Why You Need A War Chest Strategy for Military Pension Protection | DFAS SBP Replacement

 

This article introduces the War Chest method of wealth insurance to protect your retirement pay and replace the survivor benefit plan. Most financial planning and retirement savings vehicles only do one thing: put your money at risk for an unknown benefit. The War Chest Strategy changes that for career military retirees who want to increase the odds of positive outcomes regarding their hard-earned military retirement pay. The War Chest method offers a more comprehensive approach to retirement planning by providing a way to protect your retirement pay and also replace the survivor benefit plan. With the War Chest Strategy, you have the opportunity to have more control over your finances and potential future outcomes. By exploring War Chest options, career military retirees can gain peace of mind and confidence in their retirement planning, especially when considering survivor benefit plan options.

There are various retirement plans, life/health/long-term care insurance, and college savings plans. The military also has its financial planning tools: the Survivor Benefit Plan (SBP), Service Members Group Life Insurance (SGLI), and Veterans Group Life Insurance (VGLI). Understanding the ins and outs of these plans and policies, what they will and won’t do for you, what you can and can’t use them for and when, and how much they will cost in premiums and fees can get complicated. Additionally, service members and veterans may need to consider coverage alternatives for medical issues using private life insurance for long term care. It is important to seek the guidance of a financial advisor or a knowledgeable source within the military community to navigate the complexities of these financial planning tools and ensure that they are maximizing their benefits and coverage. Understanding the differences between these various plans and their implications for retirement and healthcare is crucial for making informed decisions about financial security.

Here at US VetWealth, we focus primarily on customizing one military financial planning vehicle: a privatized Military Pension Protection System. Although this new, modern approach to privatizing the traditional military offerings of SBP, SGLI, and VGLI has been available for a few years, not many financial experts and professionals are aware of it or the game-changing advantages it offers: This system can provide military members and their families with better flexibility, control, and overall financial security. Many military families make common mistakes during the military retirement process, such as not fully understanding their pension options or underestimating the need for additional protection beyond what the military provides. Our goal at US VetWealth is to educate and empower military members and their families to make informed decisions about their financial future.

• More equity growth (interest is credited based on the S&P 500 performance, not the federal bond rate) 
• More liquidity that you can access while you’re still alive
• A safeguard against negative market returns
• The ability to both comfortably fund your retirement and still be able to leave a legacy behind you when you die

We are transparent because we want to find the people we are meant to work with and allow those who aren’t a good fit for a War Chest to start with the basics in our financial coaching program, Military Money Mistakes.

At the same time, we don’t want to waste the time of people for whom our way of doing things isn’t the right fit. That’s why we have written extensively about the Military Pension Protection System on this site so you can learn as much as possible about it. We even get down to the weeds with some numbers about the problems with status quo financial planning for military and veterans that our system is structured to solve.

In this post, however, I am going to stay high-level and just run down the advantages of the Military Pension Protection System because not only can it do a lot of elegant things that it might otherwise take multiple different plans to accomplish, but it also takes the best features of all of those other financial vehicles and combines them into one place, along with some stop-gap measures to prevent the worst features of those other financial vehicles from harming your financial planning. 

The Top 10 Advantages of the Military Pension Protection System.

So here goes, in no particular order:

1. You don’t have to be in perfect health to qualify.

Many veterans I talk to worry they won’t qualify for the Military Pension Protection System. Typical concerns include their disability rating, tobacco use, flight status, being in the Special Forces, having a pre-existing health condition, and cannabis use. None of these things are show-stoppers. Many retiring service members receive disability ratings from the VA for relatively minor issues and are of no concern to life insurance underwriters.

Many disabilities are pretty profound in their effect on your daily life that doesn’t necessarily impact your potential lifespan, so it is worth the time to go through the underwriting process to see whether or not your disability will prevent you from qualifying. Disability ratings aside, obtaining a policy within various situations is possible.

When qualifying during the underwriting process, the insurance company determines how much of a death benefit they should offer you based on the likelihood that they will have to pay out this death benefit.

Any impact that your physical condition or lifestyle may have on the amount of death benefit you qualify for should not prevent you from pursuing this option if you determine that it is the best option for your situation because, unlike SGLI/VGLI or term or whole life insurance, our system isn’t all about the death benefit. Sure, there is a death benefit, but the plan is about having a place to protect and grow your money without risk of loss due to market volatility or taxes.

Health qualification is an aspect of establishing a private pension insurance account. If you think these might be viable retired military financial services for you, the sooner you initiate the process while younger and in good health, the easier the process will be.

2. You don’t have to have much money to fund the plan.

You can fund the Military Pension Protection System with less than you need to invest in some of the more traditional options available. Once you are qualified, you can fund it however you want to. You can pay for it for as long or as short as you like. You can customize your premiums/contributions and adjust them as your life circumstances change.

3. Get a guaranteed return on your investment.

You can capture and lock in the growth offered by the securities market without the value of your policy being negatively affected by market corrections. The worst-case scenario market rate of return in any circumstances is zero, meaning you get to keep all of your market gains, but you don’t experience market losses; if the market tanks, you experience zero growth on your intact principal. Even better, the benefit doesn’t just get paid to the spouse, like with the SBP, nor does the benefit evaporate should the spouse predecease the retiree. Your system can be structured to outlive you and your spouse and get paid to the next generation as a legacy.

