���� | March 2019 | Real Hero Report
Survivor Benefit Plans
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While on active duty, Survivor Benefit Plan (SBP) coverage is free–
the government bears the full cost. But leading up to retirement,
service members will have the option to continue full or partial
SBP coverage by paying a portion of the cost, or to terminate the protection
entirely. This is a joint decision; the spouse has to agree with any election that
terminates or reduces the level of protection. Keep this in mind as you read the
following scenario.
Years ago, John and his wife, Mary, were preparing for his retirement from
the military. In his early 40s and healthy, he didn’t give much thought to the
SBP. John liked the idea of receiving a larger retirement pension, so he elected
to take the minimum amount of coverage.
Fast forward a couple of decades: John and Mary were enjoying their
well-earned retirement with John’s $4,000 monthly military pension, $2,200
monthly Social Security benefit, and Mary’s $1,100 monthly spousal Social
Security benefit. Though John was the healthier of the two, he passed away
unexpectedly, leaving Mary with a drastically reduced monthly income. She
went from the $7,300 per month she shared with her husband to only $2,365
per month.
How did this happen? Their decision years earlier to elect the minimum base
amount of SBP coverage meant that upon John’s death, his $4,000 military
pension was reduced to just $165 per month for Mary. At this time, Mary
elected to continue John’s higher Social Security benefit of $2,200 rather than
keeping her own lower payment of $1,100.
Had John and Mary selected the full base amount of SBP, Mary’s annuity
would have been $2,200 monthly, and she would have received a total of
$4,400 monthly upon John’s death ($2,200 from SBP plus $2,200 from Social
Security). How can you avoid a similar situation?
At retirement, you’ll determine an SBP base amount, ranging from a
maximum of the full amount of your gross retired pay down to a minimum of
$300 (the amount chosen by John and Mary). A monthly figure equal to 6.5
percent of that base amount will be deducted from your retirement check in
order to pay for the SBP coverage. Upon your death, your surviving spouse will
receive 55 percent of the base amount you selected.
The decision about whether to take SBP, and how much, should not be made
lightly. There are a variety of factors to keep in mind that may help in your
decision-making process. For example:
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with pre-tax dollars. Lifestyle and medical factors are not barriers to enrollment.
The beneficiary cannot outlive the annuity.
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36th month after retirement, enrollment in the SBP is irrevocable. A retiree will
continue to pay the premium until age 70 or 360 payments, whichever is later.
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annual cost of living adjustments, and if the beneficiary predeceases the
retiree, the premiums are not refunded. There is no residual estate value for
heirs if both the retiree and survivor pass away prematurely.
Even with a full SBP election, the benefit replaces just 55 percent of the base
amount. For most people this still creates a shortfall. Don’t assume, in other
words, that even “full SBP” will meet all of your spouse’s needs.
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