Obtaining the Best Federal Employee Life Insurance by Carol Singer
/by Carol SingerObtaining the Best Federal Employee Life Insurance by Carol Singer
Carol Singer discusses the importance of finding the best life insurance (Hint: it isn’t always FEGLI)
With so many different options on the market nowadays, life insurance can be a confusing topic (to say the least), especially for Federal Employees. As you may know, Federal Employees Group Life Insurance (FEGLI) only requires public sector workers to pay two-thirds of coverage while those in the private sector are required to pay 100%. Furthermore, private life insurance rates will depend on one’s health, which is different to FEGLI coverage where everybody within the same age bracket pays the same amount.
With this in mind, those who are healthy may feel as though the insurance is costly because they are paying the same amount as those who are not quite so healthy. In addition to this, FEGLI Option B and FEGLI Basic will both increase in line with adjustment to your salary no matter how healthy you may be; Option B covers you for between one and five times your yearly salary.
As you may know, Option B and Option C are also available, and these protect your partner and children. If you get married/divorced or if you gain/lose a family member, the two can be adjusted accordingly without having to prove insurability. With FEGLI Option C in particular, this is helpful for those who cannot get private life insurance; for example, those who have a health condition or are slightly older than private companies allow. This being said, coverage will never rise above $25,000 which can be quite limiting.
What Should You Do? – If we use all of the information above, the best step to take moving forward is to re-evaluate your life insurance options in five-year periods. Why? Because in this time, your insurance needs may have changed somewhat due to a big life event. If your children have completed college, you will not require the same levels of insurance now than you did back before college. Furthermore, you may have paid the mortgage, and this will allow you to reduce the coverage again. If you get married or divorced, regular assessment gives you an opportunity to adhere to your needs for the next period of your life even if it is a simple change in beneficiary.
Regardless of your hobbies, FEGLI will always keep you covered, but it becomes incredibly expensive as you age. Once you reach a certain age, it is almost always advisable to begin reviewing the cost of your FEGLI against private market comparisons. You’ll likely find that, as long as you are reasonably healthy, you can receive some very attractive benefits from an Indexed Universal Life (IUL) insurance policy or lock in much lower costs by using a fixed Term Insurance policy (for, say 20 or maybe 30 years) vs. continuing with FEGLI into retirement.
As long as you have the coverage for at least five years before retiring, you may maintain FEGLI Option B even after retiring. By having this in place, your partner can replace your income with this amount if you were to pass away before them. If we say you have five times your salary ($64,000 x 5 = $320,000) of coverage for option B, the cost would be just under $140 per month. After turning 60, this doubles and then increases yet again every five years until you reach 80, and this is important to consider. This is why we highly recommend that you consider comparing your FEGLI policy against cheaper alternatives.
Facts About FEGLI
- FEGLI becomes very expensive as you age.
- Unfortunately, there is no way to take out a loan against your FEGLI policy.
- Since it is a group life insurance policy, there’s no way to build a cash value.
- In every circumstance (except the beneficiary causing your death), the beneficiary will receive the death benefit if you pass away.
- There are no refund options for FEGLI if you choose to cancel.
- With the living benefit in tow, you can receive early payments if you happen to come down with a serious illness.
- For no extra cost, accidental death and dismemberment is included within the insurance itself.
Contact Carol Singer:
Phone: 505.310.1474
Email: [email protected]
Other Carol Singer Articles
The Correct Way of Saving for Retirement by Carol Singer
Is FEGLI Right For You, Right Now? By Carol Singer
Five Key Steps Towards Federal Retirement and Financial Security by Carol Singer
Is FEGLI Right For You, Right Now? By Carol Singer
/by Carol SingerIs FEGLI Right For You, Right Now?
By: Carol Singer
When it comes to the FEGLI, there are some common questions that arise time and time again but perhaps none quite as much as ‘is it the right time in my career/life for FEGLI?’. In truth, there’s no definitive ‘yes/no’ advice we can provide here, but we can suggest three considerations to help make your decision that little bit easier.
- Firstly, do you believe that you are healthy enough to qualify for individual coverage? When thinking about this factor, you should consider your habits, age, health, lifestyle, etc.
- Secondly, what’s your timeframe in the coming years? Normally, federal employees will get priced out of FEGLI coverage as they age and as FEGLI Rates rise dramatically, so what stage of your career have you reached?
