Any thoughts on SBP?

[YeOldeProp]

Question for all you retired and looking-to-be-retired folks. What do you think about the Survivor Benefit Plan? It's mandatory to take (unless your wife declines it), costs 6.5% of your retirement pay (for full coverage) and only gives your wife 55% of your retirement pay should you go first (max coverage, and drops to around 35% at age 62 or so---when Social Security would kick in). And, nothing will go to your kids (after they reach 21, get out of school).

Have listened to the transistion assistance folks brief it, but then even they kind of shook their head during the break when asked about it. Just looking for thoughts...

 

[Orionpilot]

SBP

Yeoldeprop,
I just fiinished TAP class as well and am going to sign up for SBP based on several reasons:
1. Peace of mind for my spouse - you can't really put a price tag on that.
2. The amount of <a href="http://get-faster.com?go=life+insurance" onmouseover="window.status = 'goto: life insurance';return 1" onmouseout="window.status=''">life insurance</a> I would have to carry to equal SBP makes SBP the logical choice especially since the premiums, although low now, increase exponentially as your age increases (50s - 60s). Additionally, <a href="http://get-certified.net?go=life+insurance" onmouseover="window.status = 'goto: life insurance';return 1" onmouseout="window.status=''">life insurance</a> isn't indexed for inflation so the $250,000 policy you buy today won't be worth that in the future when your spouse will need it. (I still plan on carrying <a href="http://get-certified.net?go=life+insurance" onmouseover="window.status = 'goto: life insurance';return 1" onmouseout="window.status=''">life insurance</a> in addition to SBP).
3. The cost of SBP is deducted from your retired pay and not reported to the IRS as taxable income.
4. MOA is lobbying hard to change the 35% at age 62 and has already been successful at changing concurrent receipt.
5. SBP payments are indexed to inflation like your retired pay and unlike <a href="http://go-all.com?go=life+insurance" onmouseover="window.status = 'goto: life insurance';return 1" onmouseout="window.status=''">life insurance</a>.
6. See #1

In the end it is a personal decision and one that you need to research with your spouse.

Good luck,
Orionpilot

By the way, how is the job search going?

 

[Orionpilot]

Yeoldeprop,
Sorry about that last post, I don't know why all of those codes showed up.
I just fiinished TAP class as well and am going to sign up for SBP based on several reasons:
1. Peace of mind for my spouse - you can't really put a price tag on that.
2. The amount of life insurance I would have to carry to equal SBP makes SBP the logical choice especially since the premiums, although low now, increase exponentially as your age increases (50s - 60s). Additionally, life insurance isn't indexed for inflation so the $250,000 policy you buy today won't be worth that in the future when your spouse will need it. (I still plan on carrying life insurance</a> in addition to SBP).
3. The cost of SBP is deducted from your retired pay and not reported to the IRS as taxable income.
4. MOA is lobbying hard to change the 35% at age 62 and has already been successful at changing concurrent receipt.
5. SBP payments are indexed to inflation like your retired pay and unlike life insurance.
6. See #1

In the end it is a personal decision and one that you need to research with your spouse.

Good luck,
Orionpilot

By the way, how is the job search going?

 

[BrokenWing]

I retired in Jan '02 and elected not to take the SBP. I did, however, sign up for my son which covers him until he's 18 or 22 and an unmarried, full-time student. My personal opinion, SBP is not that good of a deal. At 44, I picked up a 750K term policy through Navy Mutual Aid for less than 45/month - I think my SBP would have been on the neighborhood of 180/month. Other things to consider: 1) Payment on a life insurance policy is tax free - SBP is taxable; 2) A lump sum payment of 750K invested conservatively would (probably) yield more than your SBP; 3) the SBP for you dependent children is a no brianer - mine cost about 14/month; 4) Although my term policy with NMA is for 10 years, by that time my kid will be out of the house, I hopefully will be in good financial shape, and I can always get other insurance to cover any potential shortfall. If you buy insurance for what it's intended to do, protect your income after your death, you will find that it's not too bad. Again, just my opinion.

 

[YeOldeProp]

Copy all from both sides of the situation. The gut feeling tells me to get a few strong Term policies. Setting up a $1M set of policies (through several good name companies) leaves the whole family a chunk of money that when invested at just 5% gives them 50K a year pre-tax vs a little less than 24K (for just the spouse). Add in a 25K a year deduction (if neded) from that lump sum and whatever Social Security gives and the Mrs should be comfortable. Absolute best line of the whole discussion so far is Orion Pilot's #1 reason---Peace of mind for my spouse. Been flipping sides on this decision for a few years now, still can't nail it down.

