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Old 03-20-2013, 06:19 PM   #21
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Originally Posted by Greg V View Post
It's great for you to support your alma mater. Universities rely heavily on their grads to fund important programs. I am ill equipped to discuss the ins and outs of charitable trusts. Asking some questions will be good education for me. Here goes:

For the amounts of money involved, does this accurately describe your contributions?

1. Initial funding of 100K via stock, 47K of which is appreciation on the initial stock investment.
2. After that 100K, you put in $640/month (cash, I assume, not securities)...didn't really get how long (10 yrs?)...$500 goes to the trust and $140 to a $300K life ins policy
3. At the 10 yr point you add another 100K to trust.

Under the terms of the trust, do you/your family receive an annuity only if you die...and only after age 70? It would seem you'd get a deferred annuity of some sort, living or dead, out of this arrangement.

Does UW have control of the money used to fund the trust from the date you start the contributions? Are those resources completely unavailable to you in case of unplanned expenses? Does your family get any benefit, except for the life ins, if you die prior to age 70 ?

Do you avoid taxation on the 47K of capital gains, making funding of the trust easier, or do you actually get a tax deduction?

How did the premium for the insurance "wrapper" compare to the quotes you received for term insurance only?

It seems you're putting in $260K (mitigated by tax savings on the securities put in the trust) plus a little over $13K in ins premiums for the trust arrangement if your payments end at age 70 (today's dollars). For SBP, up to age 90 (in today's dollars) you're paying $84K.

If you're getting a $1400/mo guaranteed annuity starting at 70 (don't have to die for UW to pay), you also have $470K of guaranteed income, assuming the age 90 scenario. If that's the case, you're not just ensuring an income stream for your spouse in case of your death, you're also annuitizing some of your assets to give you another guaranteed income stream for your financial planning. You could compare the costs and conditions of similar deferred annuities to see how the UW plan stacks up. Of course, part of the allure of this plan is that UW would benefit.

I'm not sure these things are chinks as much as gaps in my understanding of the arrangement. It seems SBP and the UW plan are doing different things, making a direct cost/benefit analysis tougher. Appreciate the chance to discuss and examine these types of estate vehicles.

BTW, GolfingDuo is on target about the FERS Survivor Annuity having implications for survivor's health care access for any readers who are in that boat. While the programs have similarities, dtbach's military program does not have that same issue. It's a big deal for the civil servants.
Greg V thank you for that positive note here. I am one of many dual status military technicians. Today I went to a pre retirement seminar and got a lot of great information that is very important to the FERS side of my retirement. I can completely understand Dtbach's work to lower the amounth paid out. I am considering taking only the 1/4 SBP for the FERS if only to continue the option for FEHB (Federal Employee Health Benefit) plan. The percentage required to continue is 5% of my annuity instead of the 10% for the full (50%) SBP. We have time since I am still four and a half years from retirement. I feel much better now about my up coming retirement and I was pretty confident about our income but now I have a better feel for the actual numbers.
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Old 03-20-2013, 07:31 PM   #22
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I declined the SBP when I got my 20 year letter (with notarized wife signature), and just bought a term life policy to cover me up till 65.

I will probably decline again when I hit 59.5 in 10 years, assuming my health is still good.

When I did the numbers, it was much cheaper, with more coverage, to just buy a term policy.
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Old 03-20-2013, 07:40 PM   #23
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Originally Posted by Sniggle View Post
I declined the SBP when I got my 20 year letter (with notarized wife signature), and just bought a term life policy to cover me up till 65.

I will probably decline again when I hit 59.5 in 10 years, assuming my health is still good.

When I did the numbers, it was much cheaper, with more coverage, to just buy a term policy.

I am just curious how is that cheaper. I have heard now three people say the same thing. I guess I just don't see the benefit. If we buy a term policy for x time, at the end of x term it will be gone. Yes if I pass on before x time then it makes sense. If not then how does that equate to giving income into the future? Especially in the 8 year time frame. If it is a 20 year term then that makes sense. Of course no one is gonna insure a 80 year old man for short money to replace 100k income. I get the term life insurance to replace income when young. I just don't see it into retirement. Maybe someone can help.
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Old 03-20-2013, 10:02 PM   #24
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Quote:
Originally Posted by Greg V View Post
It's great for you to support your alma mater. Universities rely heavily on their grads to fund important programs. I am ill equipped to discuss the ins and outs of charitable trusts. Asking some questions will be good education for me. Here goes:

For the amounts of money involved, does this accurately describe your contributions?

