SBP?
 

Can somebody who knows finance explain how this is a good deal? I went to all the briefings but the folks on base remind me of a SNL skit where all the people leave a Broadway show and in zombiesque fashion claim
"i t w a s b e t t e r t h a n c a t s" or Mr Mackee from South Park telling me "Drugs are baaaaaaaaad, don't do druuuuuuuuuugs".

"Why should I get SBP?"
"Because you should get SBP!"

I'm 43, she is 47, our kids are 12 and 13. My mother is 68 my dad is 72 but they both look incredible, live on their own, they both still work, they both go to the gym, and have the energy of people 10-15 years their junior. My grandmothers both died in their 80s, and grandfathers both died earlier due to diseases which I will never catch. Short of an accident I fully expect to live at least as long if not longer than my wife, and if I have an accident, isn't that what term life insurance is for?

Is there anybody here who is smart on the numbers who can easily explain to me why I should or should not get SBP? Thanks for your help.

Estimate how long you will live, and the amount of your monthly retirement pay.

You will probably come up with a value in the $3-4 million dollar range.

Call USAA and ask how much a life insurance policy for that amount would cost. They said they couldn't go that high, but (I think it was $750,000) was 4000 a month.

SBP was 300 a month, for spouse and child. My case is slightly different; I have a lifetime dependent child. Not sure if the regular type will time-out of SBP.

Seemed like an easy choice, not for the spouse, but for your kids and/or grandkids.

USAA is not a good company to do business with, you can get an $800k 20 year term for under $100/month. I'm also assuming your message was a typo, not even USAA would think to charge 4 grand a month for term life insurance.

Try Navy Mutual for term life. They don't have an aviation clause, meaning aircraft accidents are covered and they don't charge more.

As for SBP, the wife and I elected to do the child only option. I'm a 15 yr O-4 TERA retiree, so my payments are much lower and don't really provide a livable amount in case I die. The child only is like $10/month, so won't be breaking the bank. Financially, it does make sense in the short term because my wife would get many payments with little invested. We've committed to investing the same amount ($140/month) in a mutual fund. Since I don't expect to die before 70, this will give us (her) a better nest egg than the same payment for 30 years and only collecting later in life. This is on top of normal Roth IRAs and my term insurance, which is $80/month until age 67 for me. The term will provide way better than SBP could dream to cover in my case.

Of course, the math for each situation is different. In cases where members would have a difficult time finding affordable insurance due to health and/or family history, both SBP and VGLI start to look better. As a healthy 37 yo, it didn't seem so to me.

Few things to think about:

I bought a 30 year 800K for 130 a month last year that is good until I am 75 (took several weeks to send in physical forms, get blood work, etc to qualify for the best rate--and you may need to do it before you have to say "yes I am an airline pilot". I also have a USAA one for 20 year (250K) for 30 a month--I bought the USAA one because of the riders (you can increase it when you retire with guaranteed insurability--doesn't matter that I am an airline pilot). To keep these in force I will pay over 57k (set cost) over the next 30 years. But over that time period they will definitely lose more than half their value in buying power.

SBP is unique in that payouts increase based on cost of living each year. Today if I died it would pay 2500 per month or 30k a year and increase each year. In today's dollars I will pay over a 100k to have SBP coverage.

The hard part is figuring out when you are going to die and how inflation is going to increase your SBP costs or de-value your payout of any other life insurance product. The SBP payout will theoretically keep pace with inflation and could pay double (5000 per month) in 20 years at around 3% inflation.

I figured I would need at least 2 million of life insurance to match SBP's payout over the next 20 years. I priced out whole life and couldn't find anything reasonable compared to the term insurance numbers discussed above.

I couldn't find any inflation based insurance products (that were remotely understandable to the average human) on the market most likely because the risk to do so is very expensive and therefore not affordable.

