Survivor Benefits Plan: What You Need to Know

For this week’s Financial Friday, Jennifer shares what you need to know about the Survivor Benefits Plan.

by Jennifer Wake

What is Survivor Benefits Plan (SBP)? And why should I care?

Retirement can be an exciting and scary change to your life. As you look at retirement, you must take time to carefully review all your financial needs and options. Discussing your options with your spouse or a financial counselor will help as you near retirement. Praying over these choices and seeking God’s plan for your next stage is also critical.

Many service members decide to retire at 20 years. This guarantees them a “pension.” When you serve 20 years on active duty or 20 “good years” in the reserves you can retire and receive monthly pay from the government. After they retire they receive their retirement pay until they die.

But if the servicemember should die suddenly, what happens to the spouse?

In traditional pension plans the spouse loses all benefits. Because the government does not want military spouses to face this loss of income they created the Survivor Benefits Plan (SBP). Retiring servicemembers must decide about SBP as part of their outprocessing. SBP is an annuity, a form of insurance. It guarantees a series of payments to be received at stated intervals (monthly for military) over the life of the beneficiary (spouse or child(ren)) starting upon the death of the servicemember after retirement. This annuity is a guarantee for continuation of a portion of the servicemember’s pension.

When the servicemember retires both the servicemember and the spouse must decide on SBP. SBP comes with many decisions such as beneficiaries. The first decision is who the beneficiary will be. The choices are: Spouse, Child(ren) only, Spouse-and-Child(ren), Former Spouse, Former Spouse-and-Child(ren), or Insurable interest. Who gets the benefits depends on your situation.

Another major decision is the amount of SBP coverage. The default for SBP will be 55% of the servicemember’s retirement pay. This will cost only 6.5% of the servicemember’s retirement pay. By paying 6.5% of your retirement pay, you will be giving your beneficiaries 55% of your retirement. So, if you receive $2,000 each month in retirement, when you pass your beneficiaries will receive $1,100.

Let’s assume you decide your savings are enough to last through both you and your spouse’s lifetime, you can decline SBP. To decline SBP, BOTH the servicemember AND the spouse must agree in writing. If one does not sign to decline coverage, then SBP does not change and is automatically taken from the retirement. This also applies to lowering SBP coverage. To change from 55% to lower (the lowest amount allowed is $300 per month) both spouses must sign an agreement to the change.

By accepting SBP, you make sure your beneficiaries are taken care of.

However you do not pay into SBP forever. If you are older than 70 AND have paid into SBP for 30 years then you are fully paid up. This is a significant benefit for younger retirees. If you joined when you were in your 20’s and retired in your 40’s you would be fully paid in your 70’s.

Some people ask what happens if their spouse dies first. If the spouse dies first these benefits are not used. If your spouse dies or you divorce you can stop SBP payments at that time by contacting DFAS and showing either divorce decree or death certificate.

Decisions about SBP are made at the time of retirement. People have said, “You can change SBP if you want later,” but this statement is rarely true. You can enroll later if there is open enrollment. Open enrollment is very RARE. Open enrollment has happened only four times in 25 years. Plus, when you enroll you must pay all back premiums from the time of retirement, which can be substantial.

Opting out of SBP is very short sighted and not a good financial decision for most servicemembers. If you have millions in your retirement savings and your spouse has their own guaranteed pension then opting out of SBP may be a choice for you. Be careful about ever giving up a guaranteed benefit. Once you choose not to have it, you rarely can go back and change it. For 6.5% of your monthly retirement you guarantee security for your spouse.

For more information, visit the DFAS website. Don’t miss the opportunity to learn from Jennifer’s mistakes and victories in her monthly Financial Friday series!