FEGLI in retirement: the reduction elections

Your FEGLI can continue into retirement, but you have to qualify and then choose how it continues. FEGLI is the group life insurance for federal employees and retirees. Unlike many private jobs, the coverage does not simply end when you stop working.

Your coverage has two parts, and each is handled separately at retirement. Basic life insurance is the core piece almost every enrollee carries. Optional coverage, called Option A, B, and C, is the extra insurance you may have added on top.

For Basic, you make a one-time reduction election at retirement. It decides whether your coverage shrinks after age 65 and whether you keep paying. The choices are 75% Reduction, 50% Reduction, and No Reduction.

The rest of this lesson walks through who qualifies, what each Basic election does, what changes at 65, and how the optional coverages work. We explain the mechanics rather than tell you which to pick.

Three conditions decide whether FEGLI follows you into retirement. You must be enrolled on the day you retire, retire on an immediate annuity, and have been insured under FEGLI for the five years of service right before your annuity starts. All three must be true.

This is the same pattern as the FEHB five-year rule, with one key difference. For FEGLI, the five years must be in the specific coverage you want to keep. You cannot pick up Option B a year before retiring and carry it into retirement.

If your full eligible service is shorter than five years, that whole period counts instead. The clock runs against your retirement date, looking back over the five years right before it.

Miss the five-year rule for a given coverage, and that coverage ends when you separate. Unlike health insurance, there is no general waiver path, so check your enrollment history early.

At retirement you choose one of three reduction elections for your Basic life insurance. The election sets what happens to your coverage and premium after age 65. The three choices are 75% Reduction, 50% Reduction, and No Reduction.

With 75% Reduction, your Basic coverage drops 2% a month after 65 until it reaches 25% of its value. In exchange, your Basic premiums stop once the reductions begin. This is the no-cost path, and it is the default if you do nothing.

With 50% Reduction, your coverage drops 1% a month until it reaches 50% of its value. You keep a smaller death benefit, but you pay an extra premium for the rest of your life to hold it there.

With No Reduction, your Basic coverage stays at full value for life. You pay a larger extra premium, also for life, to keep the full death benefit. Until age 65, you pay the same Basic premium under all three choices.

Age 65 is when the reduction you elected actually starts. The changes begin the second month after your 65th birthday, or the second month after you retire if you are already past 65. Before that point, your full Basic coverage holds.

Under the 75% Reduction, your coverage then steps down 2% each month. It keeps falling until it reaches 25% of its original value, where it levels off and stays for the rest of your life. Your premiums end as the reductions start.

The picture below shows the 75% Reduction path. The dashed line is what No Reduction would hold instead, and the gap between the two is the coverage you trade away for the no-cost choice.

The 50% Reduction follows the same idea at a gentler slope, settling at half value rather than a quarter. No Reduction is a flat line at the top, with no step-down at all.

Each optional coverage has its own fate at retirement, separate from Basic. You must have carried each option for the five years before retiring to keep it. The three options behave differently after age 65.

Option A (Standard) is a flat $10,000 of coverage. In retirement it automatically reduces 2% a month until it reaches $2,500, then stays there free for life. There is no election to make for Option A.

Option B (Additional) is a multiple of your salary, and here you do choose. Full Reduction lets the coverage drop 2% a month to zero after 65, and it is free along the way. No Reduction keeps the full multiples, for an extra premium that continues for life.

Option C (Family) covers a spouse and eligible children, and works like Option B. Full Reduction phases the coverage down to zero for free. No Reduction keeps it, but the premium continues for life and is not free at 65 and beyond.

The election comes down to one question: how much life insurance you still need after 65, and what you will pay to keep it. We explain the trade rather than name a choice, because the right answer depends on your situation.

Think about who depends on your income and what other resources they would have. A survivor annuity election, savings, and paid-off debts all reduce how much life insurance your family needs. FEGLI is one layer among several.

Weigh that need against the lifetime cost. The 75% Reduction is free but leaves a quarter of your Basic coverage. The 50% and No Reduction choices keep more, but the extra premium runs for the rest of your life, and FEGLI premiums rise sharply with age.

There is no single right answer; it depends on your dependents, your other coverage, and your budget. To see how your full retirement income fits together, run your free readiness score. Then confirm your FEGLI election with your HR office before you retire, since it is hard to reverse.