Your pre-retirement questions answered, part 4  

In this last installment, I answer your questions from my inbox about insurance.

Q. If I want my spouse to be covered by FEHB while I am receiving my annuity, do I need to choose the spousal annuity reduction? 

Your spouse is a qualified family member for your FEHB coverage whether you are working or retired. However, as a “surviving” spouse, you need to provide a survivor annuity so that your spouse can continue coverage in the event you predecease him or her. 

Q. If I keep my current FEHB, why would I want to get Medicare Part B?  

Combining FEHB and Medicare can be a decision that may not cost you much more than having FEHB alone and sometimes, you will pay less for better health care insurance coverage. This is because you can often save the added cost of the Part B premium by choosing an FEHB plan that waives its cost sharing (no more deductible, copayments, or coinsurance when Medicare is primary payer). Many plans also provide a rebate of some of the Part B premium.  

Medicare caters to the needs of the elderly and may cover things as ordered by your doctor even though coverage may be more limited under FEHB. For example, you may receive 100% coverage for durable medical equipment, physical/occupational therapy, labs and procedures, etc., when Medicare is the primary payer and your FEHB plan waives your deductible along with the copayment or coinsurance associated with these services.  

With a FEHB plan that works well with Medicare, you will have close to 100% coverage for your healthcare. In addition, many FEHB plans now offer an option to add Medicare Advantage (Part C of Medicare) coverage if you are enrolled in Medicare A and B and you are retired (or covered by your spouse’s FEHB coverage who is retired). Medicare Advantage plans may provide a generous reduction in your Part B premium and incorporate Medicare Part D drug coverage at no additional cost. Plans such as BC/BS and Aetna Direct provide Part D coverage without joining a Medicare Advantage option.  It’s not easy to see this if you are 65 and in good health, but if you wait too long to enroll in Medicare Part B, you’ll incur costly late enrollment penalties. 

One caution, however, is if your Modified Adjusted Gross Income is over $103,000 if you are a single taxpayer or over $206,000 if you file a joint tax return. In this case the cost of Options B and D will be subject to an Income Related Monthly Adjustment Amount (IRMAA) that may eliminate some of the benefits of combining FEHB and Medicare. There is no premium for Medicare Part A since the hospital insurance is covered through the payroll tax of 1.45% paid by both the employee and employer.  However, if you choose not to enroll in Part B, C, or D, you may continue your coverage under FEHB. There will be different rules for postal retirees when the Postal Health Benefits Program is implemented in 2025.   

Q. I am 65, retiring in 2 years. I was planning just to carry Basic FEGLI life insurance into retirement. Thoughts? 

You will have three options to continue the Basic Federal Employees Group Life Insurance (FEGLI) into retirement. Basic FEGLI is valued at your current salary rounded up to the next $1,000 plus $2,000. At retirement, if you have carried this coverage for at least the last five years of your career, the amount in force on the last day of employment is the amount you will have on the first day of retirement. If you are postponing an MRA + 10 retirement, your life insurance can be reinstated when the benefit begins if you separated at your MRA or later. Continuation of life insurance is not available if you are claiming a deferred FERS retirement benefit.   

The most common option is to elect to continue Basic FEGLI with the 75% reduction. If you retire younger than 65, you will continue to pay the same premium (monthly instead of biweekly) as you paid while working until you turn 65. After 65, or when you retire, if later, the premiums stop, and the coverage reduces by two% per month until your coverage reduces by 75%. The remaining life insurance continues for as long as you live at no further premium. The value of your Basic FEGLI is based on your final pay rate on the day of retirement. If you are older and not in good health, you may wish to protect your Basic FEGLI from reducing at age 65 by electing the 50% or no reduction options. These options will add an additional monthly premium of $.75 or $2.25 per thousand, respectively, for as long as you wish to continue the more generous coverage.   

If you have Option A, the value of this insurance will reduce from $10,000 at retirement to $2,500, beginning when you are retired and over age 65. There are no further premiums when Option A begins to reduce. If you have had this option for the last five years, you may consider it worthwhile to keep it as you will have an additional $2,500 of life insurance that will continue for life. 

