Are Early Claimers Making a Mistake?

[Dawg52]

There is a correlation of looks with health.So this might support your idea.

Ha

I'm doomed.

 

[Teacher Terry]

Hope no one was eating when this appeared)

 

[mathjak107]

hey , take my photo down !

 

[mathjak107]

"Married people don't live longer. It just feels like longer."
(There. Somebody had to say it!)

until death do we part is not a marriage vow- IT IS A GOAL

 

[Bigdawg]

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.

Well Nords, since I found this site from your book it is good to know that my DW and I are basically following your plan. Like I mentioned earlier, we do carry the term insurance. That is basically because we have a few mortgages that we would like paid off in the event of one of our untimely last breath taken. We plan to do the same with our SS. Mine at 62 and DW at 70.

 

[samclem]

I'm doomed.

And that, folks, is why I never sit directly on any chair in a hotel room. There are usually plenty of towels to serve as a chair cover.

 

[Alan]

hey , take my photo down !

I did note that he was typing one-handed so was wondering if it was you.

Thanks for the confirmation

 

[nash031]

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:

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.

It didn't, however, provide the "Aha!" I was hoping for. 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).

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!

 

[Gabieta]

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!

Nash -- not to complicate things, but since you mentioned kids, as you evaluate all the options, you may want to consider the "child only" SBP option.

Child only is MUCH less costly and pays out up through age 22 (if child is a full time student).

DH and I are dual retired military, and finally decided on "child only" in case one (or both) of us reach an early demise. We had our last kid in our 40's, so "child only" SBP covers us into our 60's! It would give the surviving parent enough to manage through the college years easily. Once our last is through college, the survivor would be more than fine with their own pension, ss, and the nest egg.

 

[Sunset]

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 ??

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.

 

[pb4uski]

Does this include converting some of the IRA's to ROTH ?? ...

No, see posts #75 and #78.

 

[Nords]

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).

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.

It didn't, however, provide the "Aha!" I was hoping for.

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.

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.

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?

And, of course, all of that is just cold-hearted Vulcan financial logic. There's still the emotional issue of whether she's happy to give up 6.5% of "your" pension now for the lifetime security of her SBP.

... but DW gets a vote regarding her peace of mind.

Well, according to federal law and DFAS, technically the spouse gets all the votes.

Beneficiaries and Coverage Levels
"Spouse Only
The most common election for a retiree to make is for only his or her spouse to be covered based on full retired pay. Cost is calculated at a maximum of 6.5 percent of the elected level of coverage.
If you have an eligible spouse and you choose anything less than full coverage, the spouse’s notarized signature must be obtained for the election to be considered valid."

 

[audreyh1]

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.

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.

 

[samclem]

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.

Two other differences between SBP and commercial insurance are:
1) Commercial insurance (usually) uses underwriting to determine the risk and set the premiums for a given benefit. SBP doesn't do that, so it is much better deal (actuarially) for some folks than others. For a 40 YO military female retiree in good health with a 70 YO chain smoking spouse in poor health, SBP is probably not the best option. Reverse the situation and SBP will be a screaming bargain compared to any commercial insurance.
2) With commercial insurance, the vast majority of those signing up have a net negative expected return--that's the nature of insurance (gotta keep the lights on MetMutualIndemnity). With SBP, there's a net positive expected return for most enrollees (that's why the program needs to be subsidized). So, regardless of the need for the need (or not) for the possible SBP payouts, most people can expect to come out ahead from a strict "absolute dollars" standpoint if they enroll. The main question for most people considering SBP is not whether SBP has a net positive expected payout (it does) or whether it beats commercial insurance (it almost surely will), 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.

If a couple (or, really, the spouse) decides against SBP after considering the above, then the next logical step is to consider commercial insurance to fill any time/required dollar gaps they may have in the most economical way.

 

[RunningBum]

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.

But oddly enough, taking $10K a year (as this poster stated in another thread he/she started) in ACA subsidies apparently is not greedy.

 

[ShokWaveRider]

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.

No not yet. Once I reach 65, I may, but we invest very conservatively. If interest rates soar that may be a deciding factor. I we do it now it will push us into the next tax bracket.

 

[ShokWaveRider]

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.

Nope, be different if we had not paid for it. If we had had the money to do with as we will instead of donating to SS. We would be using it. What is the difference?

 

[nash031]

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.

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?

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.

Initial thought is after we reach FI, if I kick the bucket at age 43, term LI would immediately pay off the house and provide enough left over for college tuition. Her expenses at that point would be HOA+property taxes as far as the home goes, which is about an $18,000 per year reduction in expenses from our current level alone. Taking out expenses for me, I think her salary (she expects to keep working for a while after my AD retirement) more than covers everything without even touching the stash. And every year I live beyond that (along with every year she works) the expectation becomes more positive as the stash grows. If she were to need to stop working right away, the stash should generate enough to cover basic expenses without issue, even until SS were to kick in.

It does provide the longevity insurance aspect, but the most likely scenario for us is that it becomes wholly unnecessary from a pure "need" perspective, kind of like buying the extended warranty on your washer/dryer.

Obviously something we have to talk about.