Episode Transcript
[00:00:00] Speaker A: Any examples used are for illustrative purposes only and do not take into account your particular investment objectives, financial situation or needs and may not be suitable for all investors. It is not intended to predict the performance of any specific investment and is not a solicitation or recommendation of any investment strategy.
Welcome to Reyna Retirement. Reyna Reyes has dedicated her career to helping people make small, smarter financial decisions. Reyna Retirement is all about breaking down complex financial concepts into language you can actually understand. Now here's the co founder of American Federal Benefits Consultants, Reyna Reyes. Well, Reyna is back once again to take the, take the wool off of our eyes, as I've loved to say for some reason. And Raina, you know, we, we get a lot of questions, I know about life insurance, about Fegli specifically, obviously, since we're in the federal space here talking about federal employee group life insurance or fegl, a lot of the different questions that you get, I know, are things about cost and, and, you know, do costs go up over time and things like that? And, and, you know, just a lot of different specifics dealing with not only the dollars and cents, but also the coverage and all of the things. So I know you have a great kind of way of breaking stuff down for us. So just. So break this topic down for us about Fegli this morning.
[00:01:22] Speaker B: Absolutely, Matt. I'll take it away. Thank you so much. And that's what we want to do. We want to break it down because if it don't make dollars, it don't make sense. And you know, insurance historically has been sort of a kind of word like nobody wants to hear it. It gets blocked, throw garlic at it. Stay away from me. And the, the gentleman did a great comparison of what people's feeling of life insurance is about. And that's from the movie Groundhog Day with Ned Ryerson. And he keeps showing up and he's pitching his life insurance. Life insurance. Life insurance. Life insurance. And that's kind of the experience many people have had with life insurance, but with Fegli and specific basic life insurance is what I want to really go over today because there's so much about it that a lot of people don't realize or take for granted or just don't have any idea, because when most federal employees show up to work, they're not, they know they have great benefits, but they don't know the intricacies of them. And so they, you know, don't realize how great it is. And then you had a great question, does it get more expensive? Well, let's address that right away. Basic life insurance is basically your annual salary. If you're a federal employee, it's your salary rounded up plus 2000 and the price is dirt cheap. Dirt dirt cheap. If you're a postal employee, you pay nothing for it while you're working. If you're federal, the price is like 15 cents per thousand or something ridiculously low. And after the age of 65, whatever choice you made, the price and the coverage stay the same forever.
Forever. So let me first address that. There is no scenario where anyone, in my opinion and experience should eliminate Basic Life out of their portfolio of their federal employee benefit package. It's too valuable. It's too much of a value in terms of what benefit you get for the exchange of premium. So I love it. And let's get right into it. So you have this insurance policy, everybody knows about that. But let's talk about first of all, when can you make changes to Fegli? So let's say you did get rid of basic life insurance and you want to get it back. Well, when is open enrollment? We're all familiar with the open enrollment of health insurance every single year. But Fegli does not operate like that. They will, they will announce an open season kind of whenever they feel like it. And the Last one was 2016.
So not on the horizon I would imagine with the current outlook of the federal government and the world in which we live currently. So I don't have high hopes for a brand new open enrollment. So there's reasons you could add. So if you got married, had children, things like that they call a qle Qualifying life event.
That's pretty great an opportunity to add it.
Other than that, you could get a physical to add insurance, but not many people will do that. It's just, it's just a, it's just a process. So when we talk about Fegli basic, what is it? Well, if you look onto the left, it's your salary rounded up plus 2000. So I've got the example here of somebody with a $72,500 basic salary. This is adjusted base pay. So if you're postal you're looking at your pay stub on the far left hand side it's got your base salary rounded up plus 2000. That's your basic life. If you're non postal, most of yalls leave an earnings statement. It's going to show your salary on the far right side. That is your adjusted base pay. So yes, after locality you take that number, round it up, add 2,000. Yay. There's your Life insurance. So you know exactly what it is. Just remember it's basically your annual salary. Easy to remember. So if you retire before 65, there's a little bit of an extra cost added to what I'm showing you here. But after the age of 65, whatever choice you made remains into infinity for you. That is your infinity. Everybody has their own version of infinity. And so if I live to be 70, 80, 90, 100, whatever price I'm paying after 65 will be the same forever. And the amount of coverage will remain the same forever also. So they let you keep it all if you want, I can keep hundred, I can keep $75,000 life insurance forever. Forever. And after I'm 65, I'm paying 168 bucks a month. Not a bad gig for permanent coverage. If you have turned 65 or over and have gone to price permanent life insurance, you'll realize this is a steal. Very strong cost comparison in terms of other permanent insurance plans that are offered out there. I know I've been writing insurance for many, many moons. Long time, since I'm a kid. My dad did the same thing. So I've been looking at insurance since I'm 14 years old. So I've had a really, really exotic life insurance the whole time. But then you could keep half of it. 50%. So that's half of the 75,000. So whatever that is. $32,556 a month. 32 grand for 56 bucks a month. Sign me up twice because that is permanent forever. Now guess how much 25% would be. Any takers?
No, I'm kidding. You pay absolutely nothing to keep a quarter of your salary for the rest of your life. So you see why I would say to you, never get rid of basic. Never get rid of basic. Because after 65 is free. 65 seems so far away for a 30 year old or a 40 year old. It's not that far away. I'm telling you it will happen one day. And having no cost life insurance, literally your fed job can bury you for free. And I'm only halfway sounding funny. Your national average for A burial is 8 to $10,000. For a standard, you know, burial cremation's half of that. And body donation is free. Just saying. So now you kind of know the, the numbers. And 25% of $75,000 is a cool 18,000 7 50. So that'll bury me and then some. That'll cremate me what, four times? And a body donation will give me a full Full on trip and a party just from that dollar amount. So it's good to see these real numbers and what that means for you. And remember, let's go back to this. If I pass away while I'm working and I got basic life only, how much money is my family going to get?
