Military retirees are losing money because they are using the wrong calculator when trying to figure out whether or not to decline the SBP. The wrong calculator is the one that only accounts for the annual costs compared to the potential death benefits to a surviving spouse. This is resulting in many retirees making the wrong decision that will cost them more than six figures in sunken costs if not addressed before the 36th month after retirement or before you receive a DD214.
However, there is a different calculator that takes into account the probability of a return on investment, which is a much more accurate way to determine whether or not the SBP is a good decision. This calculator is not available on the primary Military Retirement Calculator website, you have to dig for it at the DOD Office of the Actuary.
The link to the calculator is: https://www.actuary.defense.gov/Tools/SBP-ROI/SBP-ROI-Calculator.html
After you download the spreadsheet, you enter your and your spouse's age and your retirement date. For this example, we will assume you are a 65
Why are there different survivor benefit plan calculators?
Considering the fixed amounts of income, benefits, and costs associated with the active-duty pay scale and retired pay it should be simple for retiring service members to know if they should decline the SBP election or accept the SBP annuity.
But it is not, and therefore negatively affects your gross retired pay annuity payments, and in turn, your take-home pay.
The DOD Office of the Actuary has created a number of calculators that are intended to help you make the decision. However, they are not simple to use, nor is all the information that is presented relevant or helpful.
There are four available calculators to choose from. You can extrapolate everything from your retired pay, SBP premiums, monthly payments, SBP beneficiary payments, monthly benefits offered, etc.
We discuss the subsidy and insurance calculators in other videos and articles. But the most useful and relevant information comes from the premium and probability calculators on the site.
SBP Premiums Calculator
The first calculator is the SBP Premiums Calculator.
With this calculator, you can determine your gross retired pay, your monthly SBP payment, and the total amount of payments you will make over the life of the plan. The calculator also tells you how long you have to make these payments.
This is a useful tool, but it doesn't help you understand whether or not the plan is a good investment.
SBP Probability Calculator
This is where the Probability Calculator comes in. This calculator takes into account your age, spouse's age, and the number of years of service to come up with a probability that you will die before your spouse.
Based on this information, it tells you the likelihood that your spouse will receive any benefits from the plan.
This is a much more important number to look at when trying to determine whether or not the SBP is a good investment.
For example, if you are 48 years old and your spouse is 47 years old, and you have 26 years of service, the probability calculator will tell you that there is only a 8% chance that your spouse will receive the full value of SBP benefits from the plan.
What is the SBP Spouse Coverage?
The spouse coverage is available to any spouse of a military retiree who is eligible for the SBP. This includes the spouse of a service member who has died or retired due to disability. The spouse must also be married to the retiree at the time of retirement in order to be eligible for coverage.
The benefits of SBP spouse coverage include a monthly income for the spouse in the event that the retiree dies. The amount of this income will depend on the retirees' retirement pay at the time of death.
calculate your SBP costs and probabilities
When calculating whether or not to decline the SBP, you should use a calculator that takes into account the probability of a return on investment. This is a more accurate way to determine whether or not the SBP is a good decision. The calculator that you should use is available on the DOD Office of the Actuary website.
How to decide whether or not to decline the SBP coverage
After you have used the SBP spouse coverage calculator to figure out the cost and probability of a return on investment, you will be able to make a more informed decision about whether or not to decline the SBP coverage. If the cost is too high and the probability of a return on investment is low, it may be wise to decline the coverage and seek out an alternative.
Low SBP Probability
What are the consequences of making the wrong SBP decision? If the possibility of a return on investment is small, you should be concerned about the possible consequences. Even if your spouse obtains SBP coverage, it may take many years for the money to return through SBP payments. You can manage the variables and improve the probability and ROI with a private solution.
How US VetWealth can help
At US VetWealth, we specialize in helping military retirees make the most of their government benefits programs. We can help you figure out whether or not the SBP is a good decision for you and your family. Contact us today to learn more about how we can help you reach your financial goals.