By Jay Shareef and Chris Rhoads
There are many benefits offered to military service members, some of which are more lucrative than others. One you should have on your radar is the Survivor Benefit Plan (SBP).
But what is the SBP, and why does it matter?
After years of service, veterans are entitled to military retired pay that lasts their lifetime; however, retired pay is one of the benefits that ends upon the death of the retiree. This can be a financial detriment to family members. One benefit that the retiree can pass on to his or her survivors is the Survivor Benefit Plan.
Here are the details you need to know. The SBP offers monthly income of up to 55% of your retired pay to your dependents in the event of your death. SBP is essentially an annuity payable to your designated beneficiary. In most cases, SBP is relatively inexpensive compared to private life insurance products. Of course, there are different options within the plan that will determine how it works for each individual. For example, while SBP typically provides income to your spouse, it can do the same for your children or others in some instances.
To enroll for the SBP, a participant agrees to pay a portion of his/her retired income toward the premiums. The most common payment is 6.5% of your retired income per month, which results in the maximum benefit of 55% of your base retired pay. A critical point here is that SBP premium payments are pre-tax. Moreover, premiums are only paid for 30 years, after which you are considered “paid up” and no more premiums are required while the 55% income benefit is still provided upon the retiree’s passing.
If your family elects for a lower benefit amount (to a minimum of $300), the premiums decrease. If you add qualified dependents on the plan along with your spouse, the premiums will increase. More specific information regarding the costs of premiums can be found here.
The SBP offers an affordable income source that provides comfort for many military families. The benefit payments are protected against inflation and are adjusted every December based on the Consumer Price Index. There are no health exams or other qualifying requirements to participate.
While SBP provides a bevy of benefits, it isn’t necessarily right for everyone. For example, if a retiree’s spouse is considerably older or is in ill health, SBP may not be needed. Moreover, if you have long-held permanent life insurance, then maintaining that policy may be advisable. In short, there is no one-size-fits-all advice for retirees. It’s also important to remember that insurance and investments serve different needs. Even with the SBP, you still need a long-term investment strategy that will help you build wealth and take care of your family both while you’re here and when you pass.
If you don’t already have an advisor helping you do that, reach out to us at (301) 798-5250 or schedule a phone call now.
Jay Shareef is vice president, financial advisor, federal benefits consultant, and co-founder at WealthFlow Financial. As a U.S. Army veteran, Jay is passionate about helping federal employees create a bulletproof plan for retirement and navigate the often confusing and complicated federal benefits landscape. He spends his days educating and providing clients with unbiased insurance benefits and retirement strategies to help his clients create guaranteed income for life. As a problem-solver and trustworthy resource, Jay always puts his clients and their needs first so they can find financial peace of mind. He holds the Chartered Federal Employee Benefits ConsultantSM (ChFEBCSM) credential. To learn more about Jay, connect with him on LinkedIn.
Chris Rhoads is a co-founder and vice president of WealthFlow Financial. As a registered investment advisor and independent financial professional, Chris is committed to helping his clients in retirement and he takes a holistic approach to financial planning that includes insurance and risk management, investments and wealth management, retirement income planning, and estate and tax planning. He holds the Chartered Federal Employee Benefits ConsultantSM (ChFEBCSM) certification. Chris has been married to his wife, Tia, since 2009 and they live in Frederick, MD, together with their two young daughters. In his free time, Chris enjoys traveling, watching sports, and being active in causes about which he cares passionately. To learn more about Chris, connect with him on LinkedIn.