Survivor Benefit Plan (SBP) Decision: $1,000/Month for Spouse vs Declining
BLUF: Complete guide to SBP decision-making for military retirees
Target Audience: Retirees or near-retirement
Time Investment: 3-4 hours research and planning
Financial Impact: $1,000+/month for spouse vs $0
The Mission: Make Informed SBP Decision
The Survivor Benefit Plan (SBP) is a critical decision for military retirees that affects your spouse's financial security after your death. This guide helps you make an informed SBP decision.
Understanding SBP Basics
What is SBP?
SBP Definition
- Purpose: Provides monthly income to spouse after retiree's death
- Coverage: Covers spouse and dependent children
- Cost: 6.5% of retirement pay
- Benefit: 55% of retirement pay to survivor
SBP Coverage
- Spouse Coverage: Covers spouse for life
- Child Coverage: Covers dependent children until age 18 (or 22 if in school)
- Insurable Interest: Covers other insurable interests
- Coverage Amount: 55% of retirement pay
SBP Costs and Benefits
SBP Costs
- Premium: 6.5% of retirement pay
- Example: $3,000/month retirement pay = $195/month premium
- Annual Cost: $2,340/year
- Lifetime Cost: $46,800 over 20 years
SBP Benefits
- Monthly Benefit: 55% of retirement pay
- Example: $3,000/month retirement pay = $1,650/month benefit
- Annual Benefit: $19,800/year
- Lifetime Benefit: $396,000 over 20 years
SBP Math
- Cost: $46,800 over 20 years
- Benefit: $396,000 over 20 years
- Net Benefit: $349,200 over 20 years
- Return on Investment: 746% over 20 years
SBP Decision Framework
SBP vs Life Insurance
SBP Advantages
- Guaranteed Coverage: Guaranteed coverage regardless of health
- No Medical Exam: No medical exam required
- No Age Limits: No age limits for coverage
- Government Backing: Government backing
SBP Disadvantages
- High Cost: 6.5% of retirement pay
- No Cash Value: No cash value or surrender value
- Limited Flexibility: Limited flexibility in coverage
- No Investment Growth: No investment growth
Life Insurance Advantages
- Lower Cost: Often lower cost than SBP
- Cash Value: Cash value and surrender value
- Flexibility: More flexibility in coverage
- Investment Growth: Potential investment growth
Life Insurance Disadvantages
- Medical Exam: Medical exam required
- Age Limits: Age limits for coverage
- Health Dependent: Coverage dependent on health
- No Guarantee: No guarantee of coverage
SBP Decision Factors
Financial Factors
- Retirement Pay: Amount of retirement pay
- Spouse Income: Spouse's income and earning potential
- Other Assets: Other assets and investments
- Debt Level: Current debt level
Health Factors
- Retiree Health: Retiree's health and life expectancy
- Spouse Health: Spouse's health and life expectancy
- Family History: Family health history
- Lifestyle Factors: Lifestyle and risk factors
Family Factors
- Spouse Age: Spouse's age and life expectancy
- Children: Dependent children and their needs
- Family Planning: Future family planning
- Estate Planning: Estate planning considerations
Real Example: E-8 Master Sergeant's SBP Decision
Master Sergeant Johnson, E-8, 20 years TIS, Retiring at 40
Financial Situation:
- Retirement Pay: $3,000/month
- Spouse: 35 years old, $2,000/month income
- Children: 2 children, ages 10 and 12
- Assets: $200,000 in TSP, $50,000 in savings
SBP Analysis:
SBP Costs:
- Monthly Premium: $195 (6.5% of $3,000)
- Annual Cost: $2,340
- 20-Year Cost: $46,800
SBP Benefits:
- Monthly Benefit: $1,650 (55% of $3,000)
- Annual Benefit: $19,800
- 20-Year Benefit: $396,000
Alternative: Life Insurance
- Term Life Insurance: $500,000 policy for $50/month
- 20-Year Cost: $12,000
- 20-Year Benefit: $500,000
Decision Analysis:
- SBP Cost: $46,800 over 20 years
- Life Insurance Cost: $12,000 over 20 years
- SBP Benefit: $1,650/month for life
- Life Insurance Benefit: $500,000 lump sum
Final Decision:
- Chosen Option: SBP
- Reasoning: Guaranteed monthly income for spouse
- Risk Management: Diversified with both SBP and life insurance
- Family Security: Maximum family security
SBP Alternatives
Life Insurance Strategy
Term Life Insurance
- Coverage: $500,000+ coverage
- Cost: $50-100/month
- Duration: 20-30 years
