Thinking About Insurance, Part Two
Last week, we began looking at how the need for various types of insurance changes as you progress through your career, focusing on the first two stages of the typical working life: early- and mid-career. This week, let’s look at the latter two stages: pre-retirement and retirement.
Health Insurance: At this stage of life, you need to be sure that your health insurance coverage matches your health concerns. Do you have a chronic illness that requires expensive therapy or prescription drug treatment? Are you at risk of heart disease, stroke or diabetes? Do you see a specialist on a regular basis? You should have a comprehensive health plan. Review your deductibles, coinsurance and catastrophic protection of your existing Federal Employees Health Benefits Program coverage. Compare your plan to others available to you, using the Office of Personnel Management’s online FEHBP tool.
It’s important to remember that health and life insurance coverage ordinarily must be in effect continuously for at least five years before your retirement date or you will be ineligible to carry this benefit into retirement.
Life Insurance: By this stage, your needs for life insurance may be diminishing. Are your children grown and not as financially dependent on you? Is your mortgage almost paid? How much is in your Thrift Savings Plan account? This investment is now part of your retirement income that is available to you as well as to your beneficiary should something happen to you.
It’s a good idea to re-evaluate your life insurance coverage every five years. Consider that Federal Employees Group Life Insurance coverage will cost 13 cents per $1,000 biweekly at age 50; 23 cents per $1,000 at age 55; 52 cents per $1,000 at age 60; and 62 cents per $1,000 at age 65. The cost continues to rise every five years to age 80 when it levels off at $2.40 per $1,000 biweekly. There’s more information on OPM’s life insurance page.
You may cancel your FEGLI coverage at any time, unless you have assigned your insurance to another party.
Survivor Benefits: At pre-retirement, you should begin to request annuity estimates that will not only show you the value of your retirement as of a given date, but also provide you with the information regarding the value of survivor benefits and insurance coverage. An annuity estimate under either the Civil Service Retirement System or the Federal Employees Retirement System also will reveal any inconsistencies in your federal service history and the need to address any service credit issues. Here’s more from OPM on the subject of planning and applying for retirement.
Social Security: To find out what your spouse and dependent children would be entitled to from your Social Security record, set up an online account and check your latest personal benefits statement.
Long-Term Care Insurance: You’re at the age where most people have made up their minds about long-term care coverage. A 60-year old could purchase a $365,000 lifetime benefits for a little more than $300 per month, including a 5 percent automatic inflation protection feature and comprehensive coverage that pays for in-home care as well as facility care. The 5 percent inflation feature means that every 14 years or so, the amount of the benefit doubles. Use this online calculator to price the cost of Federal Long-Term Care Insurance Program coverage.
Health Insurance: After your career officially ends, you presumably will carry your FEHBP coverage with you into retirement. At this stage, if you’re approaching age 65, you should consider Medicare. I explored the relationship between these two types of coverage in a column last year. It also links to a series of previous columns on the subject.
Life Insurance: Once you retire and reach age 65, your FEGLI insurance may begin reducing, depending on the options you selected at retirement. In many cases, you will be left with no premiums, but only a minimal amount of remaining coverage. If your needs are mainly for final expenses, then there is no longer a need to pay high premiums to maintain your pre-retirement level of coverage. This is an area where retirees will generally spend less money in retirement.
Survivor Benefits: If you were married at retirement, you probably elected a spousal survivor annuity. Your latest statement from OPM will show you its current value. This is a very valuable benefit to a surviving spouse as it will provide a partial replacement of your retirement benefit should you die before your spouse, and will protect your spouse’s right to maintain FEHBP coverage.
Social Security: Now that you have retired, you must consider when is the best time to apply for Social Security retirement benefits. You have an eight-year window from age 62 to 70. Here’s more information from the Social Security Administration. Remember, if you’re still working, there’s an earnings limit until you reach your full Social Security retirement age. SSA also offers an earnings test calculator.
Long-Term Care Insurance: By now, you’ve probably made a decision regarding your need for long-term care insurance. As you get older, it is more difficult to purchase this type of insurance, since there are questions to answer about your health and the monthly premiums are higher when you purchase at a later age. Remember, although the cost of insurance is expensive, so is the cost of care. For example, in the Washington metropolitan area, the cost of nursing home care costs an average of $90,520 per year with an average two-year stay.