Military retirement/SPB/SS

[powersmo]

Hey all. Hope the group has had a good Monday so far. With my 30 year Active Army retirement coming up next July, the question of the Survivor Benefit Plan keeps popping up. At first my wife and I were really thinking of my signing up for the full ride on that since we have 2 kids (7 and 11 years old). However, as we discussed things more, we realized that we had not taken into account the money she and at least for a few years our kids would be able to draw as well from Social Security. While she has agreed that she is not looking to get rich off my death, I don't want to leave here in a bad situation. She does get a smaller Active Army retirement than I will but she also has additional disability income coming in as well. Does anyone have any thoughts or personal experience on this? Thanks.

 

[samclem]

I don't know if I can give a meaningful reply without more info on your situation. Fundamentally, you need to look at the anticipated cash stream if you die and your retirement checks are terminated. Look at her income (from all disability/retirement checks), the SS checks that will come in (on her own work record or her spousal benefit based on your SS record) and the proceeds from any investments. If the sum of those things doesn't cover her anticipated expenses, then you probably need to sign up for SBP (at some level) to bridge the gap.

There is one wrinkle: Since your "Date of Initial Entry into Military Service" (DIEMS) was prior to 1 Mar 1990, you should probably sign up for at least the "threshold amount" of SBP. SBP premiums for coverage below that level are heavily subsidized by the government and so you're walking away from money if you don't take it. More on that in this post, the whole accompanying thread there is good reading. There are other good SBP threads, too, if you haven't yet searched for them you should give that a shot.

Deciding whether to take the SBP is huge. Every situation is different. I (we) signed up for the max amount, that made sense for our situation. If your spouse has a large enough income stream from other sources (relative to her expected expenses) then you might not need as much coverage. But, again, think hard before declining the coverage on the "threshold" amount.

 

[powersmo]

Thanks for the reply. Right now she gets about 21k a year pre-tax on her retired Army pay and another 15k from VA disability. The SS statement that we reviewed the other day said that if I died today she would get about $2200.00 per month plus what the kids would get. All of that is if we didn't have any SBP at all. If I sign up for full SBP, it would provide in today's amount about $4805.00 per month pre-tax in addition to that. We certainly don't won't to take this lightly since as you know, just like life itself, you only get one shot at it. Thanks for your comments.

 

[Nords]

Thanks for the reply. Right now she gets about 21k a year pre-tax on her retired Army pay and another 15k from VA disability. The SS statement that we reviewed the other day said that if I died today she would get about $2200.00 per month plus what the kids would get. All of that is if we didn't have any SBP at all. If I sign up for full SBP, it would provide in today's amount about $4805.00 per month pre-tax in addition to that.

To be excruciatingly technically correct, you're not signing up for anything. The SBP decision on your pension is made by your spouse. But let's presume that you guys agree on your insurance strategy.

Just to make this more complicated, a few months back Htown Harry brought my attention to the nasty little unintended consequence of the SBP-DIC offset:
Quadrennial Review of Military Compensation

As a separate issue, you're going to have to check my memory on this, but I believe that DIC is only paid if your death is service-connected. If you die on active duty then it's probably considered service connected. If you get hit by a school bus on your first 10 minutes of terminal leave then that may not be considered service-connected. Of course the services have a lot of discretion on this and it may depend on the determination of the investigating officer. SBP, however, will pay out for anything short of spousicide.

A couple years ago a dual-military retiree couple asked Suze Orman how they were doing. She gave them holy hell when she found out that they'd turned down SBP in favor of term insurance:
Suze Orman advises a dual-military couple
However the couple made a very rational decision to only cover their insurance between the age they retired and the age that they'd start Social Security. They didn't have a financial need for SBP to cover either one's expenses for the rest of their lives, so they didn't want to possibly pay 30 years of SBP premiums for just the few years that they actually needed some coverage.

Before your spouse turns down SBP she'd want to make very sure that her expenses are covered not only for herself but also for your kids' college funds. Do either of you want to leave an inheritance for the kids, or send the grandkids to college? Would her disability conditions affect her longevity or her medical expenses? Would she need to make extensive home modifications for access & mobility? What if Tricare premiums go up 100% over the next decade (as seems possible)?

Before she decides to cover the gap with term life insurance you'd need some sort of reasonable estimate of the premium expenses. You'd probably be looking at a physical exam that would be more comprehensive than the typical retirement physical. If you're borderline on blood pressure or cholesterol or stress-related issues (that will probably get better in retirement) then SBP may actually be a lot cheaper than VGLI or other term insurance, assuming you need the term insurance.

My spouse and I faced a similar decision with our retirements-- we declined SBP on each other and we also skipped the term life insurance. We feel that we have "enough" for our lifestyle. We'd rather have the $2600/year to spend on each other now rather than to be rich in widowhood.

While you're reviewing the fine print, the Air Force also put out an extraordinarily detailed SBP brief in 2011 that includes the details for minor children:
More SBP details
If the Army has given you a better/more recent SBP presentation then let me know where to download it, and I'll add it to the blog.

