Survivor Benefit Plan, Part II: Protecting Retired Pay Income

March 25, 2012 | Kate Horrell

As I talked about in Survivor Benefit Plan, Part I, SBP was designed to allow retired military personnel to  provide income for a survivor after the death of the retiree.  Though SBP has grown to include active-duty coverage, retiree coverage is still the most common type of SBP, and it is more complicated because there are choices, there are fees, and it is not automatic.

SBP is considered an annuity, which is a product in which the consumer purchases guaranteed lifetime income.  Many annuities are designed to provide income for the person who makes the payments, but SBP is designed to provide income for a survivor of the retired military member.  In SBP, premiums are paid directly out of retired military pay.

 How Much Income Is Provided By SBP?

SBP provides income in the amount of 55% of the base amount covered.  The base amount covered may be any amount from $300 per month up to the entire amount of retired pay.  The base amount is chosen at the time of retirement.  For example,

  • For $2000 base amount covered, survivor payments would be $1100 per month
  • For $1000 in base amount covered, survivor payments would be $550 per month
  • For $500 in base amount covered, survivor payments would be $275 per month
  • or any other amount between the full amount of retired pay and $300.

While I can not find this written anywhere, it seems that the base amount is calculated as a percentage of full retired pay.  I say this because the base amount adjusts with each retiree Cost of Living Adjustment (COLA), and I can’t imagine any way to do those calculation except as a percentage of full retired pay.  With each adjustment in base amount, there is a corresponding adjustment in premiums and benefit payments.

How Much Does SBP Cost?

SBP premiums  are always calculated as a percentage of the base amount of  coverage.  The cost of coverage depends on which category of beneficiary is selected.  The most frequently selected beneficiary is the spouse or former spouse, and the premiums are the same.  For spousal coverage, the monthly premium is the lesser of:

  • 6.5% of the base amount, or
  • 2.5% of the first $635 ($15.88), plus 10% of the remaining covered amount.

For example, $2000 of base amount covered would require a $130 monthly premium for spouse or former spouse coverage.

Premiums for child coverage are based upon the age of the retiree, the age of the youngest child at the time of retirement, and the age of the spouse/former spouse if combination coverage is selected.  Exact premium amounts can be provided by your finance or personnel center.

Insured Interest coverage also has variable premiums that are based upon the age of the retiree and the age of the beneficiary.

SBP premiums are deducted from retired military pay pre-tax, which reduces the overall cost of the premiums.  For example, if a retiree is in a 25% tax bracket and is paying premiums for spousal coverage at a $2000 base amount:

Premiums Paid Pre-Tax Premiums Paid Post-Tax
$2000 base amount $2000 base amount, taxable at 25%
- 130 per month premium = 500 income tax paid
= 1870 net income, taxable at 25% = 1500 net income
= 467.5 income tax paid - 130 per month premium
= $1402.40 net pay received = $1370 net pay received

A few things to consider:

  • The choice of coverage is elected during the retirement paperwork process.  If a retiree is married, the spouse must sign off on the amount of benefit selected.  If less than 100% of retired pay is selected as the base amount, the spouse will be asked to verify that they understand what is being selected.
  • There are no provisions to change the election once made.  This is a permanent decision!
  • SBP is just one part of a comprehensive plan to provide lifetime income for the service member and any survivors.  Other factors that must be considered include any retirement pension from the spouse’s employment, income provided by TSP, 401(k)s or 403(b)s, life insurance or other annuities, Individual Retirement Accounts, real estate, and other assets.
  • There is a provision for premiums to be considered “paid up” after 30 years or 360 payments.  This provision has specific parameters – check with your finance or personnel office for more specific details as it may apply to your exact situation.
  • SBP annuity payments may be offset by Dependency and Indemnity Compensation payments.  That is a subject I will write extensively about on another day in this series.

Whew!  I hope that I’ve hit everything in this segment.  Wondering what I’m talking about?  See Survivor Benefit Plan, Part I:  What Is SPB and Why Do I Need To Know?  I hope you’ll join me next time as we talk about Active Duty SBP benefits.  They’re easier, I promise.

Comments

  1. Jesse G. Lopez says:

    I am re-married, my orignal child used for SBP is my former spouse's daughter, I need to make my new wife the beneficiary. How can I do this. I don't want my ex to benefit with my SBP.