If you're retiring, you may want to sign up for SBP (you can always cancel) and see if you can qualify for the best term rates before you cut ties with SBP. Then you can re-assess your health and insurance needs in 1-3 years and see what risks you are willing to take based on your net worth, health, and family situation. It's kind of like going to Vegas and making a bet--when you win you always wish you had bet more.

It's a gamble. SBP is a better deal if you die tomorrow. Term life is a better deal if you die in 20 years. I chose term life. I can get a $1M policy through Navy Mutual that is going to last me until I am 71 for around $100. I also have $650K through WN that is super cheap.
I am all about taking care of my family, but I personally plan on living until I am old, and the rates for SBP are redonkulous for my family to get paid 40 percent of my 50 percent. No thanks. Either way they are taken care of, this way I just don't pay through the nose to ensure that is the case.
Do a solid risk-benefit analysis. When did your parents die? What is your lifestyle like? If there is a good chance you are going to be toes up in 10 years, SBP may be right for you.

Mike,

FWIW, my father in law is a pretty successful financial manager, he laid out what it would cost for me to buy anything inflation adjusted that would provide the same payout. It was a lot more than SBP. And didn't take into account the pilot part of the puzzle. I told you I'm a pretty conservative guy financially, to me this was the conservative move. Doesn't mean it was smart, but it a piece of what lets me sleep at night.

For the guys with term, it's been a while since I've looked so I appreciate the tips. I need to set more up, currently all I have is through AAMAA. When I looked in the past, everything had declining payouts based on age. I.e. they might cover me till 70 at a constant monthly rate, but the payout wasn't very much. I think they starting dropping when I hit my 50s.

Gr8vu, are you saying if you kick at 75 it'll pay out full $800k?

E6--for the record, it's 55% of your 50, but I take your point.

Doh! Thanks. Math was never my strong suit.

I have had a financially savvy friend tell me the same thing and advised buying it...it is inflation protected after all. I just can't part with that much money this early in my life for something that is barely going to cover a house payment. I would rather my wife bury me, pay off all debt, and get herself financially ready to take over as the provider for the rest of her life by getting whatever training and education she needs to reenter the job force.

We will see. I may be wrong about this whole thing and could die in a car crash in 6 months. You never know. The important thing to take away from this is to take care of your family and have your sigot on the same page as you.

I'd make a small but significant correction....SBP is better if you die tomorrow. Term is better if you die in 20 years. SBP is better if you die in 20 years and 1 day. The biggest factor with term that lasts til your 71 is that if you die at 72 your wife gets nothing. With SBP if she outlives you by 3ish years your wife is getting back more than you ever put in. If she outlives you by 20 years like my grandma did my grandpa SBP is a far, far, far better deal. To me it was a no brainier for peace of mind. $225 a month isn't that much.

Also a good point and very true.

My perspective is that if I haven't saved enough money by then to support my wife through her golden years then I have failed. I know, I know, this is a turbulent industry and I am playing with fire, but I would rather put that 225 into a 401K and watch it grow. I am not going to do SBP and term life because it would be a foolish use of my money that I could be saving for retirement. I have to choose one or the other and I am going to stick with term life. It is a 30 year term, which carries me out to 71. That should be long after I quit flying and I plan on squirreling away my pennies, especially after the kids are grown and gone, which also should coincide with my prime earning years.

Absolutely. To each his own. It's all really a WAG anyhow since none of us can predict when we'll die.

Scenario on the 30 year term: You die the day after the term expires. You've invested $225/month in a 401k at 7% annually during that time. It's valued at $255,000. The biggest benefit of SBP IMO is that it is inflation protected so it grows at 2.5%'ish/year. $255K in 2044 will be worth a lot less than it is today.

Scenario 2 on 30 year term: You die the day before the term expires. You've invested $225/month again. Your spouse then has the $255K and the value of the term policy ($500k??).

So again, which is better? I'll tell you after you die. ;)

Ha ha! Very true. I'll just tell my wife to spend it all on finding a new, rich husband. Preferably not a pilot!

