In this four-part series, get guidance on making the decision to leave the federal government workforce.
Know Your Insurance
Often when discussing insurance options, many people focus on the cost without regard to the potential benefits. FEGLI, FEHB, and LTC insurance coverages are important to cover here, because some of the benefits are fantastic and some decisions are permanent once retired. Let’s be informed when we make those decisions.
Know Your Life Insurance
FEGLI is the program we have a love/ hate relationship with. We love FEGLI when we’re young but begin to grow frustrated as we get older and the costs keep rising. Because of it’s ever-rising cost (rises to age 80 then stops) some make the decision to drop it.
Before dropping FEGLI ask yourself; What is the primary purpose of life insurance? To protect
against a premature death. Since we’re trying to decide if we can retire sooner than expected this could possibly mean we’re not in the same financial place we had previously wanted to be when retiring. So, we may still have need for life insurance.
Instead of just dropping FEGLI right away, consider shopping for coverage outside of the program. There are lots of options outside of the FELGI program that:
- May be less expensive
- Have a fixed cost
- May provide more coverage at the same or less cost.
- Whatever you decide, make sure it’s based on your situation and not sticker shock.
Know Your Health Insurance
To carry FEHB into retirement, you must have five continuous years of coverage immediately prior to retirement. As a retiree you have access to the annual open season like you did as an employee. The government also continues to pay the same subside it does as an employee.
One of the bigger decisions is to decide what to do about Medicare at age 65. The amount of insurance you need 10,15,20 years from now, may be different from the amount you will need in retirement. This means there could be additional cost you have to be aware of later in life. Medicare Part B has a premium like FEHB which requires you to cover that cost from age 65 on, and there are different tiers of costs for this. In your budget planning it’s a good idea to leave a gap to account for a cost like this.
Know Your Long Term Care Insurance
Over 35% of people aged 65 and older will need some type of long term care service, weather is by in home or in a facility. The average cost for long term care is approximately $100k per year with an average stay of 3 years. In General, there are two options to protect against this financial burden based on how you decide to manage the risk.
The first option one would be personally managing the risk by self-insuring. For this you want to look at your total cost for a LTC stay and then do some time value money calculations to see what amount of lump sum you need to set aside today.
For example, in the DC area a typically 3 year stay in a private facility will cost approximately $450k. If we want to ensure that we have this amount of money when we turn age 85 we need to calculate what lump sum of money we need to set aside today.
Using the interest tool on https://www.investor.gov/financial-tools-calculators/calculators/ compound-interest-calculator we can approximate that if we set aside 100k today, and let it grow at 6% for 25 years we could fund our goal.
The second option would be transferring long term care expense risk to a company by buying a long-term care insurance policy. It is smart to look at this at a younger age (50-60’s) while you can lock in a reasonable rate and medically qualify for the coverage. There are a few different options available; traditional long term care policy, life insurance with chronic care riders, and hybrid policies. Look through them to see which features appeal to you.
Deciding to leave the government can be a tough decision. If you would like help with the financial planning surrounding this choice, please contact us.
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