- Thirdly, what are you trying to protect with a potential policy?
The Federal Employee Group Life Insurance, shortened to FEGLI, is advantageous for many federal employees since coverage can be obtained without the worry of medical underwriting. If you’re still early in your career, it’s also quite easy to get a competitive death benefit. However, it isn’t all roses with FEGLI coverage because the premiums steadily increase over time and everybody pays the same rate (the flip side of having no individualism with underwriting). This means that healthy FEGLI participants will be charged the same higher rates and unhealthy participants. So if you are healthy enough to get individual coverage you should seriously consider less expensive FEGLI alternatives.
Potential Benefits of Private Life Insurance vs. FEGLI
If you were to assess the private life insurance market, there are also pros and cons because coverage is more flexible with various riders and underwriting…but the medical underwriting may force you to pay higher premiums if you are unhealthy.
Surviving a Health Scare – If you were suddenly struck down with a heart attack, cancer, or even a stroke, your ability to obtain life insurance would be difficult and the expenses would go sky-high. Therefore, ‘living benefits’ – benefits you can access while still alive – can be an excellent way to replace your income and stay afloat in the short-term. With private insurance, an Accelerated Living Benefit rider could allow you a certain percentage of your benefit early. On the other hand, the FEGLI offers you nothing which leaves you scrambling around with your TSP for much-needed funds.
Considering you have been working hard to contribute to your TSP year-after-year, to think it could all disappear in a matter of months on medical bills and replacing your income is quite worrying. Just because of a health problem, you lose your nest egg, and this is before we even mention taxes and a penalty for withdrawing from your TSP early.
With life insurance, the question for many years was ‘what if I were to pass away?’ However, this is quickly being replaced with ‘what if I live after a health issue?’. Nowadays, technology within the medical industry is growing rapidly, but the cost of medical care is increasing even faster which is putting families into debt every single day.
Do I Need FEGLI?
With any type of insurance you purchase, whether it’s life, travel, homeowners, or health, the idea is to protect something of value just in case something were to happen or go wrong. Ultimately, this is why life insurance is a personal choice and different for every individual in the world. Normally, you can decide with your family the main concerns and how you want to protect them.
If insurance was free to everyone, there’s no doubt we’d be taking policies against cardboard box injuries, asteroids, and everything in between. Perhaps even more efficient, if we could see into the future, we would know exactly what insurance was required (or we could prevent the problem from happening in the first place). Unfortunately, neither of these options are available because insurance costs money and we haven’t developed time machines. Therefore, the answer to the all-important question of life insurance should be answered by looking for flexible coverage at an affordable price.
Within the industry, insurance will typically be limited in the amount of triggers they have, so finding an inclusive policy such as this is easier said than done. If you were to ask a federal retiree whether they managed to purchase cancer insurance after forking out for the FEGLI, FEHB, and FLTCIP, you wouldn’t get much of a response. Even if they were lucky enough to buy cancer insurance, then what happens if they have a heart attack; nothing because the wrong trigger was set and money has been wasted.
Rather than buying insurance policies with a single trigger, it will always be more efficient to find coverage with many different benefit triggers.
FEGLI Candidates – With all of this information in mind, who does the FEGLI suit? First and foremost, Death Only Insurance will be the cheapest option for those aged under 45 years. If you are already past this age, the five-year increases have already started, and the Basic Extra Benefit has ended. Therefore, private insurance starts to become more competitive (this is helped by the addition of living benefits).
After this, FEGLI may still be an option if you have a health condition since there is no medical underwriting. If the issue is serious, private insurance companies will take this into account and raise all premiums.
With the FEGLI still around today, this alone shows that it has a place in the industry and it helps thousands of people. This being said, it is very generic in that everybody pays the same regardless of his or her health, smoking habits, and every other factor that normally plays a role. In the same breath, the price increases will apply to everyone regardless of the same factors.
Key Questions – Before we go, we want to provide you with some key questions you need to ask before making a decision;
- Will underwriting be a problem if I go for personalized coverage privately?
- Can I pass the underwriting in a few years’ time if I were to wait?
- What exactly do I need to protect? – For most, the death benefit will replace income, pay for a funeral, and ensure their families can continue their current lifestyle while adjusting to your passing.
