Is SBP Worth It? Military Survivor Benefits Plan Costs vs Benefits

For military retirees, accepting or declining the Survivor Benefit Plan (SBP) is not just another financial choice but one of the most significant decisions they will make in their lifetime. This decision will directly impact the financial security of their surviving spouse and dependents after they pass away. Additionally, with the rising cost of healthcare and other expenses, having a solid survivor benefit plan can provide peace of mind for the future. Considering the importance of this decision, it’s crucial for military retirees to carefully weigh their life insurance options for senior officers and make an informed choice that best suits the needs of their families.

If you pass away, the SBP promises financial protection for your spouse or dependents. However, the program comes with significant costs and rigid rules that may align with some families’s needs or goals. When considering whether to enroll in the SBP, it’s important to weigh the SBP vs potential benefits. Some families may find that the cost of the program outweighs the potential benefits, especially if they have alternative ways of providing financial protection for their loved ones. Additionally, the rigid rules of the SBP may not align with everyone’s individual financial situation, making it important to carefully consider all options before enrolling.

At US VetWealth, we’ve spent years helping military families understand their options and design customized financial plans. We’ve developed the War Chest Strategy, a modern, flexible alternative to SBP that protects your family and provides financial security, equity growth, and income independence. In addition to the War Chest Strategy, we also offer personalized life insurance options to meet the unique needs of military families. Our team understands the complexities of military life and can help you navigate the various insurance options available to you. With our expertise, you can ensure that your family’s financial future is protected no matter where your service may take you.

This guide analyzes SBP, discusses its drawbacks, and explains why the War Chest Strategy might better fit your financial future.

What Is the Survivor Benefit Plan (SBP)?

The SBP is a government-sponsored annuity offered to military retirees. It deducts a percentage of your monthly pension in exchange for providing your spouse or eligible dependents with 55% of your pension as a monthly benefit after your death. These payments continue until your spouse dies or remarries before age 55.

While the SBP is designed to provide financial security, its inflexible nature means that many military retirees may find it challenging to utilize the survivor program’s benefits fully. In some cases, the survivor may have a medical condition that makes it difficult to qualify for private insurance. However, there are financial advisors and resources available to help retirees navigate the SBP and understand their options. These advisors can provide guidance on how to potentially overcome challenges and help qualify with underlying medical issues. By seeking out the appropriate support, military retirees can more effectively utilize the survivor program’s benefits and achieve greater financial security for their loved ones.

Let’s take a closer look at these limitations and explore the alternatives.

How Much Does SBP Cost?

SBP costs 6. 5% of your gross retired pay, automatically deducted monthly. While this seems manageable, the long-term costs add up significantly: Furthermore, it’s important to consider factors such as inflation and potential changes in healthcare costs when calculating the true long-term impact of SBP deductions. To get a clearer picture of the overall financial implications, it’s advisable to utilize SBP calculator tips to help forecast future expenses and make informed decisions. By taking advantage of these tools, retirees can make strategic budgeting decisions and ensure they are adequately prepared for the financial obligations of SBP.

Unfortunately, if your spouse predeceases you, all premiums paid into the program are forfeited. There is no refund, equity, or return on investment for you or your heirs.

Additionally, once you enroll in SBP, you are locked in and cannot cancel or adjust your coverage under most circumstances. There is a small window to opt out between the 24th and 36th month after you retire from service or divorce. If you miss this window, you are locked into SBP coverage for the duration of your retirement. It is important to carefully consider your decision and weigh the potential benefits and drawbacks before enrolling, as the SBP optout decision method is quite limited. Therefore, it is crucial to thoroughly understand the implications of enrolling in SBP before making a final decision.

What Happens If the Beneficiary Is No Longer Eligible?

SBP has rigid rules regarding beneficiaries, which can lead to forfeited premiums under certain conditions:

This rigidity contrasts sharply with private financial strategies that offer more flexible beneficiary options and the ability to transfer benefits to the next generation.

The Impact of Major Life Events on SBP

The SBP’s lack of flexibility can make it challenging to manage during significant life events:

1. Divorce: If you divorce after retirement, your ex-spouse may still be entitled to SBP benefits unless you take specific legal steps to remove them as a beneficiary. This can complicate financial planning and create ongoing costs.
2. Remarriage: Remarriage can alter SBP eligibility. If you remarry after retirement, your new spouse may require separate coverage, adding complexity to your financial planning.

These limitations can leave families vulnerable and unable to adapt their financial plans to changing circumstances.

Where Does Your SBP Premium Money Go?

It’s essential to understand how SBP premiums are managed. The funds do not become part of an investment or savings account reserved for your family. These premiums are used to provide a death benefit to your beneficiaries in the event of your passing. It’s important to carefully consider your coverage amount to ensure that your loved ones are adequately protected. For example, read a case study for a 20 year career retired O5 to understand how SBP premiums can impact your overall financial planning and the security of your family.

Instead, they go into a government-controlled pool used to pay current beneficiaries. Your premiums help fund today’s payouts without guaranteeing that sufficient funds will be available decades from now when your family might need them.

Introducing the War Chest Strategy

At US VetWealth, we’ve developed a modern solution to SBP’s limitations: the War Chest Strategy. This alternative protects your family financially while offering flexibility, equity growth, and legacy potential.

How Does the War Chest Strategy Work?

The War Chest Strategy is a private plan that combines life insurance and investment principles to give you complete control over your premiums. Unlike SBP, the War Chest Strategy allows you to: You can also access funds for any purpose, at any time, without restrictions or penalties. With the War Chest Strategy, you can design a plan that best fits your needs and goals. This makes it a great alternative to the DFAS SBP for those who want flexibility and control over their financial future.

Real-Life Example: How the War Chest Strategy Works

Want to see how this approach works in real life? Download our SBP vs. Life Insurance Guide for Military Retirees to read a detailed case study comparing a retiree who chose SBP versus one who implemented the War Chest Strategy.

You’ll learn how the latter built wealth, ensured financial security for their family, and left a lasting legacy.