Thanks for the inputs...

And by the way Senor Orionpilot, the job search is slow...but it's an adventure. Hoping to get noticed by the Southwest gang. If not, I used to spin a pretty good pizza and tend a decent bar in my college days. If only I thought a 40+ guy could regain the same level of 'awe-inspiring" jobs as a college age bartender used to be back then. Ya'll take care and best of luck...

YeOldeProp

 

[CatfishVT9]

DON'T TAKE SBP!!!

I just retired at the end of December and looked hard at all options. SBP is easy and that is the only thing going for it. It only makes sense in one scenario, and that's for you to die (sorry) and your spouse lives a long life afterwards. The best way is to go with commercial insurance since it can be passed on to any family members.

SBP only pays the spouse. Here's some scenarios:

1. Spouse dies first- no $ for anyone.
2. You die first, spouse dies soon after- She gets paid until her death, then $$ stop (none for the kids).

I completely changed all my insurance 6 months prior to leaving and it costs me less than the Monumental and Liberty Mutual policies I had (set up by USPA or First Command). Mine is half term and half whole life. With $1 million in cash, it can easily be reinvested to far exceed any SBPbenefits.

Northwestern Mutual has a better overall package that reduces the cost of paying for that "aviation protection". The guy I used was a Navy Reserve Captain named Gray Morrison. Call him at (504)831-8146 or his email is [email protected]. There's a whole slew of senior Navy retirees in the Pensacola area that switched over to his company. If nothing else, ask him to send you an article he wrote that explains SBP a lot better than the TAP guys can.

Hope this helps and good luck!

Catfish

 

[Purple Haze]

Great post by Orionpilot. There is no best answer for everyone, but here's why I don't agree with Catfish:

Most financial planners I have met over the years say to plan on $40k a year per $1M invested. Reasons vary, but a couple are: inflation (your $ will buy less later than it will today), tax (cap. gains).

Whole life is the worst possible investment. Ask ANY financial planner who doesn't sell it. You will benefit more from nearly any other form of investment. As for the best type of death insurance (that's what it really is), term is very hard to beat.

Once receiving SBP payments after your heart quits, your spouse will get a small COLA raise most every year. Her SBP payments drop to 35% when social security kicks in, but her gross monthly income will not go down. If she lives to 102, they just keep on paying and giving COLA raises.

Other than whole life policies (see above why to avoid these), I don't know of an equivalent life insurance plan - (fixed-rate, lifetime monthly payment to beneficiary, annual increases).

SBP alone is a joke, unless you plan to live in a single-wide trailer (not a bad idea, it would sure simplify planning). For me, the best plan was to take SBP, and pick up a 10-year level term policy which I hope I am healthy enough and finanicially sound enough to renew 10 years from now. I also took the max insurance available thru my employer - best rates around.

What happens if you can't renew your level term policy in 10 or 20 years because you get sick? You could have a decreasing term policy which fizzles out when you are 70 years old, or you could have regular term, which costs more and more to maintain as you age, until you are priced out of it. Your spouses need for monthly income SHOULD decrease as she ages (kids out of the house, mortgage paid off, boat paid off, etc.).

I am not confident that if I die at 71 and my wife lives to 95, that any insurance I have now will still be in effect then. But SBP will. A Roth IRA and a 401k can do more than any of these others. That combined with long term care insurance when we get a bit older, should cover her and leave a nice inheritance for the kids.

SBP is a good pre-tax way to have some permanent peace of mind. If you die, it will come...........forever (until your spouse dies). It isn't the big "ka-ching!," but it keeps the lights and the heat turned on. She can get the big money from your other insurance and investments, then struggle with investing those properly, paying a broker or financial manager, paying a tax atty or accountant, and paying excessive taxes. Meanwhile, that little SBP check just keeps on coming - month after month.

After all that, if you can find another combination of insurance and investments that are as reliable for such a long time, and both you and your spouse are comfortable with all the possible payment scenarios, go with your plan - with or without SBP.

 

[spanky2]

Retired in 2000 (the first time)...SBP = piece of mind. I went minimal. It is easy but it ain't the best deal.