Your Best Benefit? Ability to Keep FEHB in Retirement
by Micah Shilanski, CFP |
In the federal retirement classes I teach, people are surprised when I call your ability to keep FEHB in retirement your best benefit.
No doubt about it, you have some great benefits – the Thrift Savings Plan (and matching contributions for FERS) – your CSRS or FERS pension – or even FEHB while you’re employed are all great and wonderful benefits.
But being able to keep your FEHB in retirement *and* to have the government continue to pay for 72% of your premiums is, in my opinion as a financial planner for federal employees, your *best* benefit.
Let’s cover some basics about keeping FEHB in retirement – and why I think it’s so important to your retirement.
Who Can Keep FEHB in Retirement?
In order to continue your FEHB into retirement, you must meet two qualifications:
- You are *entitled* to retire on an immediate retirement when you separate
- You had FEHB coverage for the 5 years before you separated from service (or if less than 5 years that you enrolled as soon as you were eligible)
Notice that the first requirement isn’t that you *retire* on an immediate retirement, but that you are entitled to retire on an immediate retirement at separation.
What’s the difference? This distinction is important for FERS who are considering a postponed or deferred retirement. If you go out on a deferred retirement, you can’t keep FEHB – but if you go out with a *postponed* retirement, you can keep FEHB. To learn more, visit our page about Postponed vs. Deferred FERS Retirement.
Why Do I Call it Your Best Benefit?
There are three main reasons I call keeping FEHB in retirement your best benefit…
#1) Getting to Keep Health Insurance into Retirement at All is a Benefit
Most people who have health insurance, have it through their employer. And while many private companies offer health insurance to their employees, not all companies allow their employees to stay on the plan once they retire.
I have some non-federal employee clients who have great coverage through a private employer now – but that coverage turns into a pumpkin when they retire.
Sure – they have the option to do TCC (Temporary Continuation of Coverage – also sometimes called COBRA). But COBRA is *VERY* expensive and usually only lasts for 18 months after they stop working. Then what?
Health insurance is such an important part of retirement planning that when people can’t keep some type of health insurance into retirement – they often have to get a part time job in retirement just to get health insurance. Or work until they’re eligible for Medicare at age 65.
Having the ability to keep FEHB into retirement allows you more flexibility in your retirement planning.
#2) Getting to Keep Coverage In One of the Best Group Plans Available is a Benefit
FEHB is easily one of the best group health insurance programs available. It is the largest employer-sponsored group health plan in the world. According to FEHB Handbook at OPM, there are over 8 million people enrolled (including current federal employees, their family, retirees, etc.).
In general, the larger the group of people paying in, the better coverage and rates a group will get.
Costs for smaller group plans can easily cost more than twice as much (for less coverage) than is premium costs through FEHB.
Being able to stay on FEHB, one of the best group plans available, allows you to have better coverage options at better prices than you can find elsewhere.
#3) Having the Government Continue to Pay 72% of Premiums is an Outstanding Benefit
Not only do you get to stay on one of the best employer-sponsored plans around, the government will continue to pay 72% of your premium in retirement. That is a tremendous benefit!
FEHB plans and premiums vary across the country. Here in Alaska, a good FEHB family plan will cost you about $400/month. So that means that the total premium cost for coverage is roughly $1,430. That means each month you pay $400, the government is paying roughly $1,030 to cover the rest of your cost… every month.
The ability to have excellent health insurance into retirement, and to pay less than a third of your premium costs gives you a huge head start on retirement planning.
Federal Benefits vs. Private Sector
Sometimes federal employees compare what they pay for FEHB to what some private sector employees pay for their health insurance.
From what I’ve seen with my clients, what federal employees on FEHB usually pay is about the same or even a little bit more for premiums while they’re working. Some private companies might cover more than 72% of their employees premiums, while they’re employed.
But when those private employees go to retire – they don’t always have the option to continue that coverage into retirement. And it’s almost unheard of that they could continue coverage by paying 28% of the premiums through retirement.
Keeping FEHB in Retirement is Very Important
Being able to continue FEHB into retirement allows you more flexibility in your retirement planning. You get to keep better coverage for a lower cost, and the government will continue to pay for the lion’s share of your premium costs.
But sometimes people overlook this benefit or take it for granted.
Most Financial Planners Don’t Understand Your Federal Benefits
Your benefit to keep FEHB into retirement and have the government continue to pay 72% of your premiums is such a phenomenal benefit – but many financial planners have never heard of it.
So when they give you retirement planning advice, they may not be aware of just how great this benefit is. And if they don’t know how great the benefit is – they might recommend things that would be good for a private sector employee – but that would result in you and/or your survivors losing one of your most important federal benefits.
Make Sure *You* Understand Your Benefits
Most financial planners don’t understand your federal retirement benefits. So whether you’re doing it yourself – or working with a financial planner – it always makes sense for *you* to understand your benefits.
When you’re going through your retirement planning – make sure you are *sure* that you will be able to keep FEHB into retirement. AND make sure that your spouse will be able to continue FEHB after you pass away by putting them on your plan and making sure you leave a survivor annuity benefit.
Keeping FEHB in retirement is just one of the topics we cover in FERS Route to Retirement. I’ve taken my experience as a financial planner for federal employees and turned it into a do-it-yourself program that helps FERS step-by-step through planning their retirement.
See a full list of topics we cover in FERS Route to Retirement
© 2013 Plan-Your-Federal-Retirement.com. Plan Your Federal Retirement is a dba of Shilanski & Associates, Inc., an Alaska Registered Investment Advisor, with securities offered through Summit Brokerage Services, Inc., Member FINRA/SIPC.
by Micah Shilanski, CFP |