The first thing you have to understand is that you are paying a monthly "fee" to protect income for your surviving spouse. It is not an investment or a fund for your retirement if you should live. You want to get the maximum protection for the smallest fee. Secondly, after 20 or 30 years will your surviving spouse need your military retirement to live on? Once you get that big airline job and start banking part of your retirement check, would that fund be all that would be needed to replace the retirement check? Third, when you are figuring this out, remember to use after tax dollars. Life insurance is paid for with after tax dollars so the benefit is not taxable. And finally, a quality civilian insurance company is a lot less likely to make any major changes to a term policy. With the U.S. Government all bets are off. They could make changes to your SBP after 10 or 15 years and you may not be able to get a term policy due to your age or health. Everyone's needs will vary. Do what works for you.

SBP is a good deal if private life insurance is too expensive due to some kind of pre-existing condition or family history. I didn't intend to support my wife indefinitely if I died, I figured at some point she could work or re-marry. I guess that makes me a tool of the day. What I did want to do was provide for my kids and their education so when we opted out of the SBP I bought term life insurance to make sure they (and my wife) would have enough money to live comfortably until they were out of college at least. Its definitely a private decision that you and your wife need to make based on your personal situation and how "lucky" you feel about living a good, long life. For us, term life insurance was the cheaper option.

Thank you for your service and good luck in the "real world."

FJ

Guys, thanks for all the replies, good food for thought. I'm glad to see a lot of you putting words to abstract thoughts I was having. Obviously if I knew when we'd both die this would be pretty easy. I think the bottom line is this is one decision I should just let my wife make since she's the one who will have to live with the consequences.

Lastly if by some unfortunate circumstance you outlive your wife you can transfer to new younger model

Can you opt out of SBP once you sign up? When I retired you could not get out once you were in. That was one of the reasons I declined the coverage. If something we're to happen to my spouse I would be stuck with the lower retirement payment. Also, I did not like the fact that my wife could not remarry should I predecessor her. Plus there was some kind of a Social Security offset (I heard this was changed). The entire program had too many conditions that could not be changed if our situation changed.

For the nominal cost (2-300) based on rank its definitely worth the protection…

Well if you divorce or spouse dies premiums stop unless you remarry.
Also no Ssn offset and you can quit one time after 24 months then you are in for 30 yrs then premiums stop.

I am a big AAFMA fan and used them for years. I exchanged my 800k term that begins decreasing at age 50 and went with their 30 year term that is good until 75 for me--warning age 45 is your last chance to do this since term policies don't usually go past that age.

My wife's family all live into their 80s and 90s and I watched her grandmother try and live on a railroad pension for over 50 years that was not adjusted for inflation. She spent the last several in a rest home and had to be declared insolvent by the family to get social security to cover it. I have 7 kids so I don't want my wife to have to worry about a thing.

Do the math on how fast your premiums are paid back if the wife just gets a few years of payout.

I have always bought term and invested the rest and plan to be self insured. I also got a bonus when I found out my new job provide 560K free. But for my situation I rest easier knowing I have plan a and plan b covered at affordable costs to take care of the wife and kids.

As stated everyone has different factors.

Looks like a lot has changed with the SBP since I left the military. These are all great changes and make this program look really attractive. There must be some kind of federal subsidy to keep this going. I don't think the program would be self sustaining under the current terms.

I recently retired from FedEx and went the self insured route for my pension. I was able to get one million in term insurance starting at age 65 that will carry me to age 90 with no reduced benefit. Cost was not that bad.

Am I to understand it will pay $1M at 90? "Not that bad" is pretty subjective. Would you mind providing an objective dollar amount?

Just under $1,100 a month.

My memory of it is that it is, I think 20 - 30%. Though a brief internet search didn't find anything useful. However, its not trying to run a profit, which helps with costs.

As many have stated, everyone's situation is different. Got to make the right call for you and yours.

Here's some useful info

Overview of the Survivor Benefit Plan