 

[Gabieta]

powersmo --

Have you looked into child-only SBP? My husband and I are both retired military, and that is what we ultimately decided would be in our best interest. Child-only premiums are VERY small compared to covering your spouse as well.

For us, my husband and I can each take care of ourselves with our own pensions. But, we still have minor children. We opted to take child-only converage so 55% of our pensions would go to our children if either of us meets an early demise. This option gave us peace of mind for our family, at very little cost.

 

[powersmo]

We had considered the child-only option but with what they would get from Social Security it didn't make as much sense. We will most likely get the spouse only as max minus what Social Security is expected to pay out. Social Security will provide the buffer until the kids are out on their own.

Next issue will be to get surgery completed on the shoulders and knees before retirement or afterward. DAV rep recommends to wait. Recent retirees recommend do it before so you don't take a chance on waiting forever to have it done. Any thoughts?

 

[jimnjana]

DW and I decided against SBP. We are both retired Military. One factor was age difference (she is 10 yrs my senior). We did opt for term life insurance on each of us, primarily as hedge against early death before either of us were eligible for ss or could tap retirement plans.

 

[frugalliving]

I retired from AD just over 3 years ago. Our SBP decision was rather simple: I wanted my wife to have a guaranteed, inflation adjusted income stream for the remainder of her life; I wanted to make sure there was enough income to cover expenses plus a little extra (heck, she followed my around for a 26 year military career) and I'm not relying on SS to be there down the road. If SS still exists in its present form, great, all the more money.

I also bought a 30 year term life policy to cover the mortgage and other loans. If I die, the insurance pays off the debts and she lives off of SBP.

Some lessons I learned as I retired: If you have any intention of buying a term life policy, do it BEFORE you retire and BEFORE you have any surgeries. Insurance companies will find any possible reason to say you're a high risk.

Good luck!

 

[Nords]

We had considered the child-only option but with what they would get from Social Security it didn't make as much sense. We will most likely get the spouse only as max minus what Social Security is expected to pay out. Social Security will provide the buffer until the kids are out on their own.

Just to be clear, your kids only get something from Social Security if your death is service-connected. If your death is not service-connected then your kids get nothing.

Even if you have SBP on your kids, they only receive benefits as long as they're your dependents. There are some niche rules on full-time college students and disabled kids that may stretch those benefits, but that's the big picture.

I wouldn't depend on Social Security as a means of supporting my kids, and I'd only depend on it as a means of supporting my spouse if I was past full retirement age and had a higher earnings record.

Next issue will be to get surgery completed on the shoulders and knees before retirement or afterward. DAV rep recommends to wait. Recent retirees recommend do it before so you don't take a chance on waiting forever to have it done. Any thoughts?

Assuming that it's even your choice, it depends on the severity of the condition and on all your other plans.

For example, it's tempting to do the surgery on "company time" because you get days off and medical waivers. But you don't have much choice in surgeons or physical therapists. If the surgery goes bad then you're on medical hold, possibly LIMDU, possibly on TDRL, maybe even delayed for retirement. Even if you retire on time you'll have medical issues interfering with your retirement planning. Might be kinda difficult to dance at your retirement party.

But if you try to downplay or even hide the condition during your retirement physical, then that may make it more difficult to have the surgery after retirement-- and more difficult to obtain a disability rating. When the medical community has fully checked you out it may not even be your choice; your retirement may be on medical hold.

If you have the surgery after retirement then that may affect a move across country, family plans, a job search, and even physical activity like unpacking mover's boxes. If you move to a remote/rural location then finding a good orthopedic surgeon is a challenge... there are fewer than 50 of them in the entire state of Hawaii.

How bad are your joints? If no surgery is making it worse then you'd want to have the surgery now (despite all the other impacts on your life). If the surgery can only done a limited number of times (joint replacements) then you'd want to delay as long as possible.

If it's OK with the doctors, you might want to try physical therapy now and surgery later. It's the option I've taken with my torn ACLs in my knees, and I've strengthened the muscles around them enough to successfully avoid surgery for over a decade. But I don't know if that works for other ligaments or shoulders.

 

[powersmo]

Nords,
Our SS discussion was centered on what the SS website had shown on the digital version of the Benefits form that used to be mailed out yearly in the past. As for the joints, I am not severe enough in either shoulder of knee with the tears I have to need surgery right away but am certainly making sure to go the PT and shot route first. As I had a DAV RSO advise, it was better to follow through the entire option prior to surgery. He informed me that it would show progression of care and as evidence may show later a trail of care if it were to led to surgery that would lend itself better to a disablity claim or appeal.

 

[Nords]

Nords,Our SS discussion was centered on what the SS website had shown on the digital version of the Benefits form that used to be mailed out yearly in the past.

I don't know enough about that to be familiar with the requirements, but I find it hard to believe that Social Security is going to start paying money to your widowed spouse & kids if you die before you're age 62. Got a link or a name of the coverage?

Nords,As for the joints, I am not severe enough in either shoulder of knee with the tears I have to need surgery right away but am certainly making sure to go the PT and shot route first. As I had a DAV RSO advise, it was better to follow through the entire option prior to surgery. He informed me that it would show progression of care and as evidence may show later a trail of care if it were to led to surgery that would lend itself better to a disablity claim or appeal.

