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SBP - For military retirees who will receive a military pension.

The decision to elect or not elect SBP after you retire won’t matter to you.  It will, however, matter to your spouse and children after you’re gone.

When I left the service, I couldn’t seem to find a good way to calculate what the return on investment would be to elect SBP or what the risk would be if my spouse and I decided to not elect SBP. 

First, know how to calculate your monthly SBP contribution and the annuity your family would receive after you depart the pattern.

There are a few things to keep in mind…

1. Most senior enlisted and senior officers die within 5-10 years of retirement. This is not a fact.  It’s a probability that’s due to multiple factors.  If you don’t want this outcome, focus on your health (physical and behavioral health).  But your death will come eventually.  Seriously consider if SBP could allow your family time to get back on their feet after you’re gone.
2. At the 36 month point you (and your spouse) can elect to depart the SBP program.  You cannot opt-out of SBP without written approval from your spouse.  If you’ve done the calculations and you’re leaning toward not electing SBP when you leave the service, you may want to reconsider.  It is not uncommon to wait 3 years to see how your mental and physical health holds up after you retire and at that point SBP will allow you and your spouse to elect to no longer participate in the program.
3. Surviving spouses maintain their eligibility for SBP until death, as long as they do not remarry before the age of 55.  If the annuitant remarries before age 55, annuity payments will stop.

Because of these three points, you and your family should follow the calculations below to consider what your Return On Investment (ROI) is when you elect SBP verses not electing SBP when you retire.

How to calculate monthly SBP annuity payment:

Example 1: If your gross pay based on years of service is $2,800; your total taxable income will be roughly $2,800 x (.935) = $2,618.  That means your monthly SBP cost (non-taxable income deducted) is $182 per month.  Then, if you were to unfortunately pass away, your spouse would receive a monthly payment of $1,540 [or (.55) x $2800].

Example 2: If your gross pay based on years of service is $3,700; your total taxable income will be roughly $3,700 x (.935) = $3,459.50.  That means your monthly SBP cost (non-taxable income deducted) is $240.50 per month.  Then, if you were to unfortunately pass away, your spouse would receive a monthly payment of $2,035 [or (.55) x $3,700].

 

As part of the larger discussion, consider the following questions...

1) What do you want the investment to pay for and for how long?  If your children are older and your spouse can go back to work, the calculation is significantly different than if you children are younger or your spouse's health precludes him/her from gainful employment to cover living expenses. 

2) Do you want your spouse to receive a lump-sum payment or a monthly payment upon your death?  SBP pays your spouse monthly versus life insurance (whole/term) that usually pays your spouse in one lump-sum.  Now that you have the above two examples, you can compare and contrast montly SBP costs and life insurance cost quotes and the amount each option would provide to your family when you die.

Use the hyperlink below to help answer any additional questions surrounding SBP for your dependents.

https://www.dfas.mil/raquicktools

My hope is that you and your dependents will now have the tools to make basic calculations and answer basic questions related to SBP. 

Sincerely,

Newman 

( Survivor Benefit Plan Reference -- M21-1MR, Part IV, Subpart iii, Chapter 3, Section I )

*Disclaimer.  For entertainment purposes only.  I am not a financial professional.  Modify your decision making as necessary.