Military retirement: SBP, partial SBP, or not?

[Villanelle]

I'm drowning in research and it's become information overload, and analysis paralysis. 

Spouse seems to be about a year out from military retirement and one of the zillion things we are trying to figure out is SBP.   Do we opt for SBD, hedge bets with partial SBP, or skip it?

In case any of this is relevant, here's some potentially pertinent details: he will be going on to a second career, I am essentially unemployed/retired (I make a few thousand dollars a year and while that might continue to scale up somewhat, I doubt it will ever be >$6k), and it seems like we will end up with more money than we will need.  DH and I are about the same age and reasonably healthy.  We have no kids. I'd say we probably value security over maximizing the total earnings, but don't want to leave money on the table if we don't have to, of course.  One other detail, which I hesitate to mention, is that I am most likely going to see a very large--potentially 7 figures or close--inheritance, though I sincerely hope that is many years out and generally don't factor it into our finances, other than as a vague additional back-up, because anything could happen.

[Dee18]

My uncle retired at 45 from the army. He did not elect the survivor's benefit because they believed he was super fit and healthy, young, and they wanted income large enough to afford a particular mortgage. They planned to pay off their house relatively quickly and then would need little income in their small town. Within the year he dropped dead of a heart attack.  My aunt struggled financially and had to work until she was 72. 

[FlytilFIRE]

While I can sympathize with Dee18's family, most retired military don't use the SBP. My own father lived to be 86, so my parents lived quite comfortably, and saved enough money to cover for my mother when he died. That's the crux of the issue- can YOU get by in the unfortunate case of the death of your retired spouse?

As with most/all retirement scenarios, you play the lottery on life span. From the details you've given, it appears you don't NEED the money to get by, and unless the SBP has changed since I got out of the military 30 years ago, it's a HUGE hit to take the SBP (like 50%). Personally, if I was in your shoes, I'd ask my spouse to take the full retirement, and invest the money so you'll have additional income in the event of the retirement ending.

I wish you and your husband MANY happy years in retirement on this Memorial Day. I have too many friends who didn't make it to any retirement.

[Villanelle]

While I can sympathize with Dee18's family, most retired military don't use the SBP. My own father lived to be 86, so my parents lived quite comfortably, and saved enough money to cover for my mother when he died. That's the crux of the issue- can YOU get by in the unfortunate case of the death of your retired spouse?

As with most/all retirement scenarios, you play the lottery on life span. From the details you've given, it appears you don't NEED the money to get by, and unless the SBP has changed since I got out of the military 30 years ago, it's a HUGE hit to take the SBP (like 50%). Personally, if I was in your shoes, I'd ask my spouse to take the full retirement, and invest the money so you'll have additional income in the event of the retirement ending.

I wish you and your husband MANY happy years in retirement on this Memorial Day. I have too many friends who didn't make it to any retirement.

Same, and this has been a particularly rough year on that front.  Based on your user name, I'm guessing you spent your time in a similar capacity as most of his active duty time.  He's moved out of that recently and doesn't wish to fly any more, in part because he feels like he's pushed his luck already.  (Yes, we both know that's not truly how odds work, but that point stands. )

My grandma did end up using SBP, though she'd have been fine without it.  Both parents turn 80 this year.  My best guess is that dad took SBP so mom will be covered, but again, they haven't used it (yet, at least.  Thankfully) and they have enough to not need it.  Still, it feels scary to turn it down, so I'm wondering if the security is worth what is likely to be a sub-optimal choice.  Or perhaps we hedge bets and only take 50% or 25%? Gah. 

[FlytilFIRE]

I completely understand his reasoning, and wish him the best. Perhaps another way of looking at this is, how would the SBP affect HIM if something happened to YOU? A smaller pension could materially affect his lifestyle, especially if there was no inheritance, etc.

There are no right or wrong answers on this one. I do know that actuarially, aviators tend to croak a little early, so you've got THAT working for you, too.

I didn't stay till retirement (12 years in), but as per another thread, I'm supposed to live into my late 90's, so we'll see. It's sort of like the "When to take Social Security?" debate. I don't need the money right now, so I'm planning on waiting until 70, especially since Survivor Benefits for my partner would have been slashed had I taken SS at 62.

[Nords]

I'm drowning in research and it's become information overload, and analysis paralysis. 

Spouse seems to be about a year out from military retirement and one of the zillion things we are trying to figure out is SBP.   Do we opt for SBP, hedge bets with partial SBP, or skip it?

@Villanelle, how long has it been since we’ve been talking about leaving the military?  Does it seem to be taking forever for you too?!?

You’re already dealing with analysis paralysis, so I won’t recommend yet another book.*

Instead I’ll hit the high points:
- If you had a child who would be a permanently disabled adult (presumably eligible for federal & state benefits) then SBP is essential.  It’d pay out to a Special Needs Trust so that they’d still be eligible for their benefits, especially in their local community.  This feature was added in 2015.

