Thank you for your wonderful and helpful videos on postponed retirement. The one question I have remaining is – I understand that if I retire at MRA and 10 that I cannot take my annuity without penalty until I am 62. Is there an option to continue with health benefits at time of resignation and not collect annuity until age 62 or do you have to start both at the same time? – Nancy
Many federal employees want to know how they can keep their Federal Employees Health Benefits (FEHB) coverage after they retire. This becomes even more important if you’ve had a break in service or joined FEHB later in your federal career. Understanding the rules can help you plan effectively for your long-term healthcare needs.
The 5-Year FEHB Rule
To carry your FEHB coverage into retirement, you need to meet two key requirements:
- You must be eligible for an immediate retirement, meaning your pension must start right away when you leave federal service.
- You must have been continuously enrolled in FEHB (or covered under a spouse’s FEHB plan) for the five years immediately before retirement or for your entire period of federal service if it’s less than five years.
Postponed Retirement and FEHB
An immediate retirement under FERS not only includes the normal, unreduced thresholds (i.e., MRA with 30 years, Age 60 with 20 years, or Age 62 with 5 years), but also includes an MRA +10 retirement. An MRA +10 retirement allows you to start your annuity (pension) benefit early, but it comes with an age-based reduction of 5% per year younger than age 62. For example, if someone retires at age 59 with 25 years of service, they would have a 15% permanent penalty on their pension because they are 3 years younger than age 62 under an MRA +10 retirement, and they didn’t meet the normal, unreduced rules mentioned above.
With an MRA +10 retirement, you can alternatively choose to postpone your retirement until you’ve met the unreduced thresholds of MRA with 30, age 60 with 20, or age 62 with 5. So, in the example mentioned of someone retiring with an MRA +10 retirement by being age 59 with 25 years of service, they would have to postpone receiving both all of their benefits, including the pension and FEHB, until age 60 because they would have over 20 years of service by then.
The important thing to take away is that a postponed retirement under FERS not only postpones the annuity (pension), but ALL benefits, including FEHB.
5 Year Rule to Keep FEHB
If you’ve only been enrolled in FEHB for three years and leave service now, you won’t meet the five-year rule — and that means you can’t continue FEHB into retirement.
If you return to federal service and enroll in FEHB for two additional years, your prior three years of coverage can count toward the five-year requirement. As long as you re-enroll in FEHB when you return and retire with an immediate annuity, you can meet the eligibility requirement.
For instance, if you come back to federal work at age 63, maintain FEHB coverage for two more years, and retire at 65, you can keep your FEHB benefits for life.
Other Important Things to Remember
- A break in service does not reset your FEHB clock, as long as you re-enroll when you return.
- You must retire with an immediate annuity. If you opt for a deferred retirement, you will not be eligible to continue FEHB coverage in retirement.
- The type of retirement matters. Make sure you understand the rules around retirement types and FEHB eligibility.
- Exceptions to the five-year rule are rare, and generally apply only in specific cases, such as early retirements or agency buyouts.
Conclusion
If you’re close to meeting the five-year FEHB requirement but are thinking about leaving federal service, returning for a few more years could allow you to qualify for retiree health benefits. Ensuring you meet the five-year rule before retirement means you can keep your FEHB coverage—and your peace of mind—for life.
ABOUT THE AUTHOR
Micah Shilanski, CFP®, is a distinguished financial planner known for his deep commitment to providing exceptional advisory services to his clients. As the founder of Plan Your Federal Retirement, Micah has dedicated his career to helping federal employees understand and optimize their benefits to ensure a secure and prosperous retirement. His expertise is widely recognized in the industry, making him a sought-after speaker and educator on financial planning and retirement strategies.
Micah’s approach is client-centered, focusing on creating personalized strategies that address each individual’s unique needs. His work emphasizes the importance of comprehensive planning, incorporating aspects of tax strategy, investment management, and risk assessment to guide clients toward achieving their financial goals.Micah Shilanski 00:00
Well, if you’re going to have your pension in retirement and you’re going to have health insurance in retirement, what happens if you don’t want to start both of them at the same time? If everyone wanted a question like that, then stay tuned for this FERS Federal Fact Check. Hi, I’m Micah Shilanski with Plan Your Federal Retirement. There’s a really good question that came in, and one of the things that I love about being a financial planner for federal employees, I’ve been an advisor for going on 25 years now, is I keep getting really great questions about your benefits, looking at it from a slightly different angle, and why is that so important? Because these are your benefits that you’ve earned. I want to make sure you’re getting every benefit that you deserve when you retire. You spend a career with the federal government, how do you make sure you’re getting the maximum amount of your benefits, and that’s why I love answering these FERS Federal Fact Checks. So we got a question from Nancy, and she says, thank you for your wonderful videos and helpful information on Postponed retirement, Nancy, you’re very welcome. I’m glad that was helpful for you. The one question I have remaining is I understand that if I retire at MRA in 10 I cannot take my annuity, I’m gonna call it a pension, without a penalty until I’m 62 that is correct. Is there an option to continue with my health benefits at the time of resignation and not collect the annuity, the pension until age 62 or do you have to start both at the same time? That is an excellent question. Nancy, so keep in mind how your benefits are designed, right? They’re designed as an entire benefits package, they’re not really designed in retirement as an a la carte system where you get a pick and choose how things come up. So in order to be eligible for your FEHB you have to be eligible to receive an immediate pension into retirement, and you must be receiving that pension in order for your benefits to be turned on. So the short answer is no, in the long term, you cannot do that. Now they do have TCC, Temporary Continuation of Coverage, think of this, like COBRA, after you separate for about 18 months, you can buy that insurance directly. I’m going to have some caution about that. Maybe you need it for medical reasons, it makes sense, but it’s going to be really, really expensive, It’s 102% of the total premium. Keep in mind, you’re only paying about 28% of the premium, 72% of the premium, the majority of it is being paid by your employer, so you pay roughly, you know, a third of that premium. So all of a sudden, your premiums are going to triple plus 2% if you’d go aside to go into the Temporary Continuation of of coverage. So, yes, you can do that. It’s only for 18 months. It is expensive. This is where sometimes, looking on the private marketplace, and I know a lot of federal employees get a little concerned about, want to start talking about that, and is it as good as coverage as you have? Nope, it’s definitely not. Is it still health insurance coverage? Yes, it absolutely is. So sometimes we need to balance those out a little bit and say, hey, I could do COBRA, but it’s really expensive, should I be looking at the private market, or, should say, the Health Insurance Marketplace, and to see if there’s a good option that’s going to fit me until I turn these benefits on. So Nancy, thank you so much for submitting that question. Your retirement is so complicated because you have all of these moving parts that are coming together, so getting good information about your benefits is really why we’re trying to do these videos, why we want to help another 1 million federal employees with retirement, is what it gets you great information. I want to get this information out to as many people as we possibly can, so when you go to retire, you get the most out of your retirement. Till next time, Happy Planning!