4. Avoid opportunity cost.

There is an opportunity cost for paying 6.5% of your pension into the SBP. The SBP will pay a monthly annuity for the remaining lifetime of the surviving spouse, but only if the retiree dies. In many cases, the annuity is considerably less than what 6.5% of a military pension might have generated if it had been invested over the long term. Modern life Insurance for the military is a new asset class available to anyone.

When we first set up your Military Pension Protection System, we structure it to provide the lowest possible death benefit at inception. The smaller the death benefit initially, the lower the cost to fund the plan. In this way, we can take a product that would normally take 10 to 15 years to break even and bring that timeline down to three to five years, if not immediately.

It takes much less time for the policy’s cash value to grow at a pace that outstrips inflation and quickly keeps pace with things like the S&P 500. The money you are using to fund the plan keeps pace with inflation and grows in value over time because it is invested. 

5. You don’t have to start a plan from scratch.

Suppose you already have one of the older whole life insurance plans. In that case, you can redirect that investment into the Military Pension Protection System, along with whatever other contributions you want to provide, using a mechanism called a 1035 exchange.

The best return an older whole-life plan can offer is between two and four percent compounded annually, and the death benefits are typically significantly higher than they need to be because they are sold as an alternative to term instead of a compliment. This all adds up to the fact that these plans are expensive, and it typically takes 10 to 15 years of regular contributions for an insured person to have the plan paid off to access their equity.

Moving these funds into a private pension account using the 1035 provision allows a higher growth rate and the ability to build and access equity much sooner. This amounts to taking money you’ve already put to work for you and raising it. 

6. Your money is liquid.

You can’t withdraw money from the SBP, term life insurance policies, or even whole life (until a certain point, and then it will cost you money). However, with the Military Pension Protection System, there is something called the cash surrender value, which is the amount of fully liquid cash available to be distributed without penalties or taxes.

If a person keeps 10% of that number inside the plan, they can do whatever they want with the other 90%, a combination of contributions and the returns on invested dollars. 

7. Enjoy a tax-free retirement.

Those looking to retire in the next decade or so face a lot of uncertainty about taxes. Because of the demographic changes occurring today (more baby boomers retiring, fewer millennials working) and the rising national debt, the current low rates of taxes cannot be maintained and still pay for unfunded government liabilities such as social security, Medicare, and Medicaid.

The distributions from the 401(k) retirement plans that so many rely on are subject to income tax as soon as you begin taking your Required Minimum Distributions at age 70 ½. Most people assume that by the time they start taking those distributions, their tax bracket is going to be lower; however, there is every possibility that we can expect much higher marginal tax rates within the next decade.

This means your retirement savings may be worth significantly less than you think. Military Pension Protection System leverages IRS code 72(t) to combine tax advantages with greater flexibility and control, allowing you to access up to 90% of the equity of your private pension account tax-free. 

8. Pay for long-term care for yourself or a loved one.

No one wants to think there might come a day when they can’t care for themselves, but it happens. People are living longer and needing more help than they did even decades ago, and the VA and Medicare aren’t going to cover all of these costs. What if you or a loved one need assisted living or a nursing home?

You cannot leverage anything invested into the SBP or VGLI to help cover long-term care costs. However, your Military Pension Protection System offers a long-term care provision with which a living insured can use a portion of their death benefit to pay for assisted living costs, even if those are paid to a close friend or family member.

With a private pension account, you can ensure your self-care and have a significant probability of leaving a lasting legacy for your heirs. 

9. Protect your assets from litigation.

A permanent life insurance policy is not considered part of an estate tax bill or an individual’s net worth in terms of what lawyers can retain or what can be tapped to pay for legal damages.

If you are involved in a lawsuit that ends badly, whatever other assets might be taken from you, you will retain complete control over and access to your private pension insurance account.

10. Skip the 9-to-5 grind and find a new way to serve in your post-military life. 

For some people, the standard aspects of financial planning, military retirement, life insurance, college, etc., are insufficient. Their financial planning needs to include different ways of saving money that allow them to ACCESS that money in the PRESENT if they want to try out an idea or change how they live. 

So many of these kinds of individual are just keeping their money in a checking account, which isn’t efficient. In addition to all the advantages described above, the Military Pension Protection System allows you to access up to 90% of your equity in the plan at any time and for anything.

While we sometimes focus on the advantages concerning retirement and survivor benefit plan costs, the advantages of flexibility and control are limitless with this plan. If you know that you are going to want to start a business, or a non-profit, or travel the world when you transition out of the military, the sooner you open an account, the more able you will be to pursue your passions and begin serving in a whole new way in your post-military life.

The War Chest Strategy is not for everyone. 

Depending on your individual, family, health, financial situations, and your vision for your life, a combination of traditional military and civilian financial planning strategies may be the best solution.

But what we have found is that for individuals who do not want to follow the conventional path from military service to a 9-to-5 job to retirement, the private pension strategy offers both sensible financial protection for the family (tax-free retirement income, long-term care protection, a legacy for heirs, etc.) and the flexibility, control, and liquidity that will allow these individuals to forge their path.

Contact US VetWealth today to discuss your options if this sounds like you.