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Military SBP: Thinks it's a good deal?

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07-10-2008, 08:20 PM	#1
tjbroussard Registered User Join Date: Jul 2008 Posts: 3	Military SBP: Thinks it's a good deal? Hello - I am newbie here, but have been quite impressed by the wealth of great info, so I'd like to throw this out: military survivor benefit program. I am 49, my wife is 47, and we have three children (18, 15, 9). I am completing 21 years of military service, retiring next month at about $3K per month (50% of my base pay). SBP wants to keep about $200 / per month time 30 years so that if something happens to me, my family can continue to draw half of my retired pay...otherwise it stops when I die. The payments do increase with annual cost of living raises. Math: 30 years x 12 months x $200 = $72,000 Seems like I could do better investing or perhaps more life insurance with a lump sum payout upon my demise... Thoughts? __________________ Thank you, Terry

07-10-2008, 09:12 PM

1_more_opai

Registered User

Join Date: Jul 2006

Location: somewhere in texas

Posts: 1,456

terry, i dont have a lot of time tonight, but i will give you a quick answer.

as a caveat, i am in the financial services industry and have extensive experience with pension maximization (especially for military members ... aka SBP). i am also a retired service member and i did the following regarding my SBP election. finally, you will find that MOST senior officers and E-9s do the same thing as i (if they are eligible) as they usually have access to financial professionals to run the numbers for them.

my comments are VERY general. in order to give you YOUR numbers, we would need to know far more information about you than you would be comfortable providing on this forum.

i start from the premise that you must do something to protect your retirement for your spouse. if you disagree, the rest of my comments are moot.

SBP is the BEST choice when you have pre-existing health considerations. in other words, if you are retiring and have some significant illness (ie. Diabetes), then SBP is your first and in my opinion ONLY choice. you should take the MAXIMUM SBP election.

if you are healthy, then your BEST choice is undoubtedly using a PERMANENT life insurance policy from a high-dividend paying insurance company to SUPPLEMENT a "threashold SBP" election.

if you are less healthy, then the numbers are more complicated and we cant begin to answer the question for you. however, remember where i said it is complicated? here is a quick example.

you think the math is:

Quote:

Math: 30 years x 12 months x $200 = $72,000

i think the math brings you much closer to $108,000 (assuming your number and a COLA of 2.5% annually over a 30 year period.

further, i have found the alternative of life insurance and minimal SBP to be far more compelling for reasons other than mere numbers. these other contributing factors are what a competent financial advisor can outline for you.

finally, i IMPLORE you not to listen to the "barracks lawyers" and certainly not the "financial experts" at the family support center or in the finance office. they have NO responsibility for giving you accurate information and i have yet to find a single one who understood both the program itself (SBP) or the case law on point.

finally, terry, thanks to you and your wife, and your family for the sacrifices you have made over your career IOT provide us a stronger and safer nation.

p.s. dont you dare invest the money instead. investing will not cut it! this is like deciding between a new car or a trip to vegas ... they both cost money but the goals and end results are incongruent.

__________________
1MO

disclaimer: "you didn't give me enough information to answer your question, so my answer might not be appropriate for you. in any case, don't take advice from me or anyone else on this board. it's not our life. it's not our money. you don't know who we are." "also, i am very arrogant. if your feelings were hurt in this message you probably need to get some thicker skin."

buy cheap term: www.i'm_a_dufus_for_clicking_here.com

07-10-2008, 10:14 PM	#3
pricespector Registered User Join Date: Mar 2004 Location: New York Posts: 1,357	IMO has already given some good advice, but I want to repeat the warning that this is not something to wing on your own. I have evaluated many, many, ugh...many pension survivorship options over the years; each one of them with different results that were specific to the individual. The majority of these cases were military SBP where the retiree is doing this planning in their mid-late thirties, maybe early forties age range. My initial thoughts are that at age 49, you may be a little beyond the "sweet spot" to maximize the effectiveness of insuring a guaranteed pension benefit with an individual permanent insurance policy. That doesn't mean it won't work, it just means the number crunching will be much closer and may not work in your favor. It is definitely worth looking at though. I will agree fully that forgoing the SBP entirely and using a term insurance policy and convincing yourself that you will invest the rest to make up the spousal benefit is a foolish thing to consider. The SBP is a guaranteed contract and investing the difference is simply a hope and hypothesis. Except for some rare individual circumstances, trading a guaranteed benefit for a hypothetical spreadsheet calculation is an act of folly and is usually a nearsighted way to keep the extra $200 to SPEND now. Not to mention what happens to these term/invest plans when someone becomes disabled. If personal permanent insurance won't work, then take the SBP and ignore the watercooler guys saying, "Well, why don't you just invest at 15%...blah, blah, blah". They'll realize in 10 years or so that the guaranteed SBP or permanent insurance was a huge bargain because the market doesn't always give you 15% even though that's what they plugged into their spreadsheets before they made their decision. Think about this: those guys that decided to forgo the SBP to "invest" 10 years ago have gotten about 5% annualized in the S&P 500...most likely USAA or Vanguard. Do you think they're ahead of the game now? Who was smarter? Remember, the SBP is GUARANTEED...your plan (whatever it is) needs to be too! Last edited by pricespector : 07-11-2008 at 12:11 AM.