  2. Kathy says:

    my husband is a disabled veteran (100%) I know it is a little late but I just found out that when he dies his monthly benefits drop considerably. Though it does make sense I am starting to panick because before I would go to the funeral home I would have to sell the house and get a fulltime job. (I am not working fulltime now because he has a brain injury and can't stay by himself all day) We have 30,000.00 insurance and that is all plus he is 63 years old. HELP

  3. Navy dav says:

    "when he dies his monthly benefits drop considerably", don't you mean your benefits drop considerably? If you are his wife and have lived with him for 10 years you could get part of his social security and half of his % of disability.. if he dies…..

  4. Dave says:

    My wife and I are seperating and in the seperation agreement the percentage of my retirement that i would be paying her was reduced from 38 percent down to 33.5 percent to cover the cost of SBP. This is supposedly so that she wouldn't have to reimburse me the cost of SBP since it comes of the top. Does anyone know the formula to figure out what percentage SBP cost so that I can make sure I wasn't screwed.

  5. chaffers,Pearl says:

    What ever happen to the Appeal of the case from Smart, etc concerning Widows fight SBP-DIC offset?

  6. Lesha Mcswain says:

    If you were married to a retiree military personnel and your divorce decree stated that you were elgible for a portion of his retired benifit, how can an ex spouse get information as to date and retire amount the retiree is receiving to follow up on what the divorce decre stated?

  7. susan says:

    I was married to a military personnel who once had 100% from the VA then it was cut to only 10% now he receives military retirement. Can his military retirement be include as net income to calcuate a total monthy net income amount. He get 10% from VA, retirement and his regular job. Can VA and retirement be used to pay child support.

  8. Tracy says:

    In my divorce dissolution agreement, in California, I was awarded a portion of my former spouse's military retirement. I need to know who to contact to initiate the process to receive my benefits. I just need an initial point of contact, please.

  9. Nelson says:

    I was only payed a retirement benefit for 10 months. Why do I have an outstanding SBP bill of $1000? I was placed on TDRL I did not ask to be retired. Also my wife never signed anything that has anything to do with the SBP. Why do I have to continue paying SBP if I am not on retirement?

  10. Tammy says:

    Dad retired in 1967 before the SBP came into effect. Can my mom still get any of his pension when he dies?

  11. kmonetta70 says:

    I am a spouse of four years of a retired veteran. How do we sign up for SBP? My husband paid SBP for 40 years, for his previous spouse, who passed away.

  12. Herman says:

    Should I discontinue SBP if I've been awarded a 100% disability rating from VA?

  13. ellen harr says:

    SBPcame inyo effect in 1972, at that time it was automatic enrollment,now if the husband declined the SBP,the wife would have to sign a waiver agreeing to that effect. Why would a wife do that. Now you need to know that from 1972 thru 1976, the military said waiv ers were signed by the wife, chances are they can't show you the waiver. They told me I signed a waiver and they can't come up with it. Now you know if they had a waiver it would be stapled to the form declining SBP by the husband.

  14. Corrina Huddle says:

    I am an ex spouse and am the beneficiary to the SBP. What happens if I remarry? My ex spouse is still alive. The divorce decree stats that I am to be the beneficiary will this change when I remarry?

  15. KateKashman says:

    Sandra, your husband has missed his opportunity to buy into SBP coverage. Depending on the details, he may have had the opportunity to purchase SBP coverage within the first year after your marriage. Please keep aware as it is possible (though extremely unlikely) that SBP could hold an "open season" that would allow him to buy in at that time.

    In the meantime, your husband and you should look into alternative investments of that money to help provide income for you if he were to predecease you.

    Good luck to you.

  16. guest says:

    it probably is for SBP payments, she needs to prove that your mother is deceased to keep the SBP payments coming (as long as he had originally signed up for them when he retired, upon your moms death she would have been entitled to them as long as he signed her up within the first year of marriage). She is being nice by coming to you though, death information is public record in most states so she could have obtained it through a FOIA request if she wanted to avoid you. If your dad was married to your mom until her death DFAS more than likely already has a copy of her death certificate as well. In all honesty, it sounds like it might be a starting point to talking to the last remnants she has of her husband of 10 years.

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