Key Takeaways:
- Federal Employees’ Group Life Insurance (FEGLI) offers unique benefits but requires careful consideration as retirement approaches.
- Adjusting your FEGLI coverage before retirement can significantly impact your finances and peace of mind.
Getting to Know FEGLI: What’s in It for You?
If you’re a federal employee nearing retirement, it’s time to take a deep dive into FEGLI, or the Federal Employees’ Group Life Insurance program. This program, which has served as a mainstay of life insurance for millions of federal employees since the 1950s, provides options that are both comprehensive and flexible—though they can come with significant cost considerations as you age.
By understanding the ins and outs of FEGLI, you can make smarter decisions about your coverage and ensure you have the right protection for yourself and your loved ones.
FEGLI: The Basics for Federal Employees
- Also Read: The New Wave of Early Retirement Among Federal Employees: What’s Driving This Growing Trend?
- Also Read: 5 Ways Military Buyback Can Help Federal Employees Increase Their Pension and Retirement Income
- Also Read: The Federal Employee Benefits Trends You Need to Know About Before 2025
At its core, FEGLI offers federal employees life insurance through four “Options.” These include Basic coverage and three additional options, each designed to give you flexibility to match coverage with your life’s needs. Let’s take a closer look at each:
-
Basic Coverage: Automatically provided to most employees, this is term life insurance that is affordable early on in your career. It’s calculated based on your salary, typically providing coverage at your annual base pay rounded up to the next $1,000, plus an additional $2,000.
-
Option A: Offers an additional $10,000 in coverage, which may be helpful if you have added expenses, like paying off a mortgage or student loans.
-
Option B: Allows you to increase coverage up to five times your salary, helping you ensure your dependents are well-provided for. However, keep in mind that Option B premiums increase as you age.
-
Option C: Coverage for your spouse and eligible children, which could be useful if you’re the primary earner or have dependents who may need financial support in your absence.
Do You Really Need FEGLI in Retirement?
Deciding whether you need to keep FEGLI in retirement is personal, but it depends on a few key factors:
-
Your Current Financial Obligations: FEGLI can help cover mortgages, credit card debt, or any remaining financial responsibilities, ensuring they don’t become burdens for your loved ones. If you’re financially stable or have other insurance options, you may be able to reduce or drop coverage.
-
Health and Life Expectancy: Health conditions can drive up premiums for some life insurance policies. With FEGLI, your health status doesn’t affect coverage. So, if other options are limited, maintaining at least a basic level of FEGLI might be advantageous.
-
Cost Considerations: FEGLI premiums can become steep as you age. Especially with optional coverage (Options B and C), you may want to evaluate costs versus benefits. This may mean reducing coverage or converting some of it to a personal policy outside of FEGLI to save on premium costs in retirement.
-
Dependents: If you have a spouse, children, or others depending on you financially, FEGLI can help ensure their future is secure.
What Happens to FEGLI Premiums in Retirement?
When you retire, your premiums under FEGLI may look different. For Basic coverage, retirees get an option to reduce their coverage over time. Here’s how it typically works:
-
No Reduction: Keep your full coverage, but expect to pay a premium. Premiums can continue indefinitely, although they may be more affordable than private insurance at this stage.
-
50% Reduction: Your coverage will reduce by 50% after age 65, which reduces your premium to zero. This option works well if you’re not looking for high-dollar coverage.
-
75% Reduction: The most common choice, where coverage reduces by 75% after age 65, but your premiums cease altogether. Many retirees choose this if they only need some level of coverage without any ongoing cost in retirement.
For Options A, B, and C, coverage typically ends or reduces significantly unless you continue to pay premiums. Options B and C premiums increase sharply with age, and it’s common for retirees to either reduce or drop them altogether.
Planning for Your FEGLI Reduction Options
A helpful way to think about your reduction options is to consider your family’s financial needs as you age:
-
Choose Wisely Before Retirement: Once you’ve chosen a reduction option for Basic coverage, you can’t change it. Make sure you’re comfortable with your choice, whether it’s full coverage, 50%, or 75% reduction.
-
Reassess Optional Coverages: Since Options B and C can add up significantly over time, consider cutting back on these as retirement nears or as dependents become financially independent.
-
Evaluate the ‘No Reduction’ Choice Carefully: Paying for full coverage with no reduction could make sense if you anticipate needing the full payout, but it can be costly over time. Consider whether other insurance or financial resources may be sufficient.
What’s the Impact of Life Events on Your FEGLI?
Life changes such as marriage, divorce, or the addition of dependents can all impact your FEGLI needs. Before retiring, revisit your coverage and assess if it’s time to make changes to align with your current situation. Marriage or divorce can affect your need for coverage, while children moving out on their own or reaching financial independence may also signal a need for adjusting your options.
For those without dependents or large financial obligations, it may be possible to scale down your coverage and save on premiums, freeing up resources for other retirement needs.
Balancing FEGLI with Other Benefits and Financial Plans
Another key step in evaluating your FEGLI coverage as you approach retirement is understanding how it fits with other benefits:
-
FEGLI and Social Security: Since FEGLI is a term life insurance plan, it doesn’t accumulate cash value. However, if you have financial resources through Social Security and other savings, you might need less life insurance to cover your expenses.
-
Health Coverage and FEGLI: If you anticipate significant healthcare expenses in retirement, reducing FEGLI coverage could free up resources for long-term care or other needs. Think of FEGLI as part of a wider retirement planning picture that includes health insurance, long-term care, and living expenses.
-
Thrift Savings Plan (TSP) Balance: If you have a healthy TSP balance, it may serve as a partial safety net, potentially reducing the amount of FEGLI coverage needed.
Exploring Alternatives to FEGLI
FEGLI is reliable but not always the most cost-effective option. As you approach retirement, it’s worth exploring alternatives like private life insurance policies, which can sometimes offer lower rates if purchased earlier in life. However, these options usually require health underwriting, which may be a consideration depending on your health status.
Making the Most of Your Retirement and Life Insurance Options
Managing your FEGLI as a federal employee heading into retirement can feel overwhelming, but breaking down your needs and priorities can clarify the choices that suit your goals. If you’re looking for long-term financial stability for your loved ones, consider how each option affects your retirement budget. FEGLI provides flexibility, but using it wisely is key to ensuring your peace of mind and financial security as you move into retirement.
Wrapping Up Your FEGLI Planning
As retirement approaches, make sure your FEGLI coverage aligns with your financial goals and responsibilities. Whether you decide to maintain coverage, reduce it, or drop it altogether, planning in advance allows you to find a balance between cost and coverage. By evaluating your needs, dependents, and other resources, you can retire with the confidence that your loved ones are protected in the way that best fits your situation.