1. Initial funding of 100K via stock, 47K of which is appreciation on the initial stock investment.
2. After that 100K, you put in $640/month (cash, I assume, not securities)...didn't really get how long (10 yrs?)...$500 goes to the trust and $140 to a $300K life ins policy
3. At the 10 yr point you add another 100K to trust.

Under the terms of the trust, do you/your family receive an annuity only if you die...and only after age 70? It would seem you'd get a deferred annuity of some sort, living or dead, out of this arrangement.

Does UW have control of the money used to fund the trust from the date you start the contributions? Are those resources completely unavailable to you in case of unplanned expenses? Does your family get any benefit, except for the life ins, if you die prior to age 70 ?

Do you avoid taxation on the 47K of capital gains, making funding of the trust easier, or do you actually get a tax deduction?

How did the premium for the insurance "wrapper" compare to the quotes you received for term insurance only?

It seems you're putting in $260K (mitigated by tax savings on the securities put in the trust) plus a little over $13K in ins premiums for the trust arrangement if your payments end at age 70 (today's dollars). For SBP, up to age 90 (in today's dollars) you're paying $84K.

If you're getting a $1400/mo guaranteed annuity starting at 70 (don't have to die for UW to pay), you also have $470K of guaranteed income, assuming the age 90 scenario. If that's the case, you're not just ensuring an income stream for your spouse in case of your death, you're also annuitizing some of your assets to give you another guaranteed income stream for your financial planning. You could compare the costs and conditions of similar deferred annuities to see how the UW plan stacks up. Of course, part of the allure of this plan is that UW would benefit.

I'm not sure these things are chinks as much as gaps in my understanding of the arrangement. It seems SBP and the UW plan are doing different things, making a direct cost/benefit analysis tougher. Appreciate the chance to discuss and examine these types of estate vehicles.

BTW, GolfingDuo is on target about the FERS Survivor Annuity having implications for survivor's health care access for any readers who are in that boat. While the programs have similarities, dtbach's military program does not have that same issue. It's a big deal for the civil servants.
I'm learning some things myself as I go along. Lets get the FERS thing out of the way. It has nothing to do with my situation. DW and kids still get Tricare if I go whether or not I have SPB.

On the trust thing, the UW gets whatever is left of the trust after both DW and I are gone (kids don't get anything from it). During the 8 years from 62 to 70, If I die, the $300,000 would get added to whatever we had in the trust and then she gets paid at 5% out of it. So lets say I croak at 65 and we had built up $130,000 into it, now its worth $430,000 and she gets 5% a year from it (or about $1790/mo). It's not COLA protected but its better initially than the $1660/mo from SBP.

If I DO live however, at 70 we BOTH get a stream of income out of the trust (as will either one of us, until both die). So during the 8 years from 62 - 70 I saved $24,000 from not paying SBP and in fact subsidized the trust with that money. If I live another 20 years after that I will have saved an additional $60,000. Plus obviously the stream of money from the trust for those years.

Quote:
Originally Posted by GolfingDuo View Post
I am just curious how is that cheaper. I have heard now three people say the same thing. I guess I just don't see the benefit. If we buy a term policy for x time, at the end of x term it will be gone. Yes if I pass on before x time then it makes sense. If not then how does that equate to giving income into the future? Especially in the 8 year time frame. If it is a 20 year term then that makes sense. Of course no one is gonna insure a 80 year old man for short money to replace 100k income. I get the term life insurance to replace income when young. I just don't see it into retirement. Maybe someone can help.
Hopefully I have answered you question on the 8 year time frame.
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Old 03-20-2013, 10:09 PM   #25
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No she won't be penniless. I did miss the 2mil in assets so please except my apologies. The paid off house is okay but that is not liquid and could go up or down depending on market and location. Still with that kind of assets why give money to the insurance companies. They already have some of the largest buildings and are always finding ways on how not to pay out..........

Who has bigger buidlings than the insurance companies? The government comes to mind as the obvious answer. The OP can either give money to an insurance company or to the government. He is smart to be looking for the best cost for the coverage he actually needs. When I retired from active duty in 1993 we looked at the choices and bought term life insurance and declined the SBP. The term insurance ends in a few years when DW's pension and SS will be more than she actually needs to live. I plan to live another 40 years. I would really be pissed to look back at age 100 on 60 years of SBP payments knowing that I really only needed 22 years of insured coverage.