07-10-2008, 11:03 PM	#4
1_more_opai Registered User Join Date: Jul 2006 Location: somewhere in texas Posts: 1,456	price's point on you age is spot-on! nice addition price. __________________ 1MO disclaimer: "you didn't give me enough information to answer your question, so my answer might not be appropriate for you. in any case, don't take advice from me or anyone else on this board. it's not our life. it's not our money. you don't know who we are." "also, i am very arrogant. if your feelings were hurt in this message you probably need to get some thicker skin." buy cheap term: www.i'm_a_dufus_for_clicking_here.com

07-11-2008, 05:13 AM	#5
tjbroussard Registered User Join Date: Jul 2008 Posts: 3	Thanks Great info and I really appreciate the help. I am meeting with my adviser, but historically they favor other options, and I wanted to bounce this off the forum. As I attend all of the retirement briefings, it seems that each one just want a little more of your check and soon you'll not have any but "great plans". I do intend to take the Veterans Group Life, which will add to my already existing life insurance, and maintain my Roth IRA. The SBP seemed a bit pricey considering that at 49, I won't be paid up until I am 80... __________________ Thank you, Terry

07-11-2008, 11:40 AM	#6
1_more_opai Registered User Join Date: Jul 2006 Location: somewhere in texas Posts: 1,456	VGLI is a bad deal (unless you are not healthy). you could get a better deal from any highly rated company. in fact, VGLI is underwritten by civilian companies (not the government like your SGLI) and they rate it up (costs more) for the guaranteed placement. this is something else your advisor should have pointed out to you. hmmmm. __________________ 1MO disclaimer: "you didn't give me enough information to answer your question, so my answer might not be appropriate for you. in any case, don't take advice from me or anyone else on this board. it's not our life. it's not our money. you don't know who we are." "also, i am very arrogant. if your feelings were hurt in this message you probably need to get some thicker skin." buy cheap term: www.i'm_a_dufus_for_clicking_here.com

07-11-2008, 05:40 PM

pricespector

Registered User

Join Date: Mar 2004

Location: New York

Posts: 1,357

Quote:

Originally Posted by tjbroussard

The SBP seemed a bit pricey considering that at 49, I won't be paid up until I am 80...

On the contrary. When I mentioned your age before I was referring to the fact that the SBP could easily be your cheapest option to provide the spousal benefit. It is probably a very good deal. To purchase the same guaranteed benefit elsewhere could easily be twice that amount...or more. The SBP works out to ~6.5% of your pension payment. After your first couple of months, you wouldn't even miss it. Comparable civilian spousal benefits can run as high as 15% with averages in the 8-10% range. Do not write the SBP off as an expensive option...it's actually a bargain for someone your age.

Also, as 1MO said, the VGLI is very, very expensive compared to an indiviudal term life policy that is provided by a commercial carrier...if you are remotely healthy and a non-smoker. The VGLI will get creamed by a personal policy based on price alone.

Last edited by pricespector : 07-11-2008 at 10:33 PM. Reason: Wrote the right write.

07-11-2008, 05:57 PM	#8
osterperson Registered User Join Date: Feb 2004 Location: Mackinaw, IL Posts: 206	No to SBP. . . if . . . Okay - I'll throw in my 2 cents. I have served 11 years active and reserve Navy as a Personnelman working for the Commanding Officer at numerous places. I was also a Command Career Counselor for 10 years and advised numerous Naval personnel as they went Fleet Reserve and Retired with pay to the CIVLANFLT. I advise No to SBP . . . if you are in good health. Good observation on the insurance. Good luck on that one. __________________ John M Osterman

