We are three retirees. We are not independently wealthy or financial planners. But we do know about life and military retirement because we have been tere.
Last year we wrote about money after retirement – the Survivor Benefit Plan (SBP), 401K and Social Security. Today we’re writing specifically about SBP.
Our advice? Get familiar with the program as soon as you can. SBP is an annuity, a monthly payment for as long as your beneficiary, usually your spouse, lives.
You can also insure your children and others but in this short article we will assume you are choosing SBP for your spouse. When you pass away, your spouse can receive a max of 55 percent of your retirement pay or any smaller amount you both agree to.
Advantages are huge: no qualifying physical like the ones often required for life insurance, almost always an annual cost of living adjustment, and the premium is deducted before taxes. At one time, the amount your spouse received in SBP was reduced when they started receiving Social Security. That social security offset is long gone.
The cost is modest. The SBP coverage on $1000 of retired pay is 6.5 percent or $65.
The disadvantages are few: you must elect this coverage at the time you retire. You never see this money and you can’t borrow against it like you can with a whole life insurance policy. If your spouse beneficiary passes away first, your payments are not refunded to you. But your monthly contributions do stop when you turn 70 and have paid into the plan for 30 years.
If you should remarry, you have one year to start SBP deductions for your new spouse. If you divorce after retirement, the terms of your divorce will govern whether or not you continue to have SBP deducted for your former spouse.
No pressure here, but you must make a decision to opt out of the full 55 percent survivor benefit by your retirement date or else your Personnel Office will automatically enroll you. To choose less coverage or none, your spouse must agree by signed, notarized consent.
How does your service know you have a family? From the information in your Military Record along with the Record of Emergency Data. DEERS sees this too.
Suppose you opt out of SBP? Can you later opt in? Maybe. Congress declared the last general open season from 2005 to 2006 but anyone who chose then to opt in had to pay back premiums, back to the date when they were first eligible (their retirement date) and those could have been in the $1000’s. Congress calls the open seasons. For example, in 2015, retirees wishing to insure their same sex spouse who had not previously been eligible could do so.
So what can you do as a spouse to make sure you are covered if your service member dies after retirement? If your retiree asks you to agree to anything less than full SBP coverage, your response to him should be: Do you have a better plan?
Will your retiree follow through with a great whole life insurance policy that leaves you comfortable? Will he remember to make the payments? Might he cancel the policy if your marriage goes through a rough patch? Will you borrow against it to pay for a child’s wedding or education?
If you buy cheaper term life insurance, the cost can increase as you get older and the payment will soon eclipse the SBP deduction.
Most of us feel like we are shot out of a cannon into retirement with no time to think about our family’s future until the day after. So we urge you to learn about SBP now.
We understand that when you plan to retire, you count every dollar. But don’t discount SBP.
We are three military retirees who were enlisted our entire careers. We are now government contractors based in Northern Virginia.