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Retiring from federal service is a major milestone, of course, but it does not end the need to understand how federal benefits work. In the years after retirement, life events and new opportunities can raise important questions about insurance, survivor benefits, beneficiary designations and the effect of returning to government employment.
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Today I will highlight several post-retirement issues that federal employees may want to plan for in advance. This is not an all-inclusive list, but it’s a list that will hopefully remind you that it is important to review your benefits and be sure to understand how they can change as life goes on.
The topics included today are the FEGLI Living Benefit, reemployment in federal service after retirement, changing beneficiary designations, marrying after retirement and providing benefits to a new spouse, and understanding how CSRS or FERS retirement benefits may change over time.
The FEGLI Living Benefit
The FEGLI Living Benefit is one that we hope that we will never need, but it can be very important to the person who is entitled to it.
This benefit allows an eligible employee, annuitant, or compensationer (a person receiving benefits from the Office of Workers’ Compensation Programs as a result of a work-related injury) enrolled in FEGLI Basic life insurance to receive a lump-sum payment while still living if the person is terminally ill and has a documented medical prognosis showing a life expectancy of no more than nine months. This payment can provide important financial flexibility at a difficult time.
It may help pay for medical costs, in-home care, family travel, household expenses, debt, or other needs that arise when an employee or retiree is facing a serious illness and may no longer be able to work or manage expenses in the usual way.
Using the Living Benefit also affects the people who would otherwise receive the FEGLI Basic insurance after the insured person’s death. The Living Benefit is an advance payment of Basic insurance, so any amount paid while the insured person is living reduces, or may eliminate, the Basic insurance payable to beneficiaries later.
Employees may be able to elect a full or partial Living Benefit, while annuitants and compensationers may elect only a full Living Benefit. A full election generally means there will be no remaining Basic insurance payable to beneficiaries after death, although any FEGLI Optional insurance remains separate and is not reduced by the Living Benefit election.
Although premiums may end for the amount covered by the Living Benefit, the individual must continue to pay premiums for any option coverage remaining.
The Living Benefit is not subject to federal income tax. According to the U.S. Office of Personnel Management, these payments are tax-free at the federal level, though you should still check your specific state laws since a few states treat them differently.
Because the decision is irrevocable and directly affects both current cash flow and survivor protection, it should be considered carefully with family members, beneficiaries, and financial or tax advisers.
For example, suppose a federal retiree with FEGLI Basic coverage is diagnosed with a terminal illness and elects to receive the full Living Benefit. The lump-sum payment could help the retiree pay for uncovered medical expenses, arrange additional care at home, or reduce financial pressure on family members.
However, because the Basic insurance has been paid in advance, the retiree’s beneficiaries should understand that little or no Basic insurance may remain payable after death, depending on the election made.
Reemployment in federal service after retirement
Some retirees later return to federal employment as reemployed annuitants. In many cases, the retiree’s existing CSRS or FERS annuity continues during the period of reemployment, but the new federal salary is reduced, or offset, by the amount of annuity that applies to the time worked.
This means the retiree usually does not receive both a full annuity and a full salary at the same time unless a specific exception or dual compensation waiver applies. The employing agency pays the reduced salary and sends the offset amount to the retirement fund, while OPM generally continues paying the annuity separately.
FERS retirees who are receiving the FERS annuity supplement should also understand that returning to work can affect that payment. The supplement is separate from the regular FERS basic annuity and is intended to approximate the Social Security benefit earned through FERS service until age 62.
After a retiree reaches the minimum retirement age, the supplement is subject to an earnings test. Wages or net self-employment income above the annual exempt amount ($24,480 in 2026) can reduce the supplement by $1 for every $2 earned over the limit, and high enough earnings can reduce the supplement to zero.
This rule applies even when the retiree returns to federal service as a reemployed annuitant, including situations involving a dual compensation waiver; the waiver may affect salary offset rules, but it does not by itself exempt the FERS supplement from the earnings test.
Reemployment can also allow an increase to future retirement benefits if the period of service is long enough and retirement deductions are properly withheld or deposited. A supplemental annuity may be available after the annuitant completes at least one year of actual, continuous, full-time reemployment service, or the equivalent amount of part-time service.
If an annuitant is reemployed in a part-time position at a tour of duty less than 40 hours per week, for example, 20 hours per week, and if the annuitant works a total of 1,040 hours in a year (52 weeks x 20 hours), then the employee must work for two continuous years to be eligible for a supplemental annuity.
When the reemployment ends, the supplemental annuity is added to the retiree’s existing annuity rather than replacing it, giving the retiree an additional monthly amount based on the new period of federal service.
A redetermined annuity may be available after a longer period of reemployment, generally at least five years of actual, continuous, full-time service, or the part-time equivalent. Instead of simply adding a supplemental amount to the old annuity, a redetermined annuity is a new computation that considers all creditable service and the law in effect when the employee separates from reemployment.
