Challenges and Opportunities: One Retiree's Thoughts on Transition, Part I
You will face many challenges and opportunities as your retirement approaches. And, planning for your family's financial security is one of those challenges. This "Guide" is merely intended to give you some things to think about as you begin your transition to civilian life. It's based on my personal experiences and feedback from countless counseling sessions conducted here at Navy Mutual with servicemembers approaching retirement or those who have recently retired.Many of us have heard the old adage "If you fail to plan, then plan to fail." Your retirement from active duty affords you a great opportunity to take stock of where you are in life and plan for the future. This discussion will focus on several retirement planning areas: insurance planning, financial planning, estate planning, and healthcare planning. Before, we discuss each of these areas, there are two important points that should be made. First, don't go it alone. It is essential that your spouse — if you have one — take an active role in your transition planning. Second, don't be afraid to ask questions. We at the Navy Mutual stand ready to assist you in any way we can.
This area should include all forms of insurance including life, property & casualty, disability, liability, long term care, etc. Even if you feel that you have many or all of these in place, this time of transition is a good time to review your needs and make adjustments as necessary.
Life Insurance. A better name for this topic might be Survivor Planning because the whole array of survivor benefits and entitlements need to be understood and coordinated. Life insurance is just one part of the plan. Your Survivor Plan needs to include Veteran Survivor Benefits, Social Security Survivor Benefits, and Private Life insurance. One thing to remember is that while you are on active duty, significant benefits exist for your family. A significant benefit is the VA's Dependency and Indemnity Compensation (DIC). In 2006, this benefit provides an annual tax-free income of over $12,000 for a surviving spouse. A 40-year-old spouse would need over $220,000 in death benefit proceeds invested at 5 percent to produce that same income for his/her lifetime and this would not include inflation protection. However, DIC offers cost-of-living protection; therefore, the actual amount needed would be much higher. Other active-duty benefits that will be lost upon transition include the Servicembmers Group Life Insurance (SGLI), the service death gratuity, one year of no-cost government housing or housing allowances, and three years of free medical benefits. Survivor Benefit Plan (SBP) benefits are also lost unless you elect to participate as a retiree. In terms of lump sum death benefit, you are walking away from $1.5 million of protection when you retire. Replacement of these benefits may be important to your family.
The Survivor Benefit Plan (SBP) is the principle Veteran's Benefit available to your family. SBP can be a solid foundation for your survivors. Navy Mutual believes that for most retirees, SBP is a good value in family protection, especially in light of the most recent Legislation which eliminated any reduction in benefits when your spouse reaches age 62. If you have not made your SBP decision, you should visit our website www.navymutual.org and use our "24/7 Survivor Benefit Analysis Program" called Baseline. It will provide excellent data that will help you with this important decision. If you have any questions after running a Baseline, just contact us. We have excellent counselors who can answer all your SBP questions and assist you with the SBP Election section of DD Form 2656 (series). Our Straight Facts About SBP Handout is available on the website and can provide you additional information. If you have already made your SBP decision, this will provide important input for life insurance planning. If you have elected SBP, your Retiree Account Statement from DFAS will provide you with cost and benefit data.
Social Security will provide a substantial survivor benefit for your spouse immediately upon your death if dependent children under age 18, living at home and again as early as age 60. Your annual personal Social Security Statement provides you with current estimates of the survivor benefits that your Social Security taxes earned for your family. These estimates also need to be a factor in your life insurance planning. Additionally, ensure your family understands that there may be special Military Service Credits available when they apply for any Social Security Survivor benefits, and that they will need a copy of your DD214 when they apply.
Personal Life Insurance this is an important part of your Survivor Plan. Remember that 120 days after you retire, your SGLI will terminate for you, your spouse, and your children. You have the option of converting over to VGLI during that 120-day window with no proof of insurability or physical required. However, for the healthy retiree, VGLI is a very expensive option. Shop around. Use Navy Mutual as a benchmark. Our level term insurance costs several thousands of dollars less than VGLI . If you begin a second career, your new employer will most likely provide you with an Employer Group Life Insurance Plan. The coverage is often a multiple of your salary, commonly twice your annual salary. However, this is only a group plan and will normally terminate when you leave their employ. Some plans may have an option to be converted to individual insurance typically at a higher premium. Note that many retirees do not stay with that first employer after retiring. Many retirees change employers several times. Group plans can vary and some may have underwriting requirements.Most retirees will find that they still require private, individual life insurance. Many experts recommend a mix of both permanent (whole life) and term coverage. A life insurance tutorial is available on the Association's website to help you understand the differences between and the advantages of both. Additionally, our Counselors are ready to discuss your options with you. Also available on our website is a Life Insurance Needs Analysis Calculator to help you determine your needs. As you transition, there are often changes in your life that can increase your need for additional coverage. A new home; increased income and attendant increase in lifestyle; and approaching college costs can all increase your family protection needs. Additionally, do not neglect the need for spouse coverage. During that same 120-day window following retirement, you have the option to convert your spouse's SGLI coverage over to whole life. This should be seriously considered if your spouse has health issues such that render him/her medically insurable or unable to find coverage at reasonable rates due to these health issues. Call the Office of SGLI (800-419-1473) to find out more about this option.
Life Insurance Planning is not easy. Most people spend more time researching and buying a new car than they spend putting a good plan in place for the financial security of their survivors. Below are some common life insurance mistakes to look out for. Call one of our Counselors or another life insurance professional to learn more about avoiding these mistakes.
- Naming your estate as beneficiary
- Failing to name contingent beneficiaries and failing to keep beneficiaries up to date
- Failing to review you coverage periodically to ensure that it adequately addresses the changes in your life.
- Failing to buy the right type of life insurance (Term and Permanent insurance both have a place in your plan).
- Not having enough insurance (Use Navy Mutual's Needs-Based Calculator).
- Making policies payable outright t minor children/grandchildren.
- Forgetting the termination date of your Term plan.
- Buying insurance as a commodity. Seek the help of a knowledgeable life insurance professional. Our Counselors can help you determine what is best for your family.
Property and Casualty Coverage. This is the one area of insurance planning that you may have best under control. However, if you move to a new state to begin your retirement, you will need to re-evaluate your Homeowner and Automobile policies. Some retirees also look at insuring their household goods in order to have adequate protection as they are trucked off to the new homestead. Look to companies that serve service members and veterans as their primary mission, such as USAA and Armed Forces Insurance (AFI).
Disability Insurance. This is one area that most active duty service members don't think about since they enjoy significant benefits when they become disabled in the line of duty. However, as a civilian, you should pay particular attention to this insurance. If you are starting a second career, most employers will provide you with both a short-term and long-term disability policy on a group basis. You need to review these plans carefully to ensure the protection is adequate. Don't forget, your excellent military pension continues for life even if you become disabled. This is a significant benefit that you have over your civilian counterparts. You should also evaluate your occupation and your avocation to see what affects they may have on this decision. Is your occupation one such that there is an increased probability of disability? Is your occupation one in which a disability would end your employment? For example, a surgeon who suffers a disabling injury to his/her hands or an airline pilot whose vision becomes impaired? Purchasing an individual disability policy may be a consideration.
For more on Navy Mutual Life Insurance, Visit Navy Mutual at http://www.navymutual.org.
Click here to read Part II.