- If you had kids then child SBP is considered a great idea because it’s so inexpensive.  It pays until they’re 18 years old, or a few years longer if they’re full-time college students.

- SBP is your choice, not the retiring service member’s choice.  If you would feel uncomfortable managing a lump sum from a life-insurance policy, then SBP offers an inflation-adjusted life annuity with the same sleep-at-night comfort as a military pension or Social Security.  Because the federal government partially subsidizes your SBP premiums, you cannot buy an inflation-adjusted life annuity from any other source for the same amount of benefits or inflation adjustments.

I suspect that you’re already pretty comfortable with lump sums.  You might not need to care about an inflation-adjusted survivor annuity.

- If you wanted to insure against a lump-sum debt like a mortgage, a college fund, or a personal loan against a business-- then term insurance is a much better (and much cheaper) way to balance liabilities with assets.

If you didn’t already know this, there are two new changes to SBP:
- SBP used to be offset by Dependency and Indemnity Compensation.  That just ended a few months ago:
https://www.dfas.mil/retiredmilitary/survivors/SBP-DIC-News/

- Because of the elimination of the SBP-DIC offset, there’s an open season on enrolling or canceling SBP for the rest of 2023.

If you choose not to decide, you still can make a choice:  if you get through the entire pros & cons analysis then you can always opt for full SBP at retirement, think about it for 24 months, and then cancel anytime during the 25th-36th month.

My spouse and I declined SBP on each other because we each have enough assets to self-insure, and we’d rather spend the 6.5% on each other while we’re both alive.

(*For everyone else reading this thread I’ll recommend CFP Forrest Baumhover’s excellent book that analyzes the pros & cons of SBP:
https://www.amazon.com/Military-Transitions-Guide-Survivor-Benefit/dp/1534883959/
He’s also a military retiree-- and his spouse co-founded their advisory firm-- so he understands the emotional aspect behind SBP as well as the finances.)

While I can sympathize with Dee18's family, most retired military don't use the SBP.

I’m curious, @FlytilFIRE, there’s plenty of anecdotes about declining SBP-- but have you seen any research data from DoD or anyone else?

I’ve focused more on the individual’s situation but it’d be helpful to see a credible study of why retirees end up signing up for (or declining) SBP.

[Villanelle]

I'm drowning in research and it's become information overload, and analysis paralysis. 

Spouse seems to be about a year out from military retirement and one of the zillion things we are trying to figure out is SBP.   Do we opt for SBP, hedge bets with partial SBP, or skip it?

@Villanelle, how long has it been since we’ve been talking about leaving the military?  Does it seem to be taking forever for you too?!?

You’re already dealing with analysis paralysis, so I won’t recommend yet another book.*

Instead I’ll hit the high points:
- If you had a child who would be a permanently disabled adult (presumably eligible for federal & state benefits) then SBP is essential.  It’d pay out to a Special Needs Trust so that they’d still be eligible for their benefits, especially in their local community.  This feature was added in 2015.

- If you had kids then child SBP is considered a great idea because it’s so inexpensive.  It pays until they’re 18 years old, or a few years longer if they’re full-time college students.

- SBP is your choice, not the retiring service member’s choice.  If you would feel uncomfortable managing a lump sum from a life-insurance policy, then SBP offers an inflation-adjusted life annuity with the same sleep-at-night comfort as a military pension or Social Security.  Because the federal government partially subsidizes your SBP premiums, you cannot buy an inflation-adjusted life annuity from any other source for the same amount of benefits or inflation adjustments.

I suspect that you’re already pretty comfortable with lump sums.  You might not need to care about an inflation-adjusted survivor annuity.

- If you wanted to insure against a lump-sum debt like a mortgage, a college fund, or a personal loan against a business-- then term insurance is a much better (and much cheaper) way to balance liabilities with assets.

If you didn’t already know this, there are two new changes to SBP:
- SBP used to be offset by Dependency and Indemnity Compensation.  That just ended a few months ago:
https://www.dfas.mil/retiredmilitary/survivors/SBP-DIC-News/

- Because of the elimination of the SBP-DIC offset, there’s an open season on enrolling or canceling SBP for the rest of 2023.

If you choose not to decide, you still can make a choice:  if you get through the entire pros & cons analysis then you can always opt for full SBP at retirement, think about it for 24 months, and then cancel anytime during the 25th-36th month.

My spouse and I declined SBP on each other because we each have enough assets to self-insure, and we’d rather spend the 6.5% on each other while we’re both alive.

