"Married people don't live longer. It just feels like longer."
(There. Somebody had to say it!)
Keep in mind that the premium also goes up every year (the same as the pension COLA) and will be paid up only when you've made 30 years of payments and when you're also older than age 70 (both have to happen).
One problem is that life insurance is... insurance while SBP is a govt-subsidized inflation-adjusted annuity. You may need one for a limited time or neither ever... especially if your spouse has their own assets.
To make the discussion even more treacherous, many military spouses feel that they've "earned" the right to your SBP by virtue of sacrificing their career human capital earnings potential to follow your career at the whim of the military assignment officers. Not only is that decision in the hands of your spouse, but they're absolutely correct in this (emotional) behavioral financial psychology attitude.
The most balanced discussion (and financial analysis) that I've seen is Forrest Baumhover's new eBook. This grew out of his posts on MilitaryInTransition.com and I took my turn at editing it:
https://www.amazon.com/Military-Transitions-Guide-Survivor-Benefit-ebook/dp/B01EPB5H1Q/ref=sr_1_1
Personally, my spouse and I both declined each others' SBP since we both have our own military pensions and other assets... and we'd rather spend the 6.5% on each other while we're alive. In the same logic we also do not carry life insurance.
I plan to take Social Security at age 62 and invest it in a passively-managed equity index fund with low expense ratios. I won't need to touch it. It's part of my long-term care self-insurance fund that I hope I never need to tap.
My spouse has Ashkenazism genes and will likely outlive her centenarian grandparents, so she's going to wait on SS until age 70.
hey , take my photo down !
Quick update and some thoughts here:Keep in mind that the premium also goes up every year (the same as the pension COLA) and will be paid up only when you've made 30 years of payments and when you're also older than age 70 (both have to happen).
One problem is that life insurance is... insurance while SBP is a govt-subsidized inflation-adjusted annuity. You may need one for a limited time or neither ever... especially if your spouse has their own assets.
Quick update and some thoughts here:
Right now, we both have term policies that expire at age 62 (me) and 59 (her). Our policy is for an amount which would pay off our house and still have enough to pay for at least one and probably two kids to go through college. Gun to my head today, I'd keep my term policy through its end, and when I retire from the Navy (and assuming we've hit our FI number), I'd cancel her term policy.
She is just about four years younger, and my stabs at life expectancies are 85 (me) and 90 (her). I expect she'll have about ten years without me given our family histories. She works, and is a significant contributor to the bread and retirement game, but I am the "primary breadwinner". We could easily survive on my pension and her income with no changes to current lifestyle, and would still be saving a little bit of money while not touching our savings.
If I were to meet an early demise, she would have our FI money plus term insurance which, combined, would provide a potential passive income stream equal to her salary. I don't know if that would alone be enough for her.
So we appear to be candidates for SBP in regard to longevity. The other (maybe better) option would be to raise my term insurance value, and then as she/we continue(s) to work, re-evaluate whether or not we need anything as our stash grows to make SBP irrelevant.
In the end, I think the greatest likelihood is that SBP is unnecessary, particularly if I keep my term coverage until it is no longer relevant, but DW gets a vote regarding her peace of mind.
.... But this is probably better moved to its own thread!
Not in our case. At our current expense rate IRAs will last 36 years. Cash and cash equivalents will last another 36 years and that does not take into account SS or the return on the funds at all.
Does this include converting some of the IRA's to ROTH ?? ...
Thanks. The issue on the military Facebook groups (which inspired Forrest's eBook) is the confusion between comparing the apples of SBP (an annuity) to the oranges of term insurance (um... insurance). Military spouses insist (often stridently) that nothing can beat SBP's premiums or values, and they're right. But they can't get past that bargain-hunting to reflect on whether they need SBP in the first place.Quick update and some thoughts here:
I downloaded and read the E-book you mentioned. I thought it was pretty good, and at least provided a concise explanation of SBP and the whys as to its existence. That provides a little bit of clarity to me as to when it is appropriate and when it isn't.
[...]
I ran the actuarial calculator over the weekend, and it shows how the SBP provides value which builds depending on how long she outlasts me (of course) but that wasn't all that enlightening because I found that it lacked the details I wanted (or maybe I missed them the first time through).
You've been analyzing complicated financial questions for a while, and you know how to spot a need. I think this apathetic reaction could be a sign that you may not need SBP.It didn't, however, provide the "Aha!" I was hoping for.
That depends on all of her income and assets. In addition to the payout from term insurance, would her other assets be enough? Would she need to keep working for her salary? Could she live off everything else plus (eventually) Social Security?If I were to meet an early demise, she would have our FI money plus term insurance which, combined, would provide a potential passive income stream equal to her salary. I don't know if that would alone be enough for her.
Well, according to federal law and DFAS, technically the spouse gets all the votes.... but DW gets a vote regarding her peace of mind.
Taking Social Security is greedy? Or taking at 70 is more greedy than 62 if you don't need the extra income?Very profound.
Waiting till 70 just because it is more money is a fruitless exercise. IOHO it is almost being a little greedy, if you do not need the extra income.
Two other differences between SBP and commercial insurance are:Thanks. The issue on the military Facebook groups (which inspired Forrest's eBook) is the confusion between comparing the apples of SBP (an annuity) to the oranges of term insurance (um... insurance). Military spouses insist (often stridently) that nothing can beat SBP's premiums or values, and they're right. But they can't get past that bargain-hunting to reflect on whether they need SBP in the first place.
Taking Social Security is greedy? Or taking at 70 is more greedy than 62 if you don't need the extra income?
Maximizing surviving spouse benefits. Oops - that might be a little greedy too.
As might be saving in Federal income taxes by delaying.
Does this include converting some of the IRA's to ROTH ??
My simple plan for the initial time is to spend IRA withdrawals to the 15% max, and maybe later do ROTH conversions, depending upon lots of stuff.
Taking Social Security is greedy? Or taking at 70 is more greedy than 62 if you don't need the extra income?
Maximizing surviving spouse benefits. Oops - that might be a little greedy too.
As might be saving in Federal income taxes by delaying.
2) ... With SBP, there's a net positive expected return for most enrollees (that's why the program needs to be subsidized). ... but "Do these premium dollars have more utility to us than the (probably larger overall payback of guaranteed lifetime duration for the spouse) payouts in later years." That's a tough question and I don't know of a tool that helps a couple to consider it.
Thanks for capturing those questions and issues succinctly. Coupled with samclem's point above about the positive expectation, that's exactly the question that needs answered: Do we really need it? Lots of "good values" exist out there, but that doesn't mean you have to buy it.But they can't get past that bargain-hunting to reflect on whether they need SBP in the first place.
That depends on all of her income and assets. In addition to the payout from term insurance, would her other assets be enough? Would she need to keep working for her salary? Could she live off everything else plus (eventually) Social Security?
Or would she need the second inflation-adjusted annuity of SBP?