The Real Math Behind Keeping FEGLI in Retirement When Premiums Begin Climbing Faster Than Expected

Key Takeaways

• FEGLI premiums rise steeply in retirement, particularly after age 65, and can significantly impact your retirement budget if not planned for.

• Understanding your coverage choices, reduction options, and long-term cost projections helps you make informed decisions that protect your financial security.

Why FEGLI Costs Become a Retirement Question

As a government employee or retiree, the Federal Employees’ Group Life Insurance (FEGLI) program may have provided you with affordable protection throughout your career. However, in retirement, the cost structure changes. Premiums that once felt manageable can increase quickly, and by the time you reach your 70s or 80s, the numbers may no longer align with your financial goals. This is why understanding the math behind FEGLI is critical before you make a decision about keeping or reducing your coverage.

How Premiums Change Once You Retire

When you are an active employee, your premiums are automatically deducted from your paycheck at relatively stable rates. In retirement, those premiums often begin to rise at set intervals tied to your age. The most noticeable jump comes after age 65, when many retirees expect their overall expenses to decline but instead encounter higher insurance costs.

FEGLI coverage in retirement operates under different reduction options:

• 75% Reduction: Premiums eventually end, but coverage declines to 25% of the original Basic amount.

• 50% Reduction: You continue paying a modest premium for reduced coverage.

• No Reduction: Coverage remains at 100% of the Basic amount, but premiums remain for life and increase with age.

These choices are critical because they directly affect both your protection level and your retirement cash flow.

The Timeline of Rising Premiums

The impact of FEGLI premiums is best understood across different stages of retirement:

1. Before Age 65: Premiums are deducted from your annuity or pension. Costs are relatively predictable but already higher than during your active years.

2. At Age 65: Medicare eligibility coincides with FEGLI premium changes. This is often when retirees begin feeling the financial strain, especially if they choose to keep full coverage with no reduction.

3. Ages 70 to 80: Premiums increase in regular five-year intervals. Each increase can feel steep, and over time, the cumulative effect can become unsustainable for retirees relying on fixed incomes.

4. After Age 80: If you selected the no-reduction option, premiums remain. This can force difficult choices about whether to continue coverage late in life when it may no longer be cost-effective.

The Math Behind the Decision

Let’s consider the financial dynamics:

• Premium Increases: Premiums rise sharply as you age. By calculating what you will pay at ages 65, 70, 75, and 80, you can see the long-term financial burden.

• Coverage Decline vs. Savings: Choosing a 75% reduction option lowers costs but reduces coverage. The savings from avoided premiums may outweigh the reduced benefit if you live long into retirement.

• Life Expectancy Factor: If you expect a longer retirement horizon, balancing rising premiums with declining coverage becomes more important. A shorter expected horizon may justify keeping higher coverage despite rising costs.

This is not just about how much protection you want for your family but also how sustainable those costs are in the context of your retirement income.

Weighing FEGLI Against Other Expenses

By retirement, your budget already carries new pressures: healthcare premiums, out-of-pocket costs, and everyday living expenses. FEGLI premiums add to this burden, and unlike healthcare costs that may provide immediate value, insurance premiums only provide value in the form of a death benefit. That means you must consider whether paying thousands of dollars over decades is worth the eventual payout compared to what those funds could do if saved or invested.

Key Questions You Should Ask Yourself

1. How much coverage do I realistically need after retirement given other assets like TSP, pensions, and Social Security?

2. Which reduction option best aligns with my long-term goals and income stability?

3. Can I afford the premium hikes that begin after age 65 and intensify through age 80?

4. Would reallocating the money spent on FEGLI premiums to another financial strategy provide better long-term value for my family?

Comparing Reduction Options in Retirement

1. 75% Reduction

• Pros: No premiums after a set period, freeing up retirement income. Eliminates the burden of escalating costs.

• Cons: Death benefit drops to 25% of the original coverage amount.

2. 50% Reduction

• Pros: Balance between coverage and cost. Premiums are lower than the no-reduction option.

• Cons: You still carry an ongoing expense, and coverage decreases by half.

3. No Reduction

• Pros: Maximum protection for your beneficiaries.

• Cons: Premiums rise sharply with age, often becoming unsustainable in later years.

The Psychological Factor

Many retirees hold onto FEGLI coverage longer than necessary because it feels like a safety net. However, the emotional comfort of holding coverage should be weighed against the mathematical reality of what you are paying versus what your family will receive. This balance between peace of mind and financial efficiency is often where retirees struggle most.

How to Forecast Your Costs Accurately

To make a sound decision, you should:

• Project your premium payments at different ages.

• Compare the cumulative premiums against the death benefit.

• Factor in your expected retirement income sources.

• Assess whether reduced or no-reduction coverage aligns with your estate planning goals.

By doing this, you see whether FEGLI is truly serving you in retirement or if it is simply draining your budget without proportional benefit.

Steps to Take Before Making a Final Choice

1. Review Your Current Coverage: Confirm the level of FEGLI protection you currently hold.

2. Evaluate Reduction Options: Run the numbers for 75%, 50%, and no-reduction paths.

3. Align With Other Assets: Consider how FEGLI fits with TSP, pensions, Social Security, and personal savings.

4. Consult a Licensed Agent: A professional can help model the financial trade-offs and guide you toward the option that provides the most stability.

Making FEGLI Work for Your Retirement Strategy

The reality of FEGLI in retirement is that premiums rise faster than many anticipate, and without planning, they can erode your financial comfort. Treating FEGLI as part of a larger retirement strategy—rather than as a standalone benefit—is the only way to ensure it adds value instead of becoming a burden.

Protecting Your Family While Protecting Your Budget

Deciding what to do with FEGLI coverage is not about choosing protection or financial stability; it is about balancing both. The math matters because the wrong decision can leave you paying more than you receive in value. By carefully reviewing your reduction options, projecting long-term costs, and aligning FEGLI with your broader retirement picture, you ensure that your family’s security and your financial health remain intact.

If you are uncertain, it is always wise to get in touch with a licensed agent listed on this website for personalized advice.