Most Important Financial Decision of Your Life
For most military retirees, the Survivor Benefit Plan (SBP) is often the most important decision of your financial life. It can also be among the most confusing, emotional, and uncertain. In almost every case, you must make a one-time irrevocable decision that will have lasting impacts for decades. And, you have to make that decision with all the unknowns that the future holds.
This is a critical financial decision worth hundreds of thousands (potentially millions in some cases) of dollars over the course of your lifetime and that of your beneficiary!
For the military spouse though, this is more than just a financial decision. Aside from the long-term financial impact, it’s a good thing that the DoD requires spouses to sign off if the military member declines SBP. Given the career and other sacrifices that most military spouses make on behalf of their spouse’s military career, there is rightly an emotional aspect that should not be ignored. A military spouse’s investment ought to be considered as a major contribution that helped earn a military pension.
Good Help is Hard to Find
While most servicemembers and their spouses may have heard about SBP, learning about it takes on a whole new sense of urgency when it comes time for your own decision. Everyone should take advantage of the information presented in TAP, read what my friend Kate has written, do your own research with the info that DFAS and the DoD actuary provides, and talk about this with your spouse.
However, even with all of that information it can still be overwhelming. All the necessary information is available from government sources. However, when you try to research it online, it can be difficult to piece together due to how spread out the information can be. You may have heard a variety of opinions from others who already made the SBP decision and there’s a lot of opinions about which way is the best approach to making a decision.
For those that seek an outside perspective from a financial planner, unfortunately there’s not really anything comparable to SBP in the insurance industry, so it’s hard to find civilian references or financial planners that can help you determine whether it’s right for you. Instead you may find an aggressive salesman motivated by getting a commission wanting to sell you a big insurance policy whether or not that may be the right choice for your situation.
There’s Got to be a Better Way
I saw the sparse and scattered information from DFAS, DoD Office of the Actuary, TAP class, and saw other people trying to fill the education gap to help empower good decisions. Ultimately, I decided to do something about this.
I’ve created a custom Survivor Benefit Plan Analysis to help you look at your unique situation, evaluate all the financial and emotional variables, act as an impartial third party to help spouses talk and think through their feelings together, and ultimately empower you to make the best decision for your future.
Evaluating SBP Considerations
For those soon-to-be retirees cramming on learning about SBP, here are some of the major pros and cons.
SBP Pros and Cons
- Provides a guaranteed monthly payout for the lifetime of the beneficiary
- Indexed for inflation. This means that the payout will rise with the cost of living adjustment (COLA) ensuring that beneficiaries will maintain their purchasing power every year
- Provides longevity insurance to your beneficiary – you cannot outlive SBP coverage (particularly important consideration as we continue to live longer and longer)
- Predictable, and therefore, can be used when determining cash flow in financial planning.
- Automatic coverage for all military retirees with no medical or eligibility requirements
- Once in ‘paid-up’ status, no longer require payments. Paid-up status occurs after 30 years (360 months) of premium payments AND reaching age 70. There may be circumstances where a retiree pays for 30 years and has to keep making payments because they have not yet reached age 70.
- Once selected, SBP premiums are automatically paid from pension (or VA compensation by filing Form 2891 through DFAS)
- Much cheaper cost than comparable commercial annuity options due to the DoD paying part of the cost
- Payments made from pre-tax income reduce your current federal income tax liability
- No access to principal
- If the beneficiary dies before the retiree, there is no payment and no refunds on SBP payments
- With only a few circumstances, the decision about SBP is final
- Payments stop upon death of the beneficiary. In most cases, this is the spouse, so when the spouse dies, there’s no residual benefit for adult children (except in special needs cases, in which the child can become the beneficiary in certain qualifying circumstances)
- SBP benefits are taxable unlike life insurance which is not taxed
- If beneficiary predeceases retiree and there is no other qualified beneficiary, coverage stops unless retiree remarries
- Beneficiary SBP payments can end if they remarry
- May not be a good choice if the servicemember is likely to outlive the spouse
- Can be more expensive than required term life insurance coverage
- Doesn’t allow as much flexibility with multiple beneficiary options in your estate planning considerations
- The SBP-DIC Offset
As way of overview though for working together, these are the major considerations we would look at together.