- Benefit: Lump sum payment
Whole Life Insurance
- Coverage: Permanent coverage
- Cost: $100-200/month
- Cash Value: Builds cash value
- Benefit: Death benefit + cash value
Universal Life Insurance
- Coverage: Flexible coverage
- Cost: Variable cost
- Cash Value: Builds cash value
- Benefit: Death benefit + cash value
Investment Strategy
Investment Portfolio
- Stocks: Stock investments for growth
- Bonds: Bond investments for stability
- Real Estate: Real estate investments
- Alternative Investments: Alternative investments
Annuity Strategy
- Immediate Annuity: Immediate annuity for income
- Deferred Annuity: Deferred annuity for growth
- Variable Annuity: Variable annuity for growth
- Fixed Annuity: Fixed annuity for stability
Common SBP Mistakes
Mistake 1: Not Understanding SBP
Problem: Not understanding SBP costs and benefits
Solution: Research and understand SBP thoroughly
Impact: Poor decision, financial stress
Mistake 2: Not Comparing Alternatives
Problem: Not comparing SBP to alternatives
Solution: Compare SBP to life insurance and investments
Impact: Miss opportunities for better coverage
Mistake 3: Not Planning for Taxes
Problem: Not planning for tax implications
Solution: Plan for tax implications of SBP
Impact: Higher taxes, missed opportunities
Mistake 4: Not Considering Spouse's Needs
Problem: Not considering spouse's financial needs
Solution: Consider spouse's financial needs
Impact: Inadequate coverage, financial stress
Mistake 5: Not Reviewing Decision
Problem: Not reviewing SBP decision regularly
Solution: Review SBP decision regularly
Impact: Outdated coverage, missed opportunities
SBP Resources
Military Resources
- SBP Information: Official SBP information
- SBP Calculator: SBP cost and benefit calculator
- SBP Comparison: SBP vs alternatives comparison
- SBP Counseling: SBP counseling services
Financial Resources
- Life Insurance: Life insurance information
- Investment Options: Investment options and strategies
- Tax Information: Tax information and resources
- Financial Advisors: Financial advisors and planners
Professional Help
- Financial Advisor: Financial advisor for SBP planning
- Insurance Agent: Insurance agent for life insurance
- Tax Professional: Tax professional for tax planning
- Estate Planner: Estate planner for estate planning
SBP Planning Timeline
5 Years Before Retirement
Year 5: SBP Research
- SBP Education: Learn about SBP
- Alternative Research: Research alternatives
- Cost Analysis: Analyze costs and benefits
- Decision Framework: Develop decision framework
Year 4: Financial Planning
- Financial Assessment: Assess financial situation
- Spouse Planning: Plan for spouse's needs
- Alternative Planning: Plan for alternatives
- Decision Planning: Plan for SBP decision
Year 3: Implementation Planning
- SBP Planning: Plan for SBP implementation
- Alternative Planning: Plan for alternatives
- Timeline Planning: Plan implementation timeline
- Decision Planning: Plan for final decision
2 Years Before Retirement
Year 2: Final Planning
- SBP Final Planning: Finalize SBP planning
- Alternative Final Planning: Finalize alternative planning
- Decision Finalization: Finalize SBP decision
- Implementation Planning: Plan for implementation
Year 1: Implementation
- SBP Implementation: Implement SBP decision
- Alternative Implementation: Implement alternatives
- Monitoring: Monitor implementation
- Adjustments: Make necessary adjustments
Key Takeaways
- Understand SBP: Research and understand SBP thoroughly
- Compare Alternatives: Compare SBP to alternatives
- Plan for Taxes: Plan for tax implications
- Consider Spouse: Consider spouse's financial needs
- Review Regularly: Review SBP decision regularly
- Seek Help: Use professional help for complex decisions
- Plan Early: Start planning 5 years before retirement
Remember: SBP is a critical decision that affects your spouse's financial security. Proper planning and analysis can help you make the right decision for your family.
This guide is part of Garrison Ledger's comprehensive military financial intelligence platform. For personalized advice based on your specific situation, use our Ask Our Military Expert feature.