The retiree must elect the redetermined annuity in place of the prior annuity and any supplemental annuity that otherwise would be payable. Because the rules can vary based on the type of retirement, appointment, retirement system, salary offset status, and whether a waiver applies, retirees should review the details with the employing agency and OPM before accepting reemployment and again before separating from the new position.
OPM has a new Benefits Administration Letter 26-104, titled Reemployed Annuitant Decision Tables, designed to detail the agency actions required for retirement coverage and benefits, health insurance, and life insurance for an annuitant upon appointment, separation, and death (if an annuitant dies during reemployment).
Changing beneficiary designations after retirement
Beneficiary designations determine who receives certain benefits, such as life insurance proceeds or retirement contributions or the final retirement payment, after a retiree’s death. Because family circumstances can change after retirement, retirees should periodically review and update their designations to make sure benefits are paid according to their current wishes.
Outdated forms can lead to unintended results, especially after marriage, divorce, the death of a beneficiary, or changes in family relationships. An easy way to do this is to file new designation of beneficiary elections which will supersede any that have been previously filed.
Different federal benefits have different designation of beneficiary forms, so retirees should be careful not to assume that one designation controls every benefit. For FEGLI life insurance, the beneficiary form is SF 2823, Designation of Beneficiary, Federal Employees’ Group Life Insurance Program. SF 3102 is the Designation of Beneficiary form for federal employees and retirees under both the Civil Service Retirement System (CSRS) and the Federal Employees Retirement System (FERS).
You can download these forms directly from www.opm.gov/forms. These forms are separate from any survivor annuity election, which is governed by different rules.
Annuitants should send the completed SF 3102 and SF 2823 to the U.S. Office of Personnel Management Retirement Operations Center at P.O. Box 45, Boyers, PA 16017-0045. The forms must reach OPM before your death to be legally valid.
TSP beneficiary designations are handled separately through the Thrift Savings Plan. Retirees can add or update TSP beneficiaries by logging in to My Account at TSP.gov; TSP also explains that the designation must be on file with TSP at the time of death and that a will or other document will not control the TSP account.
Because beneficiary designations can override expectations after events such as divorce, remarriage, or the death of a beneficiary, retirees should review FEGLI, CSRS or FERS, and TSP designations whenever their family or estate-planning situation changes.
Marriage after retirement and benefits for a new spouse
Marriage after retirement can create new questions about survivor benefits and continued access to federal benefit programs for a new spouse. If a retiree marries after leaving federal service, the retiree may elect a reduced annuity to provide a survivor annuity for the new spouse, but the election generally must be made in writing to OPM within two years of the date of marriage.
This election is separate from changing beneficiary designations and is important because, without a survivor annuity election, a new spouse generally will not receive a continuing monthly CSRS or FERS survivor benefit after the retiree’s death.
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OPM will provide the retiree with form RI 20-63, Survivor Annuity Election for a Spouse, which will include the option of choosing the maximum amount available or an amount that will provide a survivor annuity of a specific dollar amount (no more than the maximum survivor annuity benefit).
OPM will also include a letter outlining the cost associated with this election and directions on how to respond within the two-year deadline for this election. It is important to contact OPM after you remarry and well before the expiration of the two-year deadline so that you have time to consider your options.
In addition to the regular survivor annuity reduction, a post-retirement election for a new spouse generally requires a permanent actuarial reduction. OPM describes this reduction as the difference between the annuity already received without the survivor election and the amount that would have been paid if the survivor election had been in effect since retirement, plus 6% interest.
This actuarial reduction is spread over the retiree’s lifetime and continues even if the marriage later ends, so retirees should ask OPM for a cost statement and carefully review the effect on their monthly income before confirming the election.
A new spouse may also be added to FEHB coverage because marriage is a qualifying life event. A retiree who is enrolled in FEHB may generally change to a family enrollment or self plus one enrollment during the permitted qualifying life event window, beginning 31 days before marriage and ending 60 days after marriage or doing a future open season.
Retirees should include this request when contacting OPM regarding the remarriage. Providing a survivor annuity is also an important election to allow FEHB coverage for your new spouse to continue if you predecease them.
Cost-of-living adjustments to maintain your buying power
The purpose of cost-of-living adjustments (COLAs) for federal retirees is to protect the fixed retirement income CSRS or FERS retirement benefit from the impact of inflation that can erode the buying power as the costs of goods, services, and medical care rise over time.
The retirement benefit COLA automatically adjusts annuity payouts using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) measured during the third quarter of the year.
