Key Takeaways
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Understanding changes in the Federal Employees’ Group Life Insurance (FEGLI) program is essential for planning your retirement finances.
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Decisions about FEGLI options, costs, and coverage should be made well before retirement to avoid unexpected expenses.
The Importance of Planning Ahead for FEGLI Changes
As a federal employee nearing retirement, you likely have a good handle on your benefits, but FEGLI is often overlooked until it’s too late to make cost-effective decisions. FEGLI, the life insurance program available to federal workers, comes with nuances that can significantly impact your retirement budget and overall financial stability.
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1. Costs Increase Significantly With Age
FEGLI premiums for Option B (additional coverage) and Option C (family coverage) rise dramatically as you age. Once you retire, you’ll notice the cost of these options increasing in five-year increments, especially after you turn 65. While the basic coverage under FEGLI is partially subsidized, additional options are not, making them increasingly expensive over time.
What You Can Do
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Evaluate whether you still need as much additional coverage as you age.
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Compare FEGLI costs with private insurance options early in your career to determine what’s best for your long-term needs.
2. The Decision to Retain Basic Coverage Matters
The Basic Coverage of FEGLI provides a benefit equal to your annual salary rounded up to the next $1,000, plus $2,000. As a retiree, you have the choice to maintain this coverage, but there are three reduction options:
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75% Reduction: Premiums stop at age 65, and the coverage reduces by 2% per month until it’s reduced by 75%.
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50% Reduction: Coverage reduces by 1% per month until it’s reduced by 50%, with ongoing premiums.
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No Reduction: You keep full coverage for life, but premiums continue indefinitely.
What You Can Do
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Assess your financial needs and decide if full coverage is necessary in retirement.
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Keep in mind that opting for No Reduction will lead to lifelong premium payments, so budget accordingly.
3. Option B Costs Become Prohibitive
Option B allows you to purchase coverage up to five times your annual salary, but this can become unaffordable as premiums increase with age. Many retirees find themselves dropping this option because of the steep costs in their 60s and 70s.
What You Can Do
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Consider reducing the number of multiples you maintain under Option B as you near retirement.
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Explore alternative life insurance policies if you still need additional coverage but want to avoid FEGLI’s rising costs.
4. Changes to Family Coverage Under Option C
Option C covers your spouse and eligible dependent children. Similar to Option B, premiums for Option C rise every five years. If your dependents no longer rely on you financially or have aged out of eligibility, you may want to reassess whether this coverage is necessary.
What You Can Do
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Regularly review the necessity of Option C and adjust your elections during Open Season.
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Understand that once you retire, changes to your FEGLI coverage are limited, so act before you leave federal service.
5. Open Season Is Rare
Unlike many other federal benefits, FEGLI does not have an annual Open Season. The last FEGLI Open Season occurred in 2016, and there is no guarantee of another in the near future. This means your ability to make changes is limited outside of major life events.
What You Can Do
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Take advantage of Open Season if one becomes available to adjust your coverage levels without a qualifying life event.
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Plan your coverage adjustments while you’re still employed, as changes are more difficult to make in retirement.
6. Coverage Portability Is Limited
If you leave federal service before retirement, your FEGLI coverage ends unless you convert it to an individual policy or continue it through retirement eligibility. Conversion rates are often higher and less favorable compared to other life insurance options.
What You Can Do
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Investigate whether converting your FEGLI policy is financially viable or if purchasing private life insurance makes more sense.
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Discuss your options with a financial advisor to avoid costly mistakes.
7. FEGLI and Estate Planning
Life insurance is a crucial part of estate planning, and your FEGLI coverage can help provide financial security for your loved ones. However, many retirees neglect to update their beneficiaries or align their coverage with their estate planning goals.
What You Can Do
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Regularly review and update your beneficiary designations to ensure they reflect your current wishes.
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Consider how FEGLI benefits fit into your overall retirement and estate plans, and consult an estate planning professional if needed.
Why It’s Crucial to Act Now
FEGLI offers valuable life insurance coverage, but it requires proactive management. The decisions you make about your FEGLI benefits before and during retirement can significantly impact your financial stability. Waiting until costs rise or coverage becomes unnecessary can leave you with fewer options and higher expenses.
By taking the time to evaluate your needs, compare options, and adjust your coverage, you can ensure that your FEGLI benefits work for you rather than against you. Don’t wait until retirement to make these important decisions—start planning now.
Making the Most of FEGLI in Retirement
Understanding the nuances of FEGLI is the first step toward optimizing your retirement benefits. By acting early and making informed decisions, you can minimize costs and ensure that your coverage aligns with your financial goals. Whether it’s reducing unnecessary options, planning for future premium increases, or integrating FEGLI into your estate planning, the key is to stay ahead of the curve.
