The Beginning
Jim is a 60-year-old federal employee, with plans to retire at age 62. Like many federal employees, Jim isn’t 100% sure whether he’ll feel financially ready to stop working when the time comes. Of the many considerations Jim has when it comes to his financial plan, one aspect he has a lot of control over as a fed, is what will happen with his life insurance at retirement.
When we first met, Jim had all possible options with Federal Employees’ Group Life Insurance (FEGLI): Basic Life, Option A, Option B, and Option C. He also had the maximum possible with Option B, equal to 5 times his salary. This is a fairly common configuration for us to see among federal employees, as it makes a lot of sense to insure yourself at the start of your career; in our 20’s and 30’s we often have more in debt, not much in retirement savings, and young children at home that could benefit from the coverage.
Fast forward 30 years to now and Jim is nearing retirement. His kids are grown now. He has built up a healthy TSP account. And his mortgage is nearly paid off. Approaching retirement, we looked closer at whether all the FEGLI coverage still made sense for him.
Why It Matters
FEGLI Option B rates go up in five-year age bands starting at age 35. That means the cost of coverage keeps rising — even if your actual need for that coverage has decreased.
FEGLI Option B Rates
Here’s what the premium increases look like beginning at age 50:
- Age 50: +67%
- Age 55: +80%
- Age 60: +122%
- Age 65: +20%
- Age 70: +79%
- Age 75: +109%
- Age 80: Final increase of +60%
These increases can sneak up on you, especially if you don’t regularly check your Leave and Earnings Statement or paystub.
By age 60, Jim was paying just over $600/month for his Option B coverage alone. He had no idea it had gotten that high, when only 10 years ago he was paying under $100/month.
Like Jim, if you are in your late 50’s or early 60’s, this could mean that you are paying many hundreds of dollars per month in life insurance premiums for coverage you may no longer want or need.
What We Changed and Why
Jim and I walked through all his current financial obligations, resources, and family situation. With Basic Life, Option A, and the savings he had already built up in TSP and other investments, he no longer needed the massive amount of coverage provided by Option B.
He ultimately decided to eliminate Option B entirely, keeping his Basic Life and Option A in place. This reduced his total monthly FEGLI cost from approximately $700 to just under $100.
What That Meant Financially
Saving $600/month made a big difference for Jim. At a time when he was trying to figure out if he could afford to retire in two years, cutting that insurance premium gave him flexibility. He used the extra money to build his cash reserves and chip away more aggressively at the last piece of his mortgage. This is exciting because he planned on not starting any of his retirement projects/hobbies until after the mortgage was paid off.
That gave him a stronger financial foundation and more peace of mind as he got closer to his retirement window.
Let’s Review Your Federal Life Insurance Options Together
You may not need to eliminate your FEGLI Option B entirely like Jim did — but it’s worth reviewing. Many people nearing retirement haven’t looked at or thought about this coverage in decades, and do not realize how much they are paying, or consider whether or not it still fulfills a need for them and their family.
This is just one of the many conversations we have with federal employees as they plan for retirement. Sometimes it’s a small change like this that creates the breathing room needed to feel more confident about your timeline. If you’d like a second set of eyes on your coverage, benefits, or retirement strategy, reach out to us today.
More Info About FEGLI Option B
FEGLI Option B comes with more rules, exceptions, and moving parts than people realize. While many federal employees choose to drop Option B near or after retirement, there are still situations where keeping it can be the right decision. This article highlights just one of the many stories we’ve encountered, and it only scratches the surface. Before making any decisions about your life insurance coverage, proceed with caution—what’s right for someone else may not be right for you. Below, we’ve outlined a few additional facts and considerations of Option B that are often overlooked.
Coverage Elections: Employed
- You can elect between 1 and 5 times your base salary (rounded to the next $1,000).
Coverage Elections: Retired
- You have to elect on your retirement application how many multiples to carry forward—and whether to reduce them gradually starting at age 65 or your retirement date, whichever is later.
- For those nearing age 65 or past age 65 and still working, there is additional strategy to consider regarding the reduction options with this coverage.
When Do FEGLI Option B Premiums Increase?
- FEGLI Option B premiums increase in 5-year increments starting at the age of 35 and the last increase being at age 80.
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Making Changes To Your Coverage
- You can reduce or cancel Option B coverage at any time. You don’t need to wait for Open Season or a qualifying life event. That flexibility makes it easier to adjust coverage when your financial situation changes. While it is easy to drop coverage, it is much more difficult to add FEGLI coverage, so take time and consideration with your elections.