If you are also insured with Option B, you may continue as many multiples of your salary as in effect for the five years immediately before your retirement date. As you may already know, this insurance becomes substantially more expensive to maintain every five years you continue the coverage. If you no longer need this additional life insurance, you may reduce the multiples or cancel the coverage anytime. At retirement, you may elect the option for “full reduction,” which will automatically start to reduce each multiple by two percent per month once you are retired and over age 65. Once Option B starts to reduce, the premiums will stop, and the coverage will end after reducing for 50 months. 

If you wish to change your selection after retirement, send your request in writing (phone calls, faxes, or emails are unacceptable) to:

OPM’s Retirement Operations Center

P.O. Box 45

Boyers, PA 16017-0045

You also may call 1-888-US-OPM-RET (1-888-767-6738) for more information on your coverage amount and instructions on changing or canceling your current coverage. See the FEGLI Handbook for additional information. If you have FEGLI coverage on the day of retirement, you must complete SF 2818, Continuation of Life Insurance form.   

Q. If a person does not carry long-term care insurance, isn’t “term” life insurance benefit a way to recover some of the cost for your surviving spouse? 

Life insurance would be a way to replace assets spent while receiving long-term care services. Remember, term insurance only pays out if you die during the term, and you must consider whether to renew it. The cost of renewing at this age may be prohibitive.   

Suppose you or your spouse need long-term care. In that case, there is a patchwork of other ways to cover the cost of care, including personal savings or investments, veterans' benefits (if you’re an eligible veteran or the spouse of a veteran), long-term care insurance, life insurance with a critical illness or long-term care rider, community services and support that may be available where you live, annuities, loans, including home equity loans. There are some initiatives to provide long-term care services and support in the community such as PACE (Programs for All-Inclusive Care for the Elderly).   

There are pros and cons to every option for paying for long-term care services. For example, if your estate is the beneficiary of your life insurance policy, a nursing home might be able to make a claim against your estate for any money owed toward your cost of care.  

Failure to account for the risks of long-term care costs can financially derail the best-laid retirement plans. You might wish to consider working with a financial planning professional specializing in long-term care planning. This person will work closely with an estate planning or elder law attorney to ensure all arrangements for the estate, for disability, for loss of capacity, for medical treatment and for long-term care are covered.  An elder financial advisor is also likely to work with a team of eldercare advisers such as care managers, pre-need funeral planners, long term care insurance specialists, reverse mortgage specialists and home health providers. Visit the National Care Planning Council for additional information. 

In addition, your family caregivers may take on a full-time role to avoid spending down your assets too quickly, which can be an emotional, physical, and financial burden on them  According to the Federal Long Term Care Insurance Program website, 70% of those over age 65 will need long-term care at some point in their lives, and 37% of those under age 65 are provided with some long-term care.  One in 10 people aged 65 and older have Alzheimer’s disease.   

Q. Will a whole life insurance policy with a long-term care rider be very expensive in comparison to FLTCIP with FEGLI in most cases? 

Depends. A whole life policy is a permanent insurance policy and will pay out no matter how long you live. If you carried FEGLI Option B until your late 80s or 90’s, the whole life policy very well could be less expensive than the cost of continuing FEGLI option B.  But a life insurance policy with a long-term care rider does not provide the same benefits as a traditional LTC policy like the FLTCIP. 

Q. How do you change beneficiaries on FEGLI? 

Complete the SF 2823 Designation of Beneficiary form. Your signature must be witnessed (signed) by two people who are not named as beneficiaries. Your employer (or OPM, if you are an annuitant) must receive the form before you die.  

Remember that you will also need to keep your CSRS or FERS up to date in retirement using the beneficiary designation form, SF 3102.  To designate a beneficiary or beneficiaries for your Thrift Savings Plan, log in to My Account. For the TSP to honor it, your beneficiary designation must be on file at the time of your death. The TSP cannot honor a will or any other document. 

IMPORTANT: If you have a designation on file, keep it current to ensure it accurately reflects your intentions.