Last month’s blog addressed the FEGLI cost structure for a federal employee while employed. This week we will take a look at the cost of FEGLI in retirement. Let’s consider the example below.
Annual FEGLI cost for an employee earning $97,752 (annually) with FEGLI Basic and Bx5. Death Benefit of $590,000.
The green line represents the rising cost of FEGLI every five years. Let’s assume that at age 60 you retire from the federal government and keep all of your FEGLI intact. The graph below represents the cost increase for FEGLI. Your premium that is roughly $5,900 per year while employed will jump to an astronomical amount if you choose to keep all of your FEGLI through federal retirement. This is a cost that some federal employees simply cannot afford.
As you fill out your retirement paperwork, you will have the option to choose one of the following reductions for your FEGLI in retirement:
Basic Coverage
- 75% Reduction
- Coverage reduces 2% per month until 25% of original coverage remains
- Premiums become free at age 65
- 50% Reduction
- Coverage reduces 1% per month until 50% of original coverage remains at age 65 or retirement if later
- Premiums at age 65 reduce to $0.64 per month per $1,000 of death benefit
- No Reduction
- Full coverage remains in force
- Premiums at age 65 reduce to $1.94/month per $1,000 of death benefit
Option A
- Automatically begins reducing at age 65
- 75% Reduction
- Coverage reduces 2% per month until 25% of original coverage remains ($2,500)
- Premiums at age 65 become free
Option B
- Full Reduction
- Default election, coverage reduces 2% per month for 50 months until no coverage remains
- Premiums end at age 65
- No reduction
- Coverage remains in force
- Premiums continue to increase every 5 years until you reach age 80
Option C
- Full Reduction
- Default election, coverage reduces 2% per month for 50 months until no coverage remains
- Premiums end at age 65
- No reduction
- Coverage remains in force
- Premiums end at age 65
Question of the day — How much life insurance do you need? How much FEGLI or private insurance will your family need?
Lifehappens.org allows you to calculate your needs by putting in your expenses and the total annual income your family would need if you passed away. Perhaps this will help you understand how the pieces of your retirement puzzle will be put together for retirement planning.
When assessing how much life insurance you need, consider these 5 things that life insurance should do for you.
- Be there when you die.
- Maximize your pension.
- Potential tax-free asset
- Potential long-term care benefit
- Asset protection
As you are looking at your federal retirement plan, ask yourself if FEGLI in retirement can do any of these five things for you. Do you even need FEGLI in retirement or in conjunction with a term or permanent policy in the private sector? How will you use life insurance through federal retirement to maximize your pension?
In federal retirement, you want to be a wise consumer when it comes to your FEGLI. You don’t want to simply take it because it’s available. Compare and price shop.