If you said $75,000 is not a trick question, you're exactly right. Because what is the tax implication of life insurance? There are no taxes to the beneficiary of a life insurance product. 70, $75,000. And all of it because Uncle Sam can't touch life insurance proceeds based on tax code 7700. Either one or two doesn't matter, but he can't touch it, hands off. So you get it all. So you see the value of this. Because remember, isn't Uncle Sam all up in your grill everywhere else? Tsp, he's taking tax. Your income, he's taking tax. All kinds of stuff is taxed tax. It just eats away life insurance, doesn't, it doesn't happen. Now this is an incredible benefit.
If you have an illness or diagnosis or something happens and the doctor says, hey listen, you have a nine month window, you've got a terminal illness, nine months or less, you can call this number, you can get all your dollar amount of your basic life insurance lumps on to you, no tax. And obviously you wouldn't have a death benefit after that, but you've got it. I've had probably five or six people make this claim and receive the money. And I can tell, I can tell you, we had a gentleman in Pennsylvania come to one of our seminars with another woman that does the meetings with our team. And he said to her, listen, I'm. When he found out about this, he said, oh my goodness, I didn't know this existed. I was just diagnosed with stage four lung cancer. I was about to empty my TSP to pay off my home for my family. Because that's what people do when they get news like that. They want to prep and get ready.
He said, oh my goodness, now I have, let's say $75,000 that I don't have to rip out of TSP. Well, think to yourself, what two things would he have paid had he taken that money out of tsp? First of all, three letter word ends with X and nobody likes it. Tax, taxes. He would have paid tax on the money coming out of TSP. Well, what this, what, what second thing would he have paid? He was only 45 years old.
It's a P word, penalty, tax and a Penalty, So he would have paid 20% tax withholding because that's mandatory from TSP, and another 10% penalty just to slap him around because he was too young.
So now he's got 75 for free. So you're kind of picking up what I'm putting down. Basic life has some pretty incredible value that it's a little hidden. This whole terminal, you know, living benefit. They, you know, they're not advertising it around all over the place, but it's a, it's a strong, strong benefit. Now what happens afterwards? Like I was saying, you can keep it and the price stays the same. Right, but how can you keep it? You have to have had it for five years. Just like health insurance, you got to have it for the five years before. And we're now past the date of even the last open enrollment of 2016 to be the end of the fifth year. Like I've had some people where they use that open enrollment and I was retiring them a couple years ago and we had to change their date because there's no place on their like annuity estimate or retirement estimate that says, hey, you didn't turn on life insurance until later. We had to hear that from HR later. So there was no way to like prep for that. So we just delayed their date couple months. And you have to retire on immediate annuity to keep it, meaning you can't defer or postpone. And you have to obviously have it when you leave, not just for five years, but on the moment you go. And there is a form when we retire you. Yes, I do the retirement documents, if you need help, me and my whole team does. And there's a form on there that makes the election of what you want to keep. How much of it do you want to keep? And either way you slice it, no matter what choice you make until you're 65, you keep your whole salary as a death benefit until the day you turn 65, which is pretty cool. So for example, even the lowest option, the free after age 65 option until then, depending on your salary, like let's say if you make under 100 grand a year, you're going to be paying somewhere between like 25 and 40 bucks a month until the age of 65 to keep your whole salary as a death benefit. I mean it's, it's a, it's a no brainer. It's, it's, it's so just low hanging fruit, easy to have. It's a benefit that just makes sense. And then you of course make the decision when you retire about what's going to happen at age 65, whether you're going to keep it all half of it, or if you're going to keep the free quarter for you for the rest of your life. So there you have it, folks. Basic. The price does not go up after retirement. It is permanent coverage. It can stay forever. It can stay forever. And the price is so incredibly inexpensive, not just after retirement, but while you have it as an employee. And there's no scenario, in my opinion and experience, that anyone should ever get rid of it. But if you already have, that's fine. If you've looked at outside life insurance, that's fine too. But I do want to enhance the value of Basic so you know how good you got it. We'll talk to you soon.
[00:13:27] Speaker A: Thanks for listening to Reyna Retirement With a strong commitment to ethical standards, Reyna works hard to find the right solution for each individual or family who reaches out for advice. To contact rena directly, call 850-450-6500. That's 850-450-6500. Or to reach the team at American Federal Benefits Consultants, call 1-800-872-8857. That's 1-800-872- 8857. You can also go online to americanfederal.org not affiliated with the United States Government. Opinions expressed are subject to change without notice. These opinions are not intended as investment advice device, nor do they predict future performance of any product. All information provided is believed to be from reliable sources. However, we make no representation or warranty as to the accuracy of any statement. The information is intended to be educational in nature and does not provide a guarantee or specific result. All copyrights and trademarks are the property of their respective owners. American Federal Benefits Consultants is an independent organization, not a government agency or affiliated with the Federal Government or any state government. The terms CSRs, FERs, FEMLI and FEHB are all registered trademarks of the UL Management American Federal Benefits Consultants, agents, consultants or any independent contractors do not provide tax, legal or investment advice and do not engage in the solicitation or sale of securities. Consult with your tax advisor or attorney regarding specific situations.
