Survivor Benefit Plan-What Does it Mean to Me?

Survivor Benefit PlanThe Survivor Benefit Plan (SBP) is a fundamental part of post-military retirement planning, and there is a lot of information out there to educate people about it.  Unfortunately, since it’s a congressionally-mandated program, this information isn’t readily available in a way that’s easy to understand.  Also, during Transition Assistance Program (TAP) class, there isn’t a whole lot of time spent on helping people understand SBP.   DFAS administers SBP program for DoD, but each service is tasked to inform and educate their eligible servicemembers.  As a result, it can be confusing to figure out where to go for guidance.

This post serves to give a basic primer on what SBP is.  Instead of trying to hash out all of the ins and outs of the SBP in an article, I’ve compiled the information from the DFAS website into a single document.  This file is my attempt to consolidate all of the information from DFAS’ website into a single document that is easier to navigate.

Unfortunately, I can’t figure out how to hang a document on this blog, so until I do, if you’d like a copy, please email me at forrest@westchasefinancialplanning.com.  I promise, this is not any sort of email sign up list–send me a quick note, and I’ll send you one back with a copy of the file.  If that’s all you want, you don’t need to say anything–I won’t email you again unless you ask me a question.  I don’t currently send email updates to anyone, but if there are enough people who ask me questions, I’ll probably start some sort of weekly distro–if you’re interested in me keeping your email address for that purpose, let me know.  I promise, I won’t sell any information for marketing purposes.

If you want to circumvent this, all of the information in the document is available on DFAS’ website, http://www.dfas.mil/retiredmilitary/provide/sbp.html.

What is the Survivor Benefit Plan?

When a military retiree passes away, their pension automatically stops.  Without a plan to replace this lost income, the family’s quality of life could definitely be at risk.  In 1972, Congress established the  Survivor Benefit Plan (SBP) and its reserve counterpart under Title 10, specifically to help military retirees and their families protect themselves from the risk of financial loss.

SBP and its reserve component counterpart, RC-SBP, are annuity plans designed to replace a military pension once a military retiree passes.  Under SBP, you pay a certain percentage of your retired pay (currently capped at 6.5%) in exchange for the right for your dependents to receive 55 percent of your retirement pay.  For example, if you have $1,000 per month in retired pay, you’d pay $65 per month for SBP.   When you die, your spouse would receive $550 per month.  After 360 months and you reach the age of 70, you are considered ‘paid up’ and there is no additional cost to you.

Here are four reasons you should strongly consider SBP:

  • You can budget for it.  It’s not great when you find out how much of your retirement pay gets pulled into taxes, TRICARE, SBP, etc.  Budget for it, make your other income sources work, and move on.  In today’s day & age, most people are retiring with enough time to make a full second career and not miss too many meals because they’re paying into SBP.
  • You can plan for it.  If you die, you know what your spouse is entitled to.  Knowing this helps you plan your other income requirements accordingly.
  • You don’t know everything else that’s available.   If you’re under 50, odds are that the retirement landscape will be vastly different than the one that exists today.
  • If you’re a male (in 2013, approximately 85% of the active duty workforce was male), odds are your spouse will outlive you.  With everyone living much longer today, odds are that your surviving spouse will get much more benefit out of SBP than you pay into it while you’re alive.

Additionally, there is also a lot of service-specific information you should know regarding education & enrollment.  To start, below are the links to the DOD and service-specific instructions, which should provide you information to answer your particular questions.

If you can’t figure it out on your own, contact DFAS or your parent service’s SBP program office.  If you’ve tried that and can’t get the answer you’re looking for, contact a fee-only financial planner in your area who works with transitioning military personnel.

As always, you can learn more about me at Westchase Financial Planning’s website. If you have any questions, comments, or concerns feel free to contact me via email.  If there is something you’d like me to write more about, please feel free to let me know.  Until next time, take charge of your life!

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About Forrest Baumhover

I'm a career naval officer, and a fee-only financial planner. Half-way through my career, I discovered that I had a passion for financial planning, and have pursued this as my second career. My specialty is working with military professionals who are looking to separate or retire from the service, and who feel they need some professional guidance to make sure they're on track.
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