The CSRS receives the full calculated COLA matching the measured rate of inflation, while the FERS benefit often receives a modified or capped COLA (e.g., if inflation exceeds 3%, the FERS increase is typically 1% less than the CPI increase) and generally does not kick in for regular retirees until the Minimum Retirement Age (MRA), which is 57 for retirees born in 1970 and later and between 55 and 57 for retirees born earlier.
The “offset” for CSRS Offset retirees and survivor annuitants
CSRS Offset retirees and survivor annuitants should also understand that their civil service annuity may be reduced when Social Security entitlement begins or would begin upon proper application. For retirees, OPM generally determines the offset around age 62, or at retirement if the retiree is already over age 62, and reduces the CSRS annuity by the portion of Social Security attributable to CSRS Offset service.
A CSRS Offset survivor annuity is computed like a regular CSRS survivor annuity, but it may be reduced if the survivor is eligible for Social Security benefits based on the retiree’s federal service.
In cases where the survivor annuity is reduced because of the survivor annuitant’s own “earned” Social Security retirement benefit, the offset may be reduced or eliminated. It is important for survivor annuitants to understand this since OPM may not always be aware of the survivor annuitant’s earned Social Security benefit amount.
See previous Government Executive articles, A Rude Annuity Shock and Sometimes, Your Benefit Really Is Too Small, to learn more about this situation.
Health benefits and life events
Health benefits can also change after retirement, not only the premiums and the benefits, but your needs may change over time. Outside of open season, FEHB changes generally must be tied to a Qualifying Life Event (QLE), such as marriage, divorce, death of a family member, or a move out of a plan’s service area, and many changes must be requested within 60 days of the event.
Annuitants should confirm the effective date with OPM because the timing can depend on the type of change. For example, some enrollment decreases may be made at any time and are commonly effective at the beginning of the month after OPM receives the election, while other changes follow the qualifying life event rules.
There is a little-known option to change insurance just because you have reached age 65, it is QLE 2L. This is your “ace in the hole” that you can only use once in your lifetime to change plans outside of open season.
This is generally used to change plans when enrolling in Medicare after retirement, but if not used at age 65, it can be used later – but only once!
Restoration of a reduced CSRS or FERS annuity
If a spouse or former spouse dies and the retiree’s CSRS or FERS annuity is being reduced to provide a survivor annuity for that person, the retiree should notify OPM and provide the required proof, such as a death certificate or marriage certificate in the case of a former spouse who remarries before age 55.
OPM may then increase the retiree’s annuity by removing the survivor reduction, restoring the annuity to the unreduced amount prospectively.
Retirees who divorce should also notify OPM promptly. If the marriage ends by divorce, the survivor reduction may be removed. However, as is often the case, a court order may require the retiree to continue providing a former spouse survivor benefit.
In a divorce, not only are survivor annuity benefits sometimes continued for the former spouse, but divorce can also create continuing rights for a former spouse to a portion of your retirement, often referred to as the “marital share.”
Court orders may also require assignment of FEGLI to the former spouse and require continuation of health benefits for the children of the marriage. There are also Temporary Continuation of Coverage (TCC) and Spouse Equity benefits available for a former spouse to continue health benefits coverage.
Because OPM must follow clear and specific court orders and will not rewrite unclear terms, retirees should make sure any divorce order addresses federal retirement, survivor, health benefits, and life insurance issues with precision. Be sure that your attorney uses the language outlined in the Attorney Handbook.
Key takeaways for federal retirees
Review benefits after every major life event. Marriage, divorce, the death of a spouse or beneficiary, reemployment, or a serious illness can all change how federal benefits work.
Keep beneficiary designations current. FEGLI, CSRS, FERS, and TSP benefits are controlled by their own forms or account records, and a will may not override an outdated designation.
Do not assume a new spouse is automatically protected. A survivor annuity election, FEHB enrollment change, or other action may be required within a specific deadline.
Understand how income can change after retirement. COLAs, CSRS Offset reductions, survivor benefit reductions, reemployment salary offsets, supplemental annuities, redetermined annuities, and court orders can all affect monthly income.
Act promptly after divorce or the death of a spouse or former spouse. OPM may need documentation to adjust an annuity, restore an unreduced benefit, or apply a court order.
Check before relying on assumptions. Federal retirement, insurance, health benefits, and TSP rules can interact in ways that are easy to overlook, so retirees should contact OPM, TSP, or a knowledgeable benefits specialist before making decisions that affect current income or survivor protection.
Understanding federal benefits does not end on the day an employee retires. Retirement can bring new decisions about life insurance, beneficiary designations, reemployment, survivor protection, health benefits, and changes to CSRS or FERS annuity payments.
By reviewing these rules before a major life event occurs – and knowing when to contact OPM, TSP, or a former employing agency, retirees can make more informed decisions, avoid unintended consequences, and better protect themselves and their families throughout retirement.
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