Reserve Armed Forces pension choice

[Bimmerbill]

Hello, I'm looking for some feedback on the choice I need to make regarding my Reserve Armed forces pension survivor benefit plan.

I'm 41, I collect at age 60. Looks like I have three choices:
1) No coverage- if I die before 60 nobody gets any money.

2) Deferred coverage- If I die before age 60 my spouse/offspring get a reduced annuity at what would have been my 60th birthday.

3) Or immediate coverage, spouse and dependent children draw an immediate annuity upon my death.

Option 1 yields $660 a month. Deferred annuity yields $640 a month if I draw it, $363.25 a month if I die. Immediate annuity yields $626 a month at age 60, or $355 a month if I die before age 60.

I'm thinking option 3, which should reduce the amount of life insurance I need to carry too. Annuity pays for life of spouse, unless spouse remarries or dies before age 55. Then it pays to offspring until age 18, 22 if full time student.

What does $355 a month equate to if it were to replace a life insurance policy?

Thanks!

 

[OAG]

If you use the "traditional" 4% Capitalization it would be something like $335 X 12 = $4,020 (Annual Payout) Divided by .04 (or times 25 (the inverse)) = $100,500 for the capitalized value. This SPB payment will also be COLA'd (using the annual BLS CPI Number) both while you are alive and for the beneficiaries if you predecease them. So using these numbers IMO you could reduce your need for Life Insurance by about $100,000 (you would be buying Term Life Insurance, right?). Could you get Term for $100,000 for less than the SBP payment? However, as I am sure you are aware, SBP is a 30 year pay program after the 360th monthly premium it is fully paid up and no further premiums are required continue coverage.

 

[Bimmerbill]

Yeah, I am looking at some term life to replace my SGLI. I didn't know SBP has a 30 year pay plan. I'll have to reread my info.

 

[Nords]

I'm 41, I collect at age 60. Looks like I have three choices:
1) No coverage- if I die before 60 nobody gets any money.
2) Deferred coverage- If I die before age 60 my spouse/offspring get a reduced annuity at what would have been my 60th birthday.
3) Or immediate coverage, spouse and dependent children draw an immediate annuity upon my death.

Option 1 yields $660 a month. Deferred annuity yields $640 a month if I draw it, $363.25 a month if I die. Immediate annuity yields $626 a month at age 60, or $355 a month if I die before age 60.

I'm thinking option 3, which should reduce the amount of life insurance I need to carry too. Annuity pays for life of spouse, unless spouse remarries or dies before age 55. Then it pays to offspring until age 18, 22 if full time student.

Up until a couple years ago, Reservists used to file for retirement in their 40s ("go gray") and select their SBP option "just in case". Then when they hit 60 they'd cancel their SBP.

SBP staff wised up to this practice. Today you can still cancel your SBP after reaching age 62, but you have to pay two years of premiums ("payback" for the coverage from ages 41 to 60) before being eligible to canx. It's hypothetically possible that at age 60 you'll no longer feel the need for SBP, so this is one option.

Here's another thought. If you choose option 2, your spouse has to wait until age 60 before being able to collect your SBP. However, like a Reserve pension or SS, they'd know that another stream of cash would start up at a certain age and they'd be able to spend down their savings now in anticipation of that future cashflow. But I don't know if the savings is worth the delay.

Spouse has a membership in the Naval Reserve Association ("the other NRA") with tremendous archives on the arcane details of programs like this. (PM me an e-mail address and I'll send you their PowerPoint brief.) If your service has a similar organization then it's worth joining and poking around their membership side to see what other info they have.

Mods, .ppt files aren't one of the authorized attachments. If you can add that authorization then I'll post the brief here for any interested Reservists/NG. But I understand if it's a macro/security issue.

 

[Nords]

Yeah, I am looking at some term life to replace my SGLI. I didn't know SBP has a 30 year pay plan. I'll have to reread my info.

Just to beat this to death, here's a Military.com article (Military Report - Premium Change for Some Retirees):
"Participants in the Uniformed Services Survivor Benefit Plan for retired military members face some changes. Effective Oct. 1, 2008, SBP participants who reach 70 years of age and have made 360 payments (30 years), will no longer have to pay premiums for continued SBP coverage and will be placed in "Paid-up SBP" status. Also, there will be a paid-up status for participants in the Retired Serviceman's Family Protection Plan once they reach 70 years of age. No action is required of SBP participants to be placed in Paid-up SBP status. More information on Paid-up SBP should be available at the DFAS website within the next several months."

 

[Bigritchie]

Make sure you file at the VA also, even if they rate something at 0% you will become eligible for VGLI, which is some pretty cheap life insurance, it rises as you get older, but could cover you pretty cheaply until 62.

 

[Bimmerbill]

I have the option of switching my SGLI to VGLI right now, within 90 days of my retirement. I can get a term plan cheaper tho since I am still relatively young and healthy.