Retirement & Financial Planning Report

Two of the best features of the FEHB program is that almost all employees can carry the coverage into retirement and the premium rates in retirement are identical to the ones active employees pay.

Premiums also are identical under the FEDVIP vision-dental insurance program for retirees vs. active employees (and there is further no general requirement in that program to have had coverage for the five years before retirement to have coverage as a retiree).

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However, retirees aren’t eligible for to pay premiums with pre-tax money under the “premium conversion” arrangement that applies to active employees. All actively employed FEDVIP enrollees pay premiums in that way as do almost all in FEHB—under the latter program they can elect not to, but there are only limited situations, typically involving very low-income employees who pay no federal income tax, where that makes sense.

Losing the tax advantage in paying premiums means coverage under both programs effectively costs more in retirement; how much more depends on your tax brackets before and after retirement.

This is not a consideration under the FEGLI life insurance and FLTCIP long-term care insurance programs, since those premiums always are paid with after-tax money.

There is a limited exception for retired firefighters and law enforcement officers to pay part of health insurance (and long-term care insurance) premiums pre-tax. If you think you might qualify, check with your tax adviser.

Also remember that in retirement, premiums under all the insurance programs are deducted from your monthly annuity payments rather than your bi-weekly pay. Don’t make the mistake of simply doubling your biweekly premium as an employee and thinking that will be your monthly premium in retirement; the monthly premium will be slightly more than that because there are 26 biweekly periods in a calendar year, not 24. So, you must multiply your bi-weekly rate by 26 and then divide by 12.

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