Survivor Benefit Planning

Managing your TSP and alternate investment options after retirement or separation from service.

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rcozby
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Joined: Mon Aug 11, 2014 12:14 pm

Re: Survivor Benefit Planning

Post by rcozby »

So, just to be clear, the FERS SBP (10% gets you 50%) is even worse than the military SBP (6.5% gets you 55%). And as Navigator points out, the better one is pretty ugly.

Here's another point of note, perhaps explaining why Nav's mother gets less than 55% take home: SBP benefits are fully taxed by the Feds and by some states as well. A life insurance death benefit, however, is totally exempt from all income taxes. And, of course, you get the insurance benefit as one lump sum, whereas with SBP you get it piecemeal.

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Navig8tor
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Re: Survivor Benefit Planning

Post by Navig8tor »

rcozby wrote:So, just to be clear, the FERS SBP (10% gets you 50%) is even worse than the military SBP (6.5% gets you 55%). And as Navigator points out, the better one is pretty ugly.

Here's another point of note, perhaps explaining why Nav's mother gets less than 55% take home: SBP benefits are fully taxed by the Feds and by some states as well. A life insurance death benefit, however, is totally exempt from all income taxes. And, of course, you get the insurance benefit as one lump sum, whereas with SBP you get it piecemeal.


Just to be clear, with military SBP you can elect a smaller base coverage amount of your retirement pay and pay less of a premium. 6.5% gets you 55%, which is as high as you can go. I'm fairly sure my dad, whether inadvertently or otherwise, elected less coverage. I petitioned his records from the Bureau of Naval Personnel but we found no SBP paperwork in it (imagine that from a gov't organization). I personally think he was ready to walk out the door and wasn't paying attention to what he was told prior to signing the SBP paperwork, if he was told anything at all. It wasn't like him to do that, but, he WAS rather disgruntled when he retired from the Navy.

I was born in a Navy Hospital so I've literally been in or around the military my entire life. I can almost hear the explanation of the SBP that my dad was given, probably by a 19-year old green Navy Yeoman: "Sign right here Master Chief...$20 a month will get your wife half your retired pay when you die." <<<Meanwhile, that $20 block was actually the "20% of base pay" election. If you do the basic math, 20% of his retirement pay is very close to what my mother is actually getting today. In any case, it sure isn't 50%!

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Navig8tor
CWO4 (BOSN)
USCG, RET

crondanet5
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Re: Survivor Benefit Planning

Post by crondanet5 »

Nav, how many years has your mother received that benefit? Was it worth the money your dad paid into SBP?

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Navig8tor
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Re: Survivor Benefit Planning

Post by Navig8tor »

crondanet5 wrote:Nav, how many years has your mother received that benefit? Was it worth the money your dad paid into SBP?


6 years as of October.

As for your follow-on "trick" question, who's NOT happy to get free money? Whether or not she's "happy" to be getting $415/month has no bearing on the SBP qualifying as a good option in 2016.

We've had this conversation before but you've never really told me why YOU think the SBP is the Bee's Knee's. Maybe it was a good option in 1978; I don't think it is now. A $500K life-insurance policy for $110/month and an immediate non-taxable payout upon death, or, $400 month into the SBP for 30 years for a a $3000/month taxable payback, month-to-month, until your spouse dies???

Oh yeah, almost forgot, with the SBP, if your widow remarries before age 55 she loses the SBP annuity. So I retire at 50, die at 52 and she remarries when she's 50...no SBP for her. That's not to say she can't just date someone until she's 55, and then remarry.

Can't forget this tasty tidbit either: You pay into SBP for 20 years yet, BY LAW, if your spouse BENEFICIARY dies before you do, you ain't getting that money back. In my hypothetical case, that would be about $85K down the drain. SBP doesn't pay out because your sole beneficiary died <<< they made their money. You, on the other hand, have lost your spouse AND your money <<< Sounds like a country song.

All insurance is a gamble and the SBP is no different. You get a 20-yr life insurance policy and the insurance company is rolling the dice that you'll outlive the 20-yr coverage. They make money - you make it 20 years. I've given USAA over $30,000 in auto insurance premiums over the past 25 years and have never filed a claim...it's a gamble. Same with SBP: They want you to live 30 years to pay up the exorbitant premiums because the longer you live, the less they have to pay out. So just die prematurely, after your wife is 55, and stick it to the man :lol:

The only real advantages I see to the SBP is the fact that it cannot be denied, it cannot be cancelled because of your health, and the premiums will always remain at the percentage of the base retirement pay you selected upon retirement. SBP premiums are tied to COLA. If your retirement pay goes up, so does your SBP premium; however, it's a pre-tax premium payment that forever remains at the original election. Also lowers your taxable income. Conversely, if you've got medical issues, or you use tobacco products, you're going to pay out the yang for private life insurance. The premiums go up with age and are VERY expensive and somewhat cost prohibitive if you wish to keep the policy very late into your senior years.
Last edited by Navig8tor on Fri Sep 09, 2016 2:40 pm, edited 1 time in total.
Navig8tor
CWO4 (BOSN)
USCG, RET

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rcozby
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Re: Survivor Benefit Planning

Post by rcozby »

Navig8tor wrote:All insurance is a gamble. Life insurance and SBP is no different. You get a 20-yr life insurance policy and the insurance company is rolling the dice that you'll outlive the 20-yr coverage.


Hmmm, there's where I have to disagree. Whole Life really isn't much of a gamble - you WILL die, and when you do, the face value at minimum WILL be paid to your estate. It's only a gamble if you think you can predict how long you'll actually live (and purchase term life accordingly) or you think you can do better via other types of investments. Some annuities may also present a negligible gamble; I'm just not up on them as much.

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