- Examining income differences and needs with military transition to civilian careers
- Exploring career what-ifs for both spouses potentially seeking new employment opportunities
- Comparing SBP coverage to term life insurance coverage over your lifetimes
- Determining insurable needs
- Income replacement
- Final expenses
- Debts / Emergency fund
- Future savings goals like children’s education, caring for aging parents, gifts to charity, legacy funds, or personal goals
- Modeling how much income life insurance could provide vs. SBP
- Calculating your timeline to reaching financial independence/full retirement based on your past and future savings, with or without SBP
- Evaluating your future financial liquidity requirements
- Assessing longevity risk (the chance that you might live longer than your money will last)
- Considering health and family situations including looking at how most women are living longer than men on average
- Higher healthcare costs in old age meaning the need for income in later years is even more important
- Working through the emotional and risk tolerance considerations, especially for the surviving military spouse
- Providing a neutral place with an impartial third party for both spouses to talk about and share their feelings
- And more!
The most important thing to understand is that all aspects of the SBP decision are made when the servicemember retires. With very few exceptions, any election made at retirement is irrevocable (so choose wisely!). If married (or if directed by a divorce decree), the spouse is required to agree with the service member’s SBP choice to elect anything less than full SBP. Waiting to research and make the decision at the last minute makes a stressful decision even more difficult.
I’ve Created a Custom Evaluation Process Just for You
Using my unique and very personal experience as a widower myself, I can also better help you and your spouse understand the emotional components of this decision. It isn’t only about the money, but at its very core is providing and caring for the spouse and family through a final gift of love. I know from personal experience that having these what-if discussions and planning wisely ahead of time can be a great help to your loved ones in the future.
As a fee-only, fiduciary financial planner, I’m only working on your behalf and in your best interest 100% of the time. There is no bait and switch or trying to earn a commission selling you something. As a boutique, independent financial planning firm, we are able to develop custom processes for your unique situation. We aren’t working for anyone else, just you.
As a veteran with almost nine years on Active Duty as an Air Force officer where I also volunteered as a financial counselor, I’ve seen and experienced first-hand the challenges of military life. I’m now able to use these vast experiences to help my clients navigate the challenges of the busy military life, get the most out of your hard-earned benefits, and help you achieve your goals.
It’s so important to think through this critical financial decision as SBP has impacts that will last the rest of your life. Although it may feel stressful and challenging right now, working together I can help you gain confidence and peace of mind to fully understand your long-term needs and all the factors of your decision. We will examine all the aspects of your financial life that SBP impacts to enable you to stop worrying your decision. Based on everything we look at together, I will give my recommendation based on your specific scenario and what I believe is the best option for your situation.
What You Can Expect
We start with a free, no-obligation consultation offered first to answer any questions, ensure we are comfortable working together, and help you understand the process.
We serve those who are surviving busy lives and help them learn to financially thrive. Your financial plan may be unique, and it may not look like anybody else’s, but it’s yours.
Financial planning is an opportunity to invest in your life, and gives you a process for using your money wisely to get what you actually want now and in the future. Just like a personal trainer designs the proper program for your specific fitness needs and holds you accountable to staying focused on your goals, we do the same with your money because we want to empower you to make smarter, more informed decisions now that can produce dramatic results in the future.
Some of that value is more intangible than a list of deliverables. The smart financial decisions you make today (and the not-so-smart decisions you avoid) create a compound effect over the long-term: the more you do correctly today, the greater your level of success is likely to be in the future. The small adjustments we can show you how to make today, and our advice to help you optimize your financial life, can add hundreds of thousands of dollars to your net worth over your lifetime.
The Survivor Benefit Plan Analysis is offered for the straightforward, transparent pricing of only $290.
You and your spouse will get a one hour virtual meeting with a fee-only financial planner going over your unique situation, reviewing the date you previously provided through a questionnaire, discussing goals, attitudes towards risk, and answering any and all SBP related questions. Following our meeting, you will get a full report of the SBP analysis with a summary of everything we discussed as well as an action checklist for you to confidently implement on your own.