The best thing about the PT is that you have to do it anyway, and doing it before the surgery may stabilize the joint enough to allow you to defer the surgery indefinitely. Or at least until well after retirement, when things have settled down again.

 

[powersmo]

Nords, I have always claimed to be the least sharp pin in the cushion so if I have misunderstood the SS form statement, I would rather find out now than later. But here is the cut and paste from the form itself...

"You have earned enough credits for your family to receive survivors benefits. If you die this year, certain members of your family may qualify for the following benefits:
Your child...............$1,699 a month
Your spouse who is caring for your child.......$1,699 a month
Your spouse, if benefits start at full retirement age......... $2,266 a month"

Am I misunderstanding the SS form?

 

[Nords]

Nords, I have always claimed to be the least sharp pin in the cushion so if I have misunderstood the SS form statement, I would rather find out now than later. But here is the cut and paste from the form itself...

"You have earned enough credits for your family to receive survivors benefits. If you die this year, certain members of your family may qualify for the following benefits:
Your child...............$1,699 a month
Your spouse who is caring for your child.......$1,699 a month
Your spouse, if benefits start at full retirement age......... $2,266 a month"
Am I misunderstanding the SS form?

I think you're putting a lot of faith in the phrase "certain members of your family may qualify"...
Here's what I found at Survivors Benefits - Social Security Publication 05-10084

Your widow or widower can receive benefits at any age if she or he takes care of your child who is receiving Social Security benefits and younger than age 16 or disabled.
Your widow or widower may be able to receive full benefits at full retirement age.
Your unmarried children who are younger than age 18 (or up to age 19 if they are attending elementary or secondary school full time) also can receive benefits.

That's just a summary page and there's probably a lot more in the fine print. I see a lot of "can" and "may" and not so much "will" or "is entitled to".

Unless you're planning to buy SBP or life insurance in addition to the Social Security Benefits, it might be worth calling or visiting a SS office to make sure that's what they're really going to get if there's a horrible mishap after you're officially retired and no longer on active duty (no longer service-connected).

The main reason I'm reacting so strongly to this idea is because I've never seen it discussed at anyone's TAP classes or in any SBP briefs or in any estate planning. It might have been there all along, but I've never heard of it being anyone's "Plan A".

 

[Gabieta]

powersmo -- here is a bit more of our thought process as we looked at social security survivor benefits and SBP:

Relying on social security benefits did not provide enough peace of mind for us.

I was 40 when our youngest was born, my husband was 42.

SS survivor benefits will only be there for the spouse up until youngest's 17th birthday (we will be 57 and 59), and for the youngest up until she is 18.

SBP child only premiums are cheap (a fraction of spouse benefit premiums) -- pays out more and as long as said child is full time student, will pay until her 23rd birthday.

By then, I will be 63, and husband 65 -- at ages where we can qualify for our own ss benefits.

So, due to the age of our youngest kid, SBP child only makes sense for us.

 

[friar1610]

I retired from the Navy in 1996. I signed up for enough SBP so my wife would get about $20K per year. Inflation adjustments since then have raised that to about $30K. Between that, survivor SS and an annuity that will revert to her ownership, she will be OK if I go first. In addition, if we don't burn through our portfolio between now and then (not likely) she will be more than OK. But, in retrospect, I sorta wish I'd signed up for the max.

Unlike your wife, mine has no pension.

 

[powersmo]

Well, Friday night after work, I called and spoke with a Social Security Rep for about 30 minutes. What he told me made sense and I learned a few things. First, my wife would only draw a SS benefit after my death until the kids were 18 years old or had graduated high school, which ever came first. After that, she would only begin drawing SS beginning at age 60. So there could be a couple of year gap between kids graduation and her turning 60. Obviously, the kids would no longer receive a SS benefit but they should be on their own and have ajob anyway. We told them one day that they were on the 18/ 30 plan. When they asked what that was, we laughed and said if you don't go to college at 18, you have 30 days to move out. They didn't laugh but said they were going to live with mom and dad forever;-) Anyway, DW and I have discussed some more and we know we aren't quite there yet. I figure our 7 figure retirement savings will either get spent on family trips after I retire or that and possibly SBP will make her and the boyfriend very comfortable.

 

[Nords]

We told them one day that they were on the 18/ 30 plan. When they asked what that was, we laughed and said if you don't go to college at 18, you have 30 days to move out. They didn't laugh but said they were going to live with mom and dad forever;-)

I like that!

Thanks for sorting out the sequence with Social Security. Their website has so many ifs, thens, mays, cans, buts, and other qualifiers that it's very difficult to parse.

 

[powersmo]

Nords, it is the typical Govt way of doing business. The first time you think you know what you know you realize you are wrong as it gets. I really think the final choice will be max SBP and let it ride. It won't matter when I'm dead what I had or what happens to my body, I won't be in it anyway. If the DW dies first, I just cancel the SBP per guidance from the ACAP folks and look for what happens next.