What You Probably Don’t Know about the SBP

For decades many were let to believe there was only one option to provide death benefits for spouses of veterans, the SBP. The Survivor Benefit Plan (SBP) has been a pillar of military financial planning since 1972 as a way to provide death benefits for the spouse of a veteran. The SBP is a form of life insurance paid as an annuity that is designed to provide a basic level of support in the event a retired veteran predeceases their spouse. It is offered without qualification to all retiring veterans. Rather than paying out a lump sum to the beneficiary like most life insurance policies, it pays a portion of the deceased veteran’s retirement pay each month, for the remainder of the surviving spouse’s life.

Unfortunately, it is characteristic of the SBP that it is not always elected as the result of a thoughtful and informed decision. Many modern military retirees and their families don’t learn about the SBP until they are twelve to eighteen months out from their separation, and few retiring military investigate alternate options for financially protecting their families. The SBP is briefed as part of the military retirement program, and there is little to no guidance given regarding privatized options on the free market. In fact, about 80% of career service-members end up taking the SBP. This is a good thing for the government; because much like social security, the continuity of the SBP program depends upon each succeeding generation paying into it. During your retirement briefings, the SBP is presented as a no-brainer benefit for retiring service members and their families, but the program has some drawbacks that some military families find shocking:

The SBP costs the same for everyone, and it’s expensive—6.5% of their pension, automatically deducted from the veteran’s pension check. But despite its high cost, there is a very low likelihood that a retiree’s spouse (or a child under 21) will ever actually receive any tangible benefit from it. There is zero possibility that anyone other than a spouse or a minority child will receive the benefit.
The SBP only pays 55% of the veteran’s pension to the surviving spouse.
The SBP is a one-time decision that must be made at retirement, or within a year of a change in life circumstances, like remarriage or parenthood. You must sign up for it within a certain window of time, and once you do, you are locked into the premium payments for life.
The SBP is not your choice if you have a spouse. The spouse and children are automatically enrolled at full coverage (6.5% of the pension) unless the spouse elects a lower amount or declines coverage. In this case, in order to decline coverage, the service member’s spouse must opt out with a notarized signature.
No benefits will be paid (and no refunds given) if the spouse predeceases the service member. This is worth considering in cases where there is a significant age gap, the spouse is ill, or the service member is female (statistically, women live longer than men).
The SBP does not offer any equity or return on investment while the insured retiree is still living.
The SBP only pays out if the insured retiree dies.
Children are over 21 cannot be beneficiaries. If the spouse dies at any point after the retiree, if all children are over the age of 21, SBP payments stop.
The SBP it is complicated to manage during major life events like divorce, and there is a risk of losing the benefit.
If the insured retiree doesn’t die within the 30-year term of the payment plan, then there is a significant (hundreds of thousands of dollars) opportunity cost.
There is no option to access what you have paid into the SBP as a lump sum.
The processing time to receive SBP benefits is significantly longer than the processing time for other life insurance for military products. It takes a minimum of 45 to 60 days to start receiving benefits, assuming there are no problems handling the paperwork. Other life insurance products will send you a check for the full death benefit tax-free within a week or two.

What nobody tells you during your retirement briefings about death benefits for spouses of veterans is that in the long run, the amount of money the beneficiary receives from the SBP annuity is usually considerably less than what the monthly premium amounts could have generated as investments and insurance in the private marketplace. The ONLY way that the SBP makes good financial sense with regards to ROI is if a service member dies within a few years of retiring. 6.5% of his/her pension adjusted for inflation, deducted over a couple of years, in return for 55% of his/her pension, again adjusted for inflation, to be paid to the spouse for the rest of the spouse’s life sounds like a pretty good deal, as long as the insured retiree dies within a few years of retiring from the military. Consider this, the only good scenario financially is if the military spouse benefits after death"}" style="font-size: 18px; font-weight: var(--g-regular-weight, normal);">retired military spouse benefits after the death of the veteran. Otherwise there's no benefit or return on investment.

One argument that is frequently made in favor of the SBP is that there is a cap on the premium payments. Participants pay for 30 years and then they’re done, while the SBP annuity is paid in perpetuity for as long as the spouse lives. This means that even a surviving spouse of a retiree who paid into the SBP for the full 30 years only needs to receive the annuity for just under 2.5 years beyond those 30 years in order to have recouped the total amount the couple spent on premiums, and the spouse is likely to receive more in annuity payments than was paid into the plan. This is sometimes true. However, the money paid into the SBP will be a complete loss if the spouse dies before the retiree. Furthermore, once the surviving spouse dies, those annuity payments stop. There is no opportunity for the amount of money the retiree and spouse have paid into the SBP plan to provide a legacy for their grown heirs.

Another thing that no one seems to talk about is that there is no survivor payment on disability income. If the retiree’s disability payment makes up a significant portion of the pension income that his or her family depends on, the disability portion of that income is simply lost when the retiree dies, even for families that have taken the SBP.

The obvious question is, are there other options? Of course there are.

Not Just The Death Benefits For Spouses Of Veterans

Here at US VetWealth, we have designed an alternative to the SBP and what typically goes along with it, VGLI. Our solution offers equity growth (as interest is credited based on the S&P 500 performance, not the federal bond rate) and a lot more liquidity that the retiree can access while you're still alive. It offers a safeguard against negative market returns, and allows its owner to both comfortably fund their retirement and do what the SBP can’t possibly do, allow you to leave a legacy behind you when you die. There so much more to be gained than just death benefits for spouses of veterans. We call it your Survivor Liberty Plan.

This completely new approach to privatizing the SBP or pension protection has become available in recent years; however, few financial experts and professionals are aware of this solution and the game-changing benefits it brings to solving the SBP problem. Modern life insurance can provide the death benefit protection of a term policy while also producing an annuity stream much like the SBP; to be more accurate, it can provide an annuity stream much like the pension, because the payouts and higher, and you can use it while the veterans is still alive! Further, after 30 years, the costs are significantly lower than an SBP, and the ROI is significantly higher than on a term insurance or whole life policy. It also costs less than the fees involved in typical 401k, mutual finds, or other retirement plans that come along with money managers all taking a cut of the investment, regardless of the plan’s performance.

If this interests you, then click here to learn more about the Survivor Liberty Plan.

Or you can schedule a Survivor Benefit Plan Analysis here.

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About the author

Scott R. Tucker

Scott R. Tucker is an author, speaker and the founder of US VetWealth, a lifestyle and financial consulting brand that helps service members go from paychecks and government benefits to wealth and liberty. He likes to say, "I Help The 1% Who Serve Our Country Become The 1% Who Influence It." A West Point graduate, serial world traveler, military financial expert, and entrepreneur, Scott brings valuable experience and insight to those who have sacrificed so much in service to our country.