DLax85

SBP changed significantly in the past 5 years (...not sure of exact date).

There is no longer a Social Security offset, where your surviving spouses SBP payments were reduced by their SS benefits, when those kicked in

Also, once you pay in for 30 years your done! Meaning if you retire at 42 and make it to 72 there are no more payments.

This is just the time the private life insurance gets prohibitively ex$pensive.

The reason this is very important is that years ago --- the 80s and 90s ----- private insurance was probably a better deal, and that's what most old heads who did their homework advised.

Since these changes were made SBP is much more competitive and in fact a much better deal under certain assumptions.

You've got to do the math on an "after taxes" basis, which was pointed out earlier, AND most importantly if you are going to decline it ---- don't do it until your private insurance is bought and in place.

I think we've all heard the horror stories of the guys who were going to buy private insurance, but put it on their "things to do after retirement" and then died within a few weeks of retirement.

Their spouses and dependents were left with nothing.

Nigel Tufnel

I think that it IS a simple math problem. 55% of $3200 (retired O-5 pay) is $1760. I don't think that a little less than $1800 a month for my family is enough to let me sleep at night. A 30 yr term policy with a $1 million benefit costs me $107 a month, far less than the SBP. A million bucks well managed pays off the mortgage, gets kids through braces, hockey, and school, and probably buys a few cars for cash. That covers my wife until I'm 72. After that, I hope to be self-insured. That is why I sleep well at night.

Disco Dawg

I agree with gabby Nigel Tufnel. Look at AAFMAA for some really decent 20 year Level 2 term rates and buy it while you're young. I did not do the SBP and have plenty of insurance that will cover my family over the next 20 years at a fraction of the SBP costs and the cash will be available to them immediately. Just a thought.

DD

Marvin

Everyone's financial situation is different, so each retiree must come to his/her own decision regarding how much income their spouses need and how much risk they are willing to accept.

I retired fairly recently from the USAF (O-5, 20+ years), and I elected to take the full SBP amount. When you do the calculations, there are an incredible number of variables so you must make assumptions in order to come up with valid comparisons ... and the validity only remains if the assumptions turn out to be correct. So ... guess well.

When you calculate how much life insurance you need, an effective way to do it is to figure out how much your spouse would need to invest in an inflation-protected annuity in order to at least equal the amount he/she would receive from SBP. In my calculations, with fairly conservative assumptions, I would need about $1,000,000 in life insurance to cover it. And, if I were to take the life insurance route, I would have to hire a hit man on retainer to make sure I get whacked prior to the term of the life insurance expiring.

For my family, SBP made sense.

Here is what USAA says about SBP: https://www.usaa.com/inet/ent_utils/...ry_retired_pay

My point is, I would recommend against dismissing SBP out of hand.

b2pilot186

I still think a balance of all these things is the way to go. SBP, term insurance, whole life insurance, and long-term care insurance. I have them all in varying amounts and I sleep like a rock at night. Put your eggs all in one basket and you're likely to wake up one day from your sound sleep with an unhappy surprise.

B2P

dragon

Am currently looking at the options myself. Retiring with 20+ in the USN and when I attended TAP was told in my case the kid only SBP was the best way to go. They're school age and since my wife works (with a retirement plan in place) and is older than me, the regular SBP was not a smart option. YMMV

Frankly, I don't like the part where I have to get her to sign up and now get it notarized but will play their game.

Sputnik

I love AAFMAA and have max coverage. My only problem with that is that it expires. I bought it long enought ago that I've forgotten the particulars but I thought it started winding down in my 50's, going to 0 in about 10 years. What I like about SBP is that it doesn't expire, no matter how old either one of us is.

Anyone know anything about AAFMAA by the way? I kind of feel like it's a little too good to be true and really do wonder if they'll actually pay out. My rigorous pre-investment analysis consisted of noticing their ad in AF Times, and their cheap rates.

Sputnik

Thread revival. My father in law is a financial planner, so I figured I'd just ask him for his thoughts.


Numbers I gave him were:
$3,600/month pre-tax
SBP payment of $234/mo
Death Benefit $1980/mo

His response

"SBP is an insurance policy that provides the monthly payments to [wife]. Very common. You could do the same thing by buying your own policy, however, like you said, it might cost more because of your flying. You wouldn't have to buy the policy until just before you retire. Would certainly have to have in place before you made your retirement decision.

Assuming a 25% combined tax bracket (this is determined by adding your federal and state tax together and dividing it by your taxable income. It tells you what percentage of your income goes to tax.) then the true cost of the premium is $175.50 per month or $2,106 per year.

When you retire, [wife] will be 41 with a life expectancy of about 40 more years. Assuming a 5% return on an insurance policy, you would need about $425,000 to pay the same annuity amount as SBP. However, this doesn't include the 2.5% COLA that SBP would provide. With the COLA, my guess is that you would have to double the insurance.

Actually, SBP looks pretty good. The COLA is a big deal. Also, it's insurance that can be stopped if she dies first, and started if you remarry. I suspect that in the event of a divorce, the court would require you to keep paying on her behalf.

If you die after retirement, Jen's income is cut almost in half. Perhaps even more insurance should be considered."

Starlifter

Sputnik,

Did you ever get any further guidance on this? My pre-tax income is a little higher 4800 but I'm also a little older 49. We have one year to sign up for the SBP before we lose the benefit.
My understanding is that the SBP payments stop at 70?
I'm deployed right now but will get further advice upon my return.

Lifter

Jetjok

CJ,

I agree with you in that this is more a peace-of-mind decision than a monetary one, however, almost everything you mentioned below that comment is incorrect. There is virtually NO reason that a life insurance company can cancel you, with the one exception of your not paying their premiums. Of course they can cancel you if they find out that you lied on the initial application (like saying you've never had a heart condition, and then they find out that you had open heart surgery, etc).

As well, most term insurance policies are just that, a term policy for a given term, usually 10 years, with an automatic renewal clause. Of course, the cost of the insurance goes up after each term, logically because you're now 10 years older. As most know, term insurance, while the least expensive insurance you can buy, does not build any residual value. That means that every penny you pay in premium goes to the insurance company (with the selling agent getting a small portion), and you accrue no cash value, so that as you say, if you cancel, you get nothing back.

Whole life insurance, while significantly more expensive, does produce a cash value, however, the current thinking is to buy Term insurance, because it's cheaper in the long run, provides the same amount of death benefit, which is called the "face value" of the policy, and allows you to save (the difference between the cost of a Term policy and a Whole Life policy), in a vehicle of your choice.

JJ