- Will my need for insurance be removed in the next decade or two? – For example, will you finish paying a mortgage or will your children leave education?
- Have I got cash reserves to act as living benefits?
All things considered, the best thing for you to do right now is to assess your position. The longer you wait, the more FEGLI becomes unattractive, and you are forced into private insurance which can be damaging if you have a health issue. If you need help with this decision, be sure to discuss your position with a finance expert for unique advice!
Contact Carol:
Phone: 505.310.1474
Email: [email protected]
Other Carol Singer Articles
Obtaining the Best Federal Employee Life Insurance by Carol Singer
The Correct Way of Saving for Retirement by Carol Singer
/by Carol SingerMany Americans are saving for retirement in the wrong type of investment vehicle such as low-yielding personal savings accounts that don’t offer any special tax benefits. A 2016 retirement benefits savings survey by NerdWallet found that 55% of those saving for retirement do so in a regular (taxable) savings account. For millennials between the ages of 18 and 34, the rate jumps to 63%.
With the goal of retirement in mind, there is an overwhelming variety of retirement programs to choose from. You may be asking yourself which is the most appropriate for your circumstances? What are the ramifications of not saving in a tax-friendly retirement account?
Time to Prioritize
Federal employees have access to the Thrift Savings Program (TSP) as part of the federal benefits package. The TSP offers federal employees the same type of savings and tax benefits that many private corporations offer their employees under “401(k)” plans. As a federal employee, your first priority when saving for retirement is to ensure that you are enrolled and maximizing contributions to your TSP. Unless you are taking full advantage of your Agency’s TSP matching contribution then you are passing up free money, a decision that is never advisable.
By contributing just 5% of your salary to your TSP you are eligible for the government’s full match of an additional 5% of your salary. Automatically this brings your saving rate from 5% to 10%, which is a quicker path to retirement. Contributing less than 5% not only means that you are giving up matching funds but you are also compromising the possibility of a comfortable retirement
Tax Benefits Matter
In the event that your current financial situation does not afford you the ability to immediately increase your TSP contribution to the target rate of 5%, even contributing a lesser amount still provides you with an attractive tax break. As your finances improve and you climb the pay scale ladder, dedicate to steadily increasing your contribution amount until you achieve and hopefully exceed the 5% target.
Contributions to a Traditional TSP are taken out of your wages before they are taxed, which reduces your taxable income and in return reduces your income tax liability. For instance, if your annual salary is $60,000 and you contribute $6,000 to your TSP, your taxable income would be reduced to $54,000.
In addition to the matching contributions from your Agency, an important benefit of a Traditional TSP is the deferral of taxes on any investment gains that are generated within the account until you actually retire and begin withdrawals. In contrast, in an ordinary personal savings or brokerage account, the gains and dividends will be taxed in the year they are realized, and that can hinder the growth of your portfolio.
The Roth TSP
If you are already maximizing your TSP contributions, anticipating a higher tax bracket during retirement or planning to pass on a large share of your retirement assets to your heirs, then you may want to consider allocating all or a portion of your TSP contributions to a Roth TSP. Both the Traditional and Roth TSP are tax advantaged; they just offer that advantage differently.
Whereas a Traditional TSP which is funded with pre-tax dollars and grows tax-deferred until you begin withdrawing it; Roth TSP contributions are deducted from after-tax income. Earnings grow tax-free, and there are no taxes to be paid for qualified withdrawals. Roth TSP withdrawals are considered qualified if five years have passed since January 1 of the year you made your first Roth contribution, and you are age 59½ or older, permanently disabled, or deceased. If your withdrawals are not qualified, the portion of your withdrawals that are due to earnings will be taxable and could be subject to a penalty if you are not 59½ or older.
Longer Life, Longer Retirement
Life expectancies are increasing every year. The Social Security Administration anticipates that the average man reaching age 65 today can expect to live until 84.3. The average woman reaching age 65 can expect to see her 86th birthday. Even more surprising is that one in four 65-year-olds will live to age 90, while one in 10 will live past 95.
In contrast to a TSP, personal savings accounts do not earn a high enough rate of return to provide for a secure retirement. For many Americans, their nest egg will need to supplement a retirement that can span 20 or even 30 years.
