Learning about SBP? You definitely want to read Everything About The Survivor Benefit Plan and 10+ Places To Learn About The Survivor Benefit Plan.
One of the common complaints about SBP is that the survivor will never live long enough to get back “all that money” that they’ve paid into the program. The math just doesn’t support that statement, as the “payback” period on a full SBP investment is less than four years.
How do we come up with that number? Let’s use a hypothetical situation. We’ll use today’s dollars, to keep it simple (but we’ll discuss the effects of inflation later.)
Let’s say that hypothetical Retiree Ricky receives $2,000 in military retirement pay, and Ricky lives a long, full life and pays full SBP premiums for thirty years. Her monthly SBP premium payment will be $130 per month, or $1,560 per year, or $46,800 for the entire 30 year term.
When Ricky passes away, her widower will receive $1,100 per month. Take the full $46,800 that Ricky paid for SBP, and divide it by the monthly benefit of $1,100, and you will see that Ricky’s survivor needs to live less than 46 months (three years and ten months) to “get back” every penny that Ricky contributed.
The Effect of Inflation
Keep in mind that while we’ve used today’s dollars for this example, SBP premiums and benefits are inflation-adjusted as military retirement pay increases. That means that Ricky’s $130 premium payment made in 2018 is actually paying for a monthly benefit that will almost surely far exceed $1,100 per month.
What If Ricky Dies Before 30 Years of Premiums
In the event that Ricky doesn’t survive to pay 30 years of premiums, then obviously the SBP is an even better value. Let’s say that Ricky pays SBP premiums for 15 years. Her beneficiary would only need to receive benefits for 23 months, less than two years, to “get back” the amount of premiums.
It is possible for the military retiree to live just one month, and the survivor to receive decades of benefits.
What If The Beneficiary Dies Before Ricky
This is the main crux of most legitimate concerns about SBP – there is no transferrability (except to a new spouse) or refund of premiums if the beneficiary dies before the military retiree. It’s true, but I don’t think makes SBP worthless. We all willingly and gladly pay for all sorts of programs that we hope to never use, including homeowners insurance, life jackets for boats, and Epipens for those with allergies. No sensible person thinks, “I won’t buy a life vest for my boat because I won’t get a refund if I don’t have an incident.” Why would the corollary, “I won’t buy income replacement because I won’t get a refund if I don’t need to have my income replaced?” make sense?
Short and simple: Even if you pay the full 30 years of premiums, SBP pays for itself if your survivor lives just 4 years longer than you.
It’s something to think about.
Do you want to know more about your military pay and benefits?
Things change fast around here! Keep up-to-date with email alerts about the topics that are important to you!