SBP offers option for retirement financial planning

  • Published
  • By Bill Turner
  • Air Force Personnel Center Public Affairs
RANDOLPH AIR FORCE BASE, Texas (AFPN) --  The Survivor Benefit Plan has a lot to offer retiring Airmen as part of a solid financial plan, and the open enrollment period runs through Sept. 30.

Along with savings, investments and insurance, the SBP affords the opportunity to provide financially to an Airman's spouse for life. 

One benefit of SBP is that although retired pay stops upon the death of the retired Airman, with SBP the Airman can guarantee a monthly income continues. For 6.5 percent of whatever amount chosen (beginning at $300 up to one's full retired pay) an Airman can leave his spouse 55 percent of that sum for life (unless remarriage takes place before age 55). SBP annuity also increases with cost-of-living adjustments. Spouse and child coverage costs a little more, while child-only coverage is considerably less because children are covered only as long as they remain unmarried and attend school full time or until age 22.

Each Airman is counseled on SBP as part of the retirement briefings, according to Pat Peek, chief of the Air Force Personnel Center's Retiree Services Branch, who manages the SBP program.

"Unfortunately, because of the hectic pace at the time the member is retiring, trying to decide where to live, buy a new house and getting the kids in a new school, much of the SBP information, as well as information on other subjects, may be lost," she said. "That's why it's wise to know a little about the SBP beforehand."

Since it's a matter affecting the entire family, the spouse has to concur in the election if the Airman decides to cancel the protection enjoyed while on active duty. Airmen who refuse SBP or who take less than full coverage, may not have another opportunity to enroll or increase coverage. Open enrollment periods are at the discretion of Congress, and there have only been five since the plan started in 1972.

These open enrollment periods followed major improvements in the SBP, according to Ms. Peek, and there currently is an open enrollment nearing its end (Sept. 30).  Another open enrollment (if there is one) may not happen for some time. Future buy-in costs (paying premiums back to the time of first eligibility plus penalties) may make it cost prohibitive for many retired members.

In the past, once retiring Airmen enrolled in the program, they were pretty much locked in for life. They could only get out in the event of a divorce or if the spouse died. However, members retiring since May 1998 have a one-year opportunity between the second and third anniversary following the start of retired pay to terminate SBP participation.

This came about because authorities recognized many members weren't sure about their financial security at retirement, and were not taking the SBP because they didn't believe they could afford a 6.5 percent reduction in their retired pay for the rest of their life.

Now, SBP allows coverage in the event something happens immediately to the retired member, but also affords more flexibility after the member has had time to adjust to a civilian job and has a better idea of the future.

"Seeing the benefits of the SBP, relatively few have opted out after two years, but it remains an option," said Ms. Peek.

Another concern of retired members was that their spouse's annuity was reduced from 55 percent of the covered amount to 35 percent when the survivor reached age 62 and became eligible for Social Security based on the retiree's work record.

This, too, was amended by the National Defense Authorization Act for Fiscal Year 2005, which eventually gives the surviving spouse of SBP participants 55 percent of the covered amount for life unless there is a remarriage before age 55. The SBP payment rate increased from 35 percent to 40 percent Oct. 1, 2005, went to 45 percent April 1, 2006, will increase to 50 percent April 1, 2007, and the offset will be completely eliminated Oct. 1, 2008, when it goes to 55 percent.