I know nothing about setting up a charitable trust but what the OP has posted so far about setting up a trust with wraparound insurance looks very interesting.
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Old 03-21-2013, 07:38 AM   #26
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Originally Posted by dtbach View Post
I'm learning some things myself as I go along. Lets get the FERS thing out of the way. It has nothing to do with my situation. DW and kids still get Tricare if I go whether or not I have SPB.

On the trust thing, the UW gets whatever is left of the trust after both DW and I are gone (kids don't get anything from it). During the 8 years from 62 to 70, If I die, the $300,000 would get added to whatever we had in the trust and then she gets paid at 5% out of it. So lets say I croak at 65 and we had built up $130,000 into it, now its worth $430,000 and she gets 5% a year from it (or about $1790/mo). It's not COLA protected but its better initially than the $1660/mo from SBP.

If I DO live however, at 70 we BOTH get a stream of income out of the trust (as will either one of us, until both die). So during the 8 years from 62 - 70 I saved $24,000 from not paying SBP and in fact subsidized the trust with that money. If I live another 20 years after that I will have saved an additional $60,000. Plus obviously the stream of money from the trust for those years.



Hopefully I have answered you question on the 8 year time frame.
It does. It is just hard to fathom how it would work for me but I will work the numbers. I guess it can. I think though because I have the added portion of FEHB I think I might keep that one at 1/4 there-by keeping the FEHB option open. I do have two pensions to cover but no matter each way we do have plenty of savings and she will get my SS. Baring any unforseen incidences we are relatively healthy.

Quote:
Originally Posted by jclarksnakes View Post
Who has bigger buidlings than the insurance companies? The government comes to mind as the obvious answer. The OP can either give money to an insurance company or to the government. He is smart to be looking for the best cost for the coverage he actually needs. When I retired from active duty in 1993 we looked at the choices and bought term life insurance and declined the SBP. The term insurance ends in a few years when DW's pension and SS will be more than she actually needs to live. I plan to live another 40 years. I would really be pissed to look back at age 100 on 60 years of SBP payments knowing that I really only needed 22 years of insured coverage.

I know nothing about setting up a charitable trust but what the OP has posted so far about setting up a trust with wraparound insurance looks very interesting.
Tha is part of the reason why I have a hard time grasping the idea. It seems to make sense. I do not have 100k to give to an alma matter so that option is out but I do belong to USAA and their rates are pretty good. It looks like I would spend about the same for SBP but as stated for a shorter period of time. I have two pensions as I mention to cover for. One though I think I will keep SBP at 1/4 if for nothing else the FEHB option if needed. The other pension could be made up with the life insurance. It can make sense. After I reach 70 or 75 I would not need it any more so I could just let it lapse. I could do whole/universal life but that seems to be counter intuitive.

Thanks for helping out here. I have plenty of time to decide.
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Old 03-21-2013, 08:01 AM   #27
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For what it's worth, when I retired from the Navy (active duty retirement, not reserve) after 28 years, I agonized over the SBP decision. I ended up signing up for enough to give my wife a $20K annuity in the event of my demise. Since my retirement (about 11 years ago) the annual COL increases have increased the amount to $30K. That said, if I could revisit the decision, I would probably sign up for the max, just for the peace of mind. As it turned out, it was far easier to live on my retired pay (without dipping into the nest egg) than I had predicted. So I don't think I would have missed the additional premiums which would have been taken out. (Of course, at the time I retired, the SS offset was still in place and that was a disincentive for me. As has been noted by previous posters, that disincentive has disappeared.)

It's interesting that during the pre-retirement seminar I attended there was a speaker from Navy Mutual Aid Association (NMAA). I believe it was the retired admiral who was the president at the time. He said that NMAA recommended taking the full SBP amount. This was is spite of the fact that NMAA is basically a non-profit insurance company so one would think they would have a good motivation to recommend an insurance alternative.

In any event, I can't walk that dog back and I have made what I think are other sensible arrangments to take care of my surviving spouse if that should be the case. But, as I said, I would take the full SBP if I had that choice now. YMMV.
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Old 03-21-2013, 08:12 AM   #28
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I've gotten some more information from the UW foundation. It will cost quite a bit more than I thought to get a $1600 stream of income. Actually we looked at what it would entail to get a COLA adjusted stream for that amount and it is more than $500,000!! Gasp!