07-11-2008, 09:11 PM	#9
Puck Registered User Join Date: Jan 2007 Posts: 1,088	As to the "in good health" argument I keep reading on this thread, just remember, everyone's pretty much in good health at 49. Think about your family, your lifestyle, your diet, etc. To what age do you truly expect to live? Be careful with that, too. My G-pa came from a long line of centenarians, and his wife had a series of mini-strokes and was very weak. So when he retired, he got the single benefit, not the survivor's benefit, assuming he would outlive her. Guess who died first? -- turns out, smoking DOES cause lung cancer! And G-ma went from a nice upper middle class lifestyle to being dirt poor. Of course, that was back when women didn't work -- does your wife have her own pension/retirement/money? For another example, no man in my FIL's family lived beyond 50. But when it came to his savings and investments, he decided to assume he'd live a long time -- he's 82 and spends all day in the south Georgia heat, tending his tomato gardens, hale and hearty. I'm not expecting answers to my questions -- just think about it, and try to be incredibly realistic. __________________ "Wealth is the slave of a wise man. The master of a fool." -- Seneca

07-11-2008, 09:49 PM

#10

osterperson

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Join Date: Feb 2004

Location: Mackinaw, IL

Posts: 206

and this relates to SBP because. . . . ?

Quote:

Originally Posted by Puck

As to the "in good health" argument I keep reading on this thread, just remember, everyone's pretty much in good health at 49. Think about your family, your lifestyle, your diet, etc. To what age do you truly expect to live?

Be careful with that, too. My G-pa came from a long line of centenarians, and his wife had a series of mini-strokes and was very weak. So when he retired, he got the single benefit, not the survivor's benefit, assuming he would outlive her. Guess who died first? -- turns out, smoking DOES cause lung cancer! And G-ma went from a nice upper middle class lifestyle to being dirt poor. Of course, that was back when women didn't work -- does your wife have her own pension/retirement/money?

For another example, no man in my FIL's family lived beyond 50. But when it came to his savings and investments, he decided to assume he'd live a long time -- he's 82 and spends all day in the south Georgia heat, tending his tomato gardens, hale and hearty.

I'm not expecting answers to my questions -- just think about it, and try to be incredibly realistic.

Not quite sure what you're trying to get across here, Puck.

__________________
John M Osterman

07-11-2008, 09:53 PM	#11
tjbroussard Registered User Join Date: Jul 2008 Posts: 3	More great advice I should have mentioned that I have not met with my adviser, nor taken the either the VGLI or the SBP just yet. Still trying to make the decision. More info: my wife does have a career as a registered nurse, although no separate retirement since she has always moved to support the military. She too is a veteran of 6 years, but does not have any retirement income lined up other than ours together. Now you all have my interest/concern about the VGLI really tweaked, so I'll be asking about that as well. Healthy...just a little hypertension, but no other major problems and I keep passing the fitness test annually.... So perhaps its yes to SBP but find other options to the VGLI...like adding to my existing commercial life insurance. Again, I really appreciate the help. I too am a nurse, so if you all every need help deciphering your health info...just ask! __________________ Thank you, Terry

07-11-2008, 10:07 PM

#12

pricespector

Registered User

Join Date: Mar 2004

Location: New York

Posts: 1,357

Quote:

Originally Posted by tjbroussard

So perhaps its yes to SBP but find other options to the VGLI...like adding to my existing commercial life insurance.

For what it's worth, now that we have gotten to know you a bit (wife's retirement, health, ages, etc.). It seems that you may have nailed it with your last statement. It also indicates where your gut instinct may be taking you.

Without fully understanding everything about you (factors such as those mentioned by Puck which have everything to do with the SBP decison process), my initial reaction to your situtation is that you should insure your pension with the SBP and aquire your own commercial term policy to replace your VGLI.

In the end, this is the recommendation that I can make in good faith and KNOW that you will do well with it and have no regrets.

Last edited by pricespector : 07-11-2008 at 10:36 PM.

07-11-2008, 10:25 PM

#13

pricespector

Registered User

Join Date: Mar 2004

Location: New York

Posts: 1,357

Quote:

Originally Posted by tjbroussard

More info: my wife does have a career as a registered nurse, although no separate retirement since she has always moved to support the military. She too is a veteran of 6 years, but does not have any retirement income lined up other than ours together.

This particular statement (in your words) is extremely revealing and very important in your decision process. Think hard about what you wrote here and the rest should fall nicely into place.

07-12-2008, 09:14 AM

#14

Dingobiscuit

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Join Date: Feb 2005

Posts: 1,772

Quote:

Originally Posted by osterperson

Not quite sure what you're trying to get across here, Puck.

I think Puck was referring to the ancient, Chinese proverb, "When you least expect it, expect it."

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Last edited by Dingobiscuit : 07-12-2008 at 09:16 AM.

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