Before you retire from the military, you have an important decision to make about participating in the military Survivor Benefit Plan (SBP), which allows retirees to ensure, after death, a continuous lifetime annuity for their eligible dependents. The annuity, based on a percentage of military retired pay, is paid to the beneficiary. The premium is 6.5% of your base retired pay to participate in SBP, which upon your death, will provide up to a maximum of 55% of your base retired pay to your surviving dependent.
There are some advantages and disadvantages in electing SBP at retirement you’ll want to consider before you make your determination to participate.
On the plus side, SBP is:
- COLA-adjusted
- Government-subsidized
- Paid with pre-tax dollars
- Does not require evidence of insurability
- Paid up after 30 years; and
- Spouse age and health is not a factor
On the downside, with SBP:
- There is no return if your spouse predeceases you
- There is no cash value
- The annuity payment is taxable
- There is no residual to your estate
- Spouse payment ends if they remarry before age 55
- Once elected or you denied this benefit, it is a permanent choice
So, what happens if you decide not to participate in the SBP? You can simply choose an alternate plan — and there are alternatives to SBP, including buying life insurance. For instance, AAFMAA (American Armed Forces Mutual Aid Association) offers several different life insurance options that offer benefits comparable to SBP.
How do you know whether to choose SBP or life insurance?
The answer to that question is different for everyone because several lifestyle factors need to be considered, including: your age and the age of your spouse, your current health and if you are insurable, if you have children and what ages they are, what your family assets are and if there are any future expenses (e.g., college), if your spouse currently works or would work if necessary, and other variables.
If you are trying to decide between SBP and life insurance, there are tools available, such as the Department of Defense Office of the Actuary Survivor Benefit Plans that can help you determine monthly premiums and whether SBP or life insurance is the right answer for you.
There are other topics to consider when you are preparing for your military retirement, so be sure to review them all:
If you have questions, please contact an AAFMAA Member Benefits Representative at 800-522-5221 select Option 2, then Option 2 again or [email protected].