I'm not ready to gut my taxable accounts at this point. I have two years to figure something out, but my gut feeling is, I'll just suck it up and keep the SBP. Since it's coming out directly before it gets to the bank, I probably won't miss it all that much and the DW will sleep better.

Thanks for all your comments though as it as helped me to step through this process in a more complete manner.
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Old 03-21-2013, 08:28 AM   #29
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For GolfingDuo, you have both the FERS Survivor Annuity and RCSBP to consider…easy to confuse the two and their rules since there are similarities. Even with the health care implications for FERS, you can suspend FEHB at age 60 when your start getting your Military Annuity and switch to TRICARE, so there is another option at that point.

For dtbach, your exploration of options has led you beyond just researching a less costly SBP replacement. SBP is only “insurance” to guarantee adequate income for your survivors. The UW plan has features that cover that eventuality but you are also annuitizing some of your assets to give a more predictable income stream throughout your/your spouse’s retirements. It may also impact your estate taxes based on the assets that transfer to UW upon the demise of both you and your spouse.

The UW trust does not cost less than SBP, at least in the first 10+ years, and potentially reduces the assets you (as a couple) can pass on to your heirs. It also accomplishes more things…survivor coverage, deferred annuity you may get to use, support of your alma mater, avoiding tax on capital gains, etc.

So…does strictly ensuring adequate income for your survivors (SBP and/or term ins) or insuring income/deferred annuity/charitable contributions meet your priorities and goals? Doing more will probably cost more….depending on assumptions for age of death, return on the trust investment, future COLA’s/laws affecting SBP, we could probably build scenarios that favor either choice…

Just saw your latest post…thanks for the good discussion; very enjoyable and educational
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Old 03-21-2013, 09:47 AM   #30
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Originally Posted by dtbach View Post
I've gotten some more information from the UW foundation. It will cost quite a bit more than I thought to get a $1600 stream of income. Actually we looked at what it would entail to get a COLA adjusted stream for that amount and it is more than $500,000!! Gasp!

I'm not ready to gut my taxable accounts at this point. I have two years to figure something out, but my gut feeling is, I'll just suck it up and keep the SBP. Since it's coming out directly before it gets to the bank, I probably won't miss it all that much and the DW will sleep better.

Thanks for all your comments though as it as helped me to step through this process in a more complete manner.
The cutting into accounts is what is stopping me. I am not sure I want to do that.

Quote:
Originally Posted by Greg V View Post
For GolfingDuo, you have both the FERS Survivor Annuity and RCSBP to consider…easy to confuse the two and their rules since there are similarities. Even with the health care implications for FERS, you can suspend FEHB at age 60 when your start getting your Military Annuity and switch to TRICARE, so there is another option at that point.

For dtbach, your exploration of options has led you beyond just researching a less costly SBP replacement. SBP is only “insurance” to guarantee adequate income for your survivors. The UW plan has features that cover that eventuality but you are also annuitizing some of your assets to give a more predictable income stream throughout your/your spouse’s retirements. It may also impact your estate taxes based on the assets that transfer to UW upon the demise of both you and your spouse.

The UW trust does not cost less than SBP, at least in the first 10+ years, and potentially reduces the assets you (as a couple) can pass on to your heirs. It also accomplishes more things…survivor coverage, deferred annuity you may get to use, support of your alma mater, avoiding tax on capital gains, etc.

So…does strictly ensuring adequate income for your survivors (SBP and/or term ins) or insuring income/deferred annuity/charitable contributions meet your priorities and goals? Doing more will probably cost more….depending on assumptions for age of death, return on the trust investment, future COLA’s/laws affecting SBP, we could probably build scenarios that favor either choice…

Just saw your latest post…thanks for the good discussion; very enjoyable and educational

It is a good discussion. I have some information I will get up here probably using links to Army Benefits Center and other locations that is pertinent to this topic and important to all.

In a final thought so far I am thinking I would since I have two pensions I would take SBP on one and not the other. Best rule of thumb is the bigger of the two and that would be FERS over the army. Who knows I could outlive DW. I have hopefully 4.5 years left so I pleanty of time to decide.

Thanks Greg V and Dtbach and everyone else too. This is a good discussion.
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