With the potential for a long retirement ahead, achieving the right mix of investments is another key piece to the retirement planning puzzle. Based upon current rates, when using a personal savings account or certificate of deposit (CD) for retirement planning you are unlikely to achieve much more than a 1% return. A conservative bond portfolio may only result in a 3% or 4% average annual return. But by diversifying your portfolio to include stocks you may see a 6% average annual return.
By investing in your TSP you have access to a selection of TSP funds that offer broad market diversification. You can choose to invest your retirement dollars as conservatively or aggressively as your risk tolerance and time horizon dictates. While the difference between a 3% and 6% annual return may sound small, it could equate to thousands of dollars in annual retirement income.
Bottom Line
Since it’s introduction in 1986, the Thrift Savings Plan (TSP) has proven to be a valuable retirement program for federal employees. Choosing the right retirement savings vehicle for you and ensuring that you receive all the tax benefits the right plan can provide starts with a complete analysis of your federal benefits package by contacting a PSR specialist.
Contact Carol
Phone: 505.310.1474
Email: [email protected]
Other Carol Singer Articles
Obtaining the Best Federal Employee Life Insurance by Carol Singer
Is FEGLI Right For You, Right Now? By Carol Singer
Five Key Steps Towards Federal Retirement and Financial Security by Carol Singer
Five Key Steps Towards Federal Retirement and Financial Security by Carol Singer
/by Carol SingerFive Key Steps Towards Federal Retirement and Financial Security
by Carol Singer
If you’re concerned with your Federal Retirement and financial security you may want to look into the social security administration’s “National social security month” to learn more about the benefits of social security and your thrift savings plan. These plans can be applied to the federal employees & retirees.
Steps To Help You With Your Federal Retirement and Financial Security
Step 1:
The crucial step towards keeping maximizing your social security is to first understand how social security works. Understand that Social Security is not just simple as it might looks and that there are thousands of potential claiming solutions that you could elect. Once you understand the different ways you can claim your Social Security benefits and how that might be impacted by other income source (like your TSP and the therefore impacted by potential taxes on your TSP Withdrawals) you will be able to make a more informed decision.
Step 2:
Performing verification is the next crucial step to do under the mySocialSecurity account. Assuming that the Social Security Administration has an accurate record of your earnings could cause you to lose out on some of your benefits; you should check the earning record inside the statement of your account.
Step 3:
The Social Security Administration suggests that estimating your social security benefits with the help of using their calculators/tools under the My Social Security Account section can be beneficial for you. Using these estimates along with tsp considerations and thrift saving withdrawals options can be a major step toward finding the perfect solution to maximizing what you will receive from your FERS / CSRS Annuities, TSP and Social Security combined.
At the same time, you can calculate how much you are entitled to receive social security benefits at different ages. You should be careful with the words like “on average” & “approximately” as most of the federal employees earn more than the average wage earner. According to the data received from the Bureau of Labor, the average salary of US workers in the year 2016 was $44K. This is because the formula used by many retirees for the calculation of SS benefits replaces the major percentile of higher earners with the low wage earners.
Step 4:
The next consideration is to apply for your security benefits online. Online applications are easy to complete & are readily available. The representatives will call you to help you out with your doubts related to social security. At the same time, you have to mention the amount withheld inside the remarks section of the application from as current online application doesn’t address the federal income tax withholding. This can be achieved if you want to have your money withheld for taxes. Apart from that, if you are applying for the social security schemes after the attainment of perfect age for retirement, then you should indicate whether or not you want to receive the six months of retroactive benefits in place of remarks section.
Step 5:
The fifth & final step regarding your social security is to manage your benefits with the help of online tools or with the help of your personal mySocialSecurity Account.
Conclusion
Your social security retirement benefits will be based on your earnings history and inflation-indexed calculations. Your thrift savings plans and your social security benefits will impact one another as income from either source could cause the other to be taxed at a higher rate. You should carefully weigh the various social security claiming options along with thrift savings plan withdrawals options. At the same time, you should not forget your taxes on your TSP funds & all other TSP considerations while having the social security benefits.
Contact Carol:
Phone: 505.310.1474
Email: [email protected]
Other Carol Singer Articles
Obtaining the Best Federal Employee Life Insurance by Carol Singer
The Correct Way of Saving for Retirement by Carol Singer
Is FEGLI Right For You, Right Now? By Carol Singer