the Eye
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Why FEGLI Matters as You Age
FEGLI might start as a low-cost perk, but its price doesn’t stay low forever. Like many insurance policies, FEGLI premiums increase with age—especially sharply after age 50. The rising costs can quickly outpace your income growth, potentially straining your budget just when you’re trying to enjoy your hard-earned retirement.
Taking time now to review your FEGLI coverage can help you:
- Assess whether you really need all the coverage you’re paying for.
- Explore possible cost-saving changes, such as reducing your coverage levels.
- Consider how rising premiums may affect your retirement income.
The Impact of Life Stage Changes on Your FEGLI Needs
It’s essential to regularly evaluate your coverage levels, especially if you’ve experienced any major life changes—marriage, divorce, a new child, or even the exciting milestone of becoming an empty nester. These shifts can mean you no longer need the same level of insurance or that you need to adjust your coverage to better match your current situation. For example, empty nesters or those with significant retirement savings may find they can comfortably reduce their coverage without compromising their loved ones’ financial well-being.
FEGLI Basic and Option A: Coverage That Adjusts with Your Income
FEGLI Basic coverage, equal to your annual salary plus $2,000, automatically increases as your income grows. This feature is beneficial for young employees climbing the pay scale but can be less valuable as you reach your peak earnings. If you’re within five to ten years of retirement, you might find that this automatic increase is leading to more coverage than you actually need, driving up your premiums without providing any additional value.
Likewise, Option A—an additional $10,000 of coverage—can make a big difference early in your career but might be less critical when you’re nearing retirement and likely have accumulated savings. Take some time to review these options periodically. Deciding to reduce them could save you significantly in premium costs.
The FEGLI Penalty: Age-Based Premium Increases
The premiums for FEGLI, especially for Options B and C, increase in five-year age bands starting from age 35, with the steepest rises after age 50. If you’ve opted for maximum coverage, you may want to assess whether you’ll be able to comfortably afford these higher premiums as they accelerate with age.
If the coverage fits into your budget and you’d prefer to keep it, that’s great! But for many, FEGLI premiums can grow to become a substantial part of their expenses later in life. With your income likely to be fixed after retirement, those rising premiums can quickly eat into your retirement savings. This is why reevaluating your FEGLI options is a worthwhile practice.
Do You Need FEGLI After You Retire?
FEGLI is designed to be flexible, so you can keep it into retirement—but that doesn’t necessarily mean you should. Retirement planning often involves assessing what you need and when you need it, and life insurance is no different. Some key considerations as you approach retirement:
- Legacy Planning: If your primary reason for holding onto FEGLI is legacy planning, make sure the benefit justifies the cost. Assess your overall estate plan and savings to ensure you’re not overpaying for coverage you don’t need.
- Debt Coverage: For many retirees, reducing or eliminating debt is part of their financial plan, lessening the need for life insurance.
- Income Replacement Needs: FEGLI can be a great income replacement for younger employees with family obligations, but if your spouse or family members are financially independent, this coverage may not be as necessary in retirement.
FEGLI for Long-Term Care Planning?
Some federal employees consider keeping FEGLI for potential long-term care needs. FEGLI itself doesn’t cover long-term care, but the cash benefit could be used toward these expenses if the need arises. Just keep in mind, if long-term care is a primary concern, there are other targeted insurance options designed specifically to cover these costs that may provide better value.
Avoid Common FEGLI Pitfalls
Misjudging the Financial Impact
One of the most common mistakes employees make is underestimating the long-term costs of FEGLI. If you selected multiple options, such as Basic, Option B, and Option C, you’re likely paying a premium based on your age band. While it may not seem costly early on, FEGLI premiums can rapidly escalate, which is why checking in every few years is so important.
Assuming “More” Equals “Better”
It’s easy to assume that having the maximum amount of life insurance is the best choice. But in reality, the best coverage level is the one that’s right for you and your unique circumstances. By assessing your current financial situation, your loved ones’ needs, and your future plans, you can determine whether all that coverage is necessary or if you might be better off with less.
How Often Should You Review Your FEGLI Coverage?
A good rule of thumb is to review your FEGLI coverage whenever you experience a major life event or every five years at a minimum. For example:
- After a Pay Increase: Higher salaries mean increased FEGLI Basic coverage, which can sometimes lead to unplanned premium increases.
- Entering a New Age Band: If you’re approaching 45, 50, or 55, the upcoming premium hike may not be worth it.
- Retirement Planning: Five to ten years before retirement is a crucial time to look at your FEGLI coverage. Reducing your coverage can help you ease into a fixed retirement budget.
Wrapping It All Up: Make FEGLI Work for You
FEGLI can be a fantastic asset in your benefits package, but it requires occasional attention to truly serve you well. Whether it’s adjusting your coverage to fit changing needs, trimming down to save on premiums, or understanding the costs ahead, a quick review can help you make more informed decisions about your financial future. Your retirement should be a time of financial security and peace of mind, not surprise expenses. So take a little time today to review your FEGLI—it’s a small step that can make a big difference for you and your family.
