What Happens To Your Federal Employee Health Benefits In Retirement?

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As a federal employee, you know that you have a robust employee benefits package, and your likely aware that your Federal Employees Health Benefit (FEHB) coverage is a critical part of that package. But what happens to your FEHB coverage when you retire? Can you keep your coverage? Do your premiums increase? There is a lot of confusion around this topic, so this week we’ll review the answers to some of the most pressing questions surrounding FEHB in retirement.

2 Rules To Keep Your FEHB

The Five-Year Rule
The first hurdle you’ll have to pass to keep your coverage into retirement is the five-year rule, which requires that you have been continuously enrolled in the FEHB Program for the five consecutive years prior to your retirement or, since first eligible (if less than five years). Also, the five years can include a period that you were covered under the Uniformed Services Health Program (or TRICARE) as long as you are covered by FEHB when you retire.

Planning Takeaway: If you’re not covered under FEHB and are approaching the five-year window prior to your retirement, consider enrolling to ensure you have access to this great benefit in retirement.

Immediate Annuity Requirement
The second requirement you’ll have to meet to carry your FEHB coverage into retirement is that you must retire with the eligibility for an immediate annuity (aka pension) or under the Minimum Retirement Age (MRA) +10 retirement option. Keep in mind that if you retire under the MRA +10 option, your FEHB coverage will stop when you separate and will resume when your pension starts.

Planning Takeaway: If you retire under the MRA +10 option, you must meet the five-year rule before separating from service.

Will My Premiums Increase?

The short and sweet answer is no, your premiums will not increase since the government will continue to pay up to 75 percent of the cost of your coverage. However, postal workers are an exception. Since postal workers have union-negotiated premiums that will not carry over into retirement, they will see an increase in their premiums when they retire.

Planning Takeaway: You’ll likely lose some tax savings when you retire since you will no longer be able to use pre-tax dollars to pay your FEHB premiums.

For example, a federal employee who pays 30 percent in taxes and pays $1,600 in premiums with pre-tax dollars will lose a tax savings of $1,600X.30 = $480.

Final Thoughts

Maintaining your Federal Employees Health Benefit coverage in retirement can help keep your medical cost from skyrocketing during a period when you’ll likely need more health care services. This significant savings is why I consider your FEHB coverage one of the most valuable resources you will have in retirement. So, plan ahead and ensure that you meet both the 5-year rule and the retirement eligibility requirements to keep your FEHB. And as always, If you’re not confident in creating your financial plan or want a professional opinion, consult with a qualified financial planner.


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Published by Jose Armenta, MsBA, CFP®, ChFC®, EA

Jose Armenta is a CERTIFIED FINANCIAL PLANNER™ professional who specializes in helping federal employees get the most out of their federal benefits. Jose’s experience serving federal employees has provided him with valuable insight into federal employees' unique financial planning needs.

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