Welcome to Day Sixteen of the 30-Day Financial Transition Challenge. The next two articles will focus on income protection, both in the form of the Survivor Benefit Plan (for retirees), and life insurance. Today’s article focuses on the Survivor Benefit Plan.
Bottom Line Up Front (BLUF)
The decision on whether to participate in the Survivor Benefit Plan (SBP) is a personal one, and should only be made once you’ve had the opportunity to consider all of the circumstances of your particular situation. Today is dedicated to ensuring that you have the right information & perspective you need to make that decision.
The Survivor Benefit Plan (SBP) was created in 1972 to provide pension security for military retirees. Since the 1970s, many demographic and societal changes have taken place. As a result, SBP is not the best course of action for many situations, while it remains a solid investment in others. Before making your decision, you need to arm yourself with the facts and make sure you’re making an informed decision.
While the concept is simple, the Survivor Benefit Plan should not be considered a ‘one-size fits all’ solution. Instead, the decision to choose SBP depends on many variables. Specifically, this decision should be considered part of a bigger picture view of your total income protection, which consists of two parts:
- Protecting your pension.
- Protecting your post–military earnings
We will cover SBP’s role in pension protection today, and address how to protect your post-military earnings tomorrow, when we cover life insurance. Handling these two topics in sequence should help you form the strategy that you will choose to protect both your pension and your post-military earnings.
Your goal should be to figure out:
- What options, besides SBP, you have when it comes to protecting your total post-military income (pension + post-military employment)
- Whether you have the information that you need to make an informed decision
- Whether you need professional assistance (your installation’s financial counselor or hiring a financial planner).
- Military In Transition’s Guide to the Survivor Benefit Plan (book)
- Understanding the Survivor Benefit Plan (podcast)
- Survivor Benefit Plan: What Does it Mean to Me?
- Why You Should Strongly Consider Not Participating in the Survivor Benefit Plan
- Term Life Insurance Vs. Survivor Benefit Plan (SBP)–A Side By Side Comparison
- Survivor Benefit Plan Resources: Everything You Need in One Blog Post
What you need
Nothing. Even if you don’t know anything about SBP, this to-do list will connect you with the resources you can use to educate yourself. If you want to go into greater detail, then I did write a book on this topic, which can be found on Amazon.com:
Today, you’re going to take the time to think about what you’re trying to protect. Before you automatically decide for or against SBP, you should think about the following:
1. Do I expect to benefit?
There are a lot of cases where SBP makes sense. You need to consider life-expectancy, gender, age at time of retirement, whether or not the retiree can easily obtain a term life insurance policy, or if they are considered high risk to insure.
However, if you’re in the position where the servicemember might outlive their spouse (i.e. a female servicemember married to a male dependent), this might not be the case. Think about where you stand.
2. Do I want to protect my pension, post-military income, or both?
The right answer here, is that you should try to protect both. However, that depends on what your post-military goals are. The more ambitious your post-military career is, the less powerful the argument in favor of SBP. For example, if you’re completely retired, then you have a very strong incentive to protect your pension. Conversely, if your plans are to have a robust second career, and you have a high degree of confidence that career is a lucrative one, then you’re probably more focused on protecting against that downside. However, this leads to question:
3. How much can I afford?
No one wants to pay for insurance (SBP or life insurance), because they feel it’s money down the drain. However, no beneficiary has ever said that their policy was a waste of money. Now, you need to think of how much money you feel comfortable setting aside.
We’re not solving your problems today. Tomorrow, we’ll look at the life insurance aspect of income protection, and how much you might need. By then, you should have a good idea of your focus areas. You might also decide that this is something that you need professional advice on.
To wrap up, today you’re going to:
- Educate yourself on SBP
- Think about your post-military life, and what type of income you value most
- Formulate some thoughts about where you stand regarding SBP (but don’t make a decision)
Tomorrow, we’ll discuss your Day 17: Post-Military Life Insurance. This is the second part of your income protection plan. As you transition, it’s very important to understand the role of life insurance and where it fits in your financial plan.