Retirement for Federal Employee Couples

November 20, 2020 8:48 AM
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Most federal employees plan for retirement with family in mind. Whether one has a spouse, children, or grandchildren, the importance of providing for our loved ones is utmost concern.

For families or couples in which one of the individuals is a federal employee, there are a wide range of options available; however, when both individuals work for the federal government – “dual feds” as we like to call them – there are several important nuances to be familiar with. 

Dual Feds and FEHB

One of the most well-regarded retirement benefits for FERS employees is continued coverage under the Federal Employees Health Benefits (FEHB) program. FEHB coverage can be carried into retirement if two conditions are met:

  1. An employee must have been continuously covered under FEHB at least five years prior to retirement. Though this coverage does need to be continuous for five years before retirement, that does not mean you have to maintain the same coverage type or plan throughout that time. Coverage under the military’s TRICARE does satisfy the five-year requirement, but you must be enrolled in FEHB on the day you retire from federal service.
  2. An employee retires on an immediate annuity. Retirement under FERS Minimum Retirement Age +10 does count as an immediate annuity for FEHB purposes; however, if you postpone your annuity — after a potentially 18 month period of Temporary Continuation of Coverage — health coverage will be suspended until the annuity begins.

Your spouse must be listed as a survivor annuitant in order to be covered under your FEHB when you retire. The minimum survivor benefit for FERS leaves 25% of a retiree’s pension at a 5% reduction to the employees’ annuity. If your spouse were to predecease you, the pension would return to the full amount, but the money already paid out would be lost forever. 

Dual feds have a definite advantage regarding FEHB. According to the Office of Personnel Management, coverage under a spouse’s FEHB allows an individual to receive FEHB in retirement without being a survivor annuitant. In other words, a dual fed couple does not have to leave a survivor benefit to a spouse for the individual to continue FEHB in retirement. This gives dual feds much greater flexibility and opens up options like life insurance — which can be cheaper than the 5% pension reduction — to be used to replace the survivor benefit. 

What Plan is Best to Choose?

When it comes to FEHB in federal retirement, dual feds have the ability to choose either a self-only, self-plus one, or family plan. From a cost perspective, there are a few options. A dual-fed couple could elect to carry two self-only plans or have only one person carry FEHB and the other be covered under the spouse’s plan (either self-plus one or family). For more on FEHB’s costs, see OPM’s cost estimator and FEHB premiums pages.

Premium Conversion

An important factor for federal employees to consider in deciding which FEHB plan to carry into retirement is premium conversion. Premium conversion simply means that in retirement one pays for FEHB in after tax dollars.

While working, an employee and the government pay for healthcare together — with the government paying the majority of the premium — but an employee also gets the added benefit of paying healthcare premiums with pre-tax funds. Upon an employee’s retirement, the government continues to pay part of a retiree’s healthcare, but the retiree now pays with after-tax dollars. This is where dual-fed employees can potentially enjoy another benefit.

If a dual-fed couple is not retiring at the same time, it may make sense for the employee who retires first to be covered under the plan of the employee who will retire later. The benefit to this is that as long as an employee is working, FEHB premiums continue to be paid with pre-tax dollars. This could potentially translate into significant savings; however, each individual case is unique, and we recommend you speak with a financial professional to see if this scenario makes sense for you.

Disclosure: The information contained in these blogs should not be used in any actual transaction without the advice and guidance of a tax or financial professional who is familiar with all the relevant facts. The information contained here is general in nature and is not intended as legal, tax or investment advice. Furthermore, the information contained herein may not be applicable to or suitable for the individuals’ specific circumstances or needs and may require consideration of other matters. RBI is not a broker-dealer, investment advisory firm, insurance company, or agency and does not provide investment or insurance-related advice or recommendations. Brandon Christy, President of RBI, is also president of Christy Capital Management, Inc. (CCM), a registered investment advisor.

© 2020 Brandon Christy. All rights reserved. This article may not be reproduced without express written consent from Brandon Christy.

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About the Author

Brandon Christy, CPA, PFS, is the founder and president of Retirement Benefits Institute, Inc. He is an established leader in contracted federal retirement benefits education, and his company has trained over 10,000 federal employees to help them gain clarity and confidence in retirement.

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