By Amanda Huffman
Military Spouse & Veteran

For military families, there are various rules of thought about whether you should or should not participate in the Survivor Benefit Plan (SBP). The truth is, the decision to opt in or not depends on each family’s unique financial needs. To make the most informed decision possible, start by taking some time to understand SBP, including its benefits and related financial considerations. 

Servicemembers must make their SBP election before they retire from the military. If at retirement you are not married and do not have children, you can delay participation. If you get married or have a child after you retire, you must notify DFAS within one calendar year of the life event and provide a copy of the marriage or birth certificate to opt in.

Read also: What Is the Survivor Benefit Plan?

Understanding the SBP

The Survivor Benefit Plan allows spouses of military retirees to collect up to 55% of the retiree’s military pension if the retiree dies first. 

Once you decide to opt into SBP you cannot opt out of the SBP payments. SBP payments have no cash value or residual estate. Also, if the surviving spouse dies first, there are no benefits provided through SBP.  

The SBP premium is determined by the base amount selected by the retiree and the type of beneficiary coverage elected. The monthly premium is typically 6.5% of the chosen base amount. For example, if your base amount is $2,000, your monthly premium would be $130 (6.5% of $2,000). There is no consideration for age or medical test required. It is paid with pre-tax dollars and is paid up after 30 years of payments. 

Coverage costs also vary based on the amount of pay selected. You can select full coverage of your full gross retired pay or reduced coverage. However, reduced coverage means your beneficiary will receive payments based on a smaller percentage of your gross pay. 

Because servicemembers’ pay is adjusted each year to include Cost-of-Living Adjustments (COLA), both the amount servicemembers receive and pay for SBP will increase at the same COLA rate. 

Lastly, there are a few other things you need to know about SBP. There is no evidence of insurability. Meaning the government could decide not to pay SBP and you would have no recourse. Secondly, if the surviving spouse remarries before the age of 55, benefits from SBP stop. 

 

 

SBP Math 

Example 1: If you want to opt into the plan at the lowest level so the surviving spouse receives $300 upon the servicemember’s death, the amount deducted from the retirement pension would be $19.50.

$300 x 0.065 = $19.50

 

Example 2: If the retirement pension is $2,500, a surviving spouse could receive a maximum payout of  $1,375. The monthly coverage would cost $89.83, so instead of receiving $2,500, the retiree would receive a pension of  $2,410.07 each month.

$2,500 x 0.55 = $1,375 

$1,375 x 0.065 = $89.38  

$2,500 - $89.38 = $2,410.62

Here is a chart showing rates for different gross retired pay:

Gross Retired Pay	SBP Amount	SBP Premium	Retired Pay with SBP Premium Deducted
N/A	$300.00	$19.50	N/A
$1,500.00	$825.00	$53.63	$1,446.38
$2,500.00	$1,375.00	$89.38	$2,410.63
$3,500.00	$1,925.00	$125.13	$3,374.88
$4,500.00	$2,475.00	$160.88	$4,339.13
$5,500.00	$3,025.00	$196.63	$5,303.38
$6,500.00	$3,575.00	$232.38	$6,267.63

 

Things to Consider When Deciding on Survivor Coverage

SBP is a way for those retiring from the military to provide protection for their loved ones. Like many insurance plans, the SBP can either be financially beneficial or never used at all, depending on the lifespan of both the retiree and their spouse.

Some people pay into the SBP and never use it. Others may opt in and pay for a short period of time and receive benefits long after their retired servicemember is gone. And still others find themselves in the middle of the road, paying into SBP and getting a benefit for a short period of time, then breaking even. 

You should also consider the opposite option, where your family may decide not to pay into SBP at all. If your retired servicemember dies early, the benefits you were anticipating receiving for years can quickly come to an end. 

Read also: Understanding the Survivor Benefit Plan and Remarriage

There is no right or wrong choice in deciding which is the best option for your family. But it’s important to look at all aspects of the value versus risk to help make the right decision for you.

Questions to ask yourself when choosing SBP for your family:

1. Do you have life insurance?

There are many components that make up a military family’s financial strategy. You may already have life insurance that could support your family members. You may choose a life insurance policy that acts as a supplement to the SBP, since the SBP annuity may not be enough to sustain your family. 

If you do already have life insurance, consider if the death benefit is enough to financially sustain your family. To ensure you are adequately prepared for whatever the future may hold, speak with an Armed Forces Mutual Membership Coordinator at 877-398-2263 to discuss your options. 

2. Does your family have additional retirement funds?

Many military families invest in retirement accounts, rather than relying on a military pension alone. Other military families that include two servicemembers understand that they may receive a pension for each one. 

Are you contributing to the federal government’s Thrift Savings Plan (TSP) or do you have other financial investments to save for the future? After 2018, the government began matching the retirement contributions servicemembers make to their TSP, which has encouraged more servicemembers to start investing earlier in their career. 

When you’re deciding on whether or not to opt into the SBP, look at where your own finances are and where they will need to be to protect your family in case of a loss, especially if those funds must replace the income of the main financial provider. 

3. Do you have a plan on how to use the money for SBP?

An alternative strategy to SBP is investing the premiums paid on your own or with the support of a financial professional. Consider how much money you would put into SBP over a 15-year period and you will have a better idea of the potential costs and help you decide what the best investment strategy is. 

If you invested SBP premiums into a retirement account instead, you will need to invest into a retirement account that will grow over time. Additionally, if you can increase your contributions at roughly the same rate of regular COLA adjustments, your investments could grow more quickly. 

4. Are You willing to take a risk?

It’s essential to consider that investments carry inherent risk: any money you invest could grow significantly, mildly, or not at all. There is even the risk of a loss. In addition, you must consider the best strategy based on whether the retired servicemember survives those 15 years after service. Fully understanding the potential outcomes of either investment strategy will help you determine your path forward. 

Why Taking SBP Might Be the Best Option

When you look at your finances now and in the future, your family might decide that having a survivor annuity continue following a retiree’s death is a good plan. The amount of money that is required to have this guarantee even at the full rate is relatively minimal when compared to options that you would need to fund yourself.  

Other factors to consider are your family members’ current health and expected health challenges. For example, you might need funds to remain available to pay for long-term care. Or, there may be a reason that a spouse would expect themselves likely to outlive the retiree and having this benefit along with the peace of mind can really help in future planning. 

Another thing to consider is how your family would use the money that would go into SBP. Maybe it is income you need right now to cover expenses, or you have a plan to invest the income. Knowing your financial needs can help you make the best choice for your family. 

So, will you participate in the SBP or not? It’s a decision your family must be prepared to make when your servicemember retires from the military. Either way, a life insurance plan that can see you through every stage of military life can be a safety net you can leave in place for whatever comes next. Some options allow you to grow cash value or take advantage of a Long-Term Care Settlement Option — and all Armed Forces Mutual life insurance policies come with our hallmark Survivor Assistance Services to give your family the personal guidance they need when they need it most.

Get a quote online or speak with a Membership Coordinator today at 877-398-2263.