Life Insurance as a Retirement Plan: More Than Just a Death Benefit

September is Life Insurance Awareness Month, and I want you to pause for a second and think: What is your FEGLI group life insurance actually doing for you right now?

Most people think of life insurance as “the money your family gets when you’re gone.” And yes, that’s true. But here’s the part that almost no one tells you: the right type of life insurance can also become one of the smartest income tools in your retirement plan. It’s not a replacement for your TSP or Roth IRA—it’s an enhancer.

I’ve helped FERS employees use certain policies to build tax-advantaged savings, reduce their future tax bills, and even create a lasting legacy. And they did it while staying fully protected the whole way through.

How It Works: Turning Life Insurance Into Retirement Income

Not all life insurance is created equal. Policies like Indexed Universal Life (IUL) or Whole Life can build cash value over time. That’s where the magic happens.

Here’s the simple version:

• You pay into the policy (monthly or annually).

• Part goes toward your insurance coverage.

• The rest builds cash value, which grows tax-deferred.

• Later in life, you can borrow or withdraw from that value tax-free to help supplement your retirement income.

• Another bonus is this income you do not have to report on your taxes!
  

Think of it as a living benefit with a built-in safety net.

Why Some FERS Employees Are Choosing This Path

For federal employees who’ve already maxed out their TSP or Roth IRA, or who worry about what tax brackets will look like in retirement, life insurance offers some unique advantages:

1. Tax-Free Retirement Income – You can access your cash value through loans that typically don’t trigger income taxes. (similar to a TSP loan. You pay yourself back!)
   

2. No Income Limits – Unlike Roth IRAs, these policies don’t exclude high earners.
   

3. No Required Minimum Distributions (RMDs) – You won’t be forced to start pulling money out at age 73.
   

4. Market Protection Options – Many IULs allow your savings to grow alongside the market—but with downside protection, so you’re not losing principal when markets dip.
   
   

Who’s a Good Fit for This Strategy?

This isn’t a one-size-fits-all solution. It works best for people who:

• Are in their 30s, 40s or 50s and in good health.

• Have extra cash flow after already funding TSP and Roth contributions.

• Want to cut down on tax exposure in retirement.

• Value both retirement income and leaving a legacy for their family.

📌 Example: One FERS employee, age 50, started putting $500/month into an IUL policy instead of just letting it sit in a savings account. By retirement, she had over $100,000 in accessible cash value and a $250,000 death benefit still protecting her family.

How It Stacks Up Against TSP and Roth IRA

Let’s compare:

• TSP = Solid long-term growth, but most of your withdrawals are taxable. Plus, at 73, the IRS makes you start pulling money whether you need it or not.
  

• Roth IRA = Amazing tax-free growth and withdrawals, but there are income limits and annual contribution caps. If you earn too much or want to save more than the cap, you’re stuck.
  

• Cash Value Life Insurance = No income limits, no RMDs, and if set up properly, it gives you tax-free access in retirement while protecting your family at the same time.
  

The best way to think about it is like this:

• TSP = Your foundation.
  

• Roth IRA = Your tax-free bucket.
  

• Life Insurance = Your flexible backup that grows quietly in the background of your federal career.
  
  

What About FEGLI?

Here’s the honest truth: FEGLI isn’t built for retirement income. It’s meant for “if you die too soon” insurance! 

• It’s a term policy, which means it has no cash value.
  

• Premiums go up as you get older.
  

• By retirement, it usually becomes too expensive to keep.

If you’re approaching retirement, comparing FEGLI to a private permanent policy can open up new doors—both for protecting your family and for creating extra retirement income. I help clients walk through this decision all the time, so you don’t have to try and figure it out alone.

Final Thoughts: Use Your Life Insurance While You’re Living

You’ve worked hard, saved diligently, and made wise choices. Your retirement plan should reflect that.

Life insurance isn’t just about protecting your loved ones when you’re gone—it can also help support your lifestyle while you’re still here. With the right structure, it can be a tax-smart, flexible income source that fits right alongside your pension, TSP, and Social Security.

And since September is Life Insurance Awareness Month, this is the perfect time to take another look at what your policy is really doing for you.

📲 Want to talk this through?
Text me at 813-686-2208 or visit JustCallMelinda.com. Let’s make sure your retirement plan supports not just your family’s future—but yours too.