(*For everyone else reading this thread I’ll recommend CFP Forrest Baumhover’s excellent book that analyzes the pros & cons of SBP:
https://www.amazon.com/Military-Transitions-Guide-Survivor-Benefit/dp/1534883959/
He’s also a military retiree-- and his spouse co-founded their advisory firm-- so he understands the emotional aspect behind SBP as well as the finances.)

While I can sympathize with Dee18's family, most retired military don't use the SBP.

I’m curious, @FlytilFIRE, there’s plenty of anecdotes about declining SBP-- but have you seen any research data from DoD or anyone else?

I’ve focused more on the individual’s situation but it’d be helpful to see a credible study of why retirees end up signing up for (or declining) SBP.

Indeed, taking forever. And we still have a year to go!  Thankfully, we are moving more and more toward clarity, not only toward getting out (an almost certainty now, unless Pers offers a dream job in a dream location within the net few months before he drops his letter), but also toward what kind of work he wants to do.  And he's even forcing himself o do some networking, which he hates. 

Thanks for the insights.  It really helps to read you and your DW turned down SBP.  Everyone I mention it to seems to think it's crazy to even consider not taking it.  So to know someone who really understands this stuff made that choice at least validates it as a viable choice.  Thanks, again, for your insights. 

[FlytilFIRE]

I'm drowning in research and it's become information overload, and analysis paralysis. 

Spouse seems to be about a year out from military retirement and one of the zillion things we are trying to figure out is SBP.   Do we opt for SBP, hedge bets with partial SBP, or skip it?

@Villanelle, how long has it been since we’ve been talking about leaving the military?  Does it seem to be taking forever for you too?!?

You’re already dealing with analysis paralysis, so I won’t recommend yet another book.*

Instead I’ll hit the high points:
- If you had a child who would be a permanently disabled adult (presumably eligible for federal & state benefits) then SBP is essential.  It’d pay out to a Special Needs Trust so that they’d still be eligible for their benefits, especially in their local community.  This feature was added in 2015.

- If you had kids then child SBP is considered a great idea because it’s so inexpensive.  It pays until they’re 18 years old, or a few years longer if they’re full-time college students.

- SBP is your choice, not the retiring service member’s choice.  If you would feel uncomfortable managing a lump sum from a life-insurance policy, then SBP offers an inflation-adjusted life annuity with the same sleep-at-night comfort as a military pension or Social Security.  Because the federal government partially subsidizes your SBP premiums, you cannot buy an inflation-adjusted life annuity from any other source for the same amount of benefits or inflation adjustments.

I suspect that you’re already pretty comfortable with lump sums.  You might not need to care about an inflation-adjusted survivor annuity.

- If you wanted to insure against a lump-sum debt like a mortgage, a college fund, or a personal loan against a business-- then term insurance is a much better (and much cheaper) way to balance liabilities with assets.

If you didn’t already know this, there are two new changes to SBP:
- SBP used to be offset by Dependency and Indemnity Compensation.  That just ended a few months ago:
https://www.dfas.mil/retiredmilitary/survivors/SBP-DIC-News/

- Because of the elimination of the SBP-DIC offset, there’s an open season on enrolling or canceling SBP for the rest of 2023.

If you choose not to decide, you still can make a choice:  if you get through the entire pros & cons analysis then you can always opt for full SBP at retirement, think about it for 24 months, and then cancel anytime during the 25th-36th month.

My spouse and I declined SBP on each other because we each have enough assets to self-insure, and we’d rather spend the 6.5% on each other while we’re both alive.

(*For everyone else reading this thread I’ll recommend CFP Forrest Baumhover’s excellent book that analyzes the pros & cons of SBP:
https://www.amazon.com/Military-Transitions-Guide-Survivor-Benefit/dp/1534883959/
He’s also a military retiree-- and his spouse co-founded their advisory firm-- so he understands the emotional aspect behind SBP as well as the finances.)

While I can sympathize with Dee18's family, most retired military don't use the SBP.

I’m curious, @FlytilFIRE, there’s plenty of anecdotes about declining SBP-- but have you seen any research data from DoD or anyone else?

I’ve focused more on the individual’s situation but it’d be helpful to see a credible study of why retirees end up signing up for (or declining) SBP.

I haven't seen any DOD data, and I've been out of the loop for decades. My former company, however, has a pension plan (for what wasn't taken in bancruptcy) very similar to the SBP that I was somewhat familiar with. I know about at least a subset of the retirees, and very few take the SBP. It'll take a bit, if you want actual percentages.

Your information seems very complete, and as I said in previous posts, so much depends on individual circumstances (dependents, life expectancy, income stream). For my ex-company, I think the income stream was the major factor- the money wasn't critical, and the SBP payout wasn't enough to choose a lesser amount for a surviving partner. Of course, if your surviving partner is significantly younger than you, it's a whole new ball game. A related heated discussion on the company chat room is when to take SS. Seems fairly evenly split on taking it early, and for the same reasons as the SBP.