Category: Insurance

I Have A Military Pension: Do I Still Need An Emergency Fund?

Post author By Omen Quelvog, CFP®, MQFP®
Post date February 10, 2026

I Have A Military Pension: Do I Still Need An Emergency Fund?

For years, the standard financial advice has been simple: Keep three to six months of expenses in cash for emergencies.

That guidance makes sense for households that rely entirely on earned income. But for many military retirees with a pension and especially those with VA disability, this rule of thumb deserves a second look. When a significant portion or the entirety of your mandatory expenses is already covered by guaranteed income, your emergency fund doesn’t need to serve the same purpose it does for everyone else.

Why the Traditional Emergency Fund Exists

A traditional emergency fund is insurance; self-insurance to be exact. You are accepting the risk that in the short term, you can fund yourself against two main risks:

Loss of income
Unexpected large expenses

For someone whose paycheck could disappear overnight, cash reserves are critical. The standard advice is 3-6 months’ worth of mandatory living expenses saved into a highly liquid account such as a regular or high yield savings account. If you have stable pay, two incomes, and/or low expenses, you may feel comfortable with a leaner, 3-month fund. Alternatively, a 6-month fund might be more appropriate for those supporting a family on a single income or with unstable/uneven pay. Even with the occasional government shutdown, a 3-month fund is often appropriate for those in the military. When you decide your time in the military is over, you may consider an increase to a 6-month fund due to changing incomes and expenses. In either case, the emergency fund is there to become your income in case your normal income stops unexpectedly or is insufficient to handle large, one-time expenses.

But for retirees with reliable income streams, that first risk looks very different.

Guaranteed Income Changes the Emergency Fund Math

Military pensions and VA disability compensation have unique characteristics:

They are reliable and predictable
They are not tied to employment
They adjust for inflation
They continue regardless of market conditions

So, what if those guaranteed income streams already cover your baseline needs such as a mortgage payment, utilities, food, and insurance premiums? How should you think about the amount you should keep for emergencies then?

From Income Protection to Event Protection: A Different Way to Size the Emergency Fund

Well first, perhaps take a moment to consider how exciting this is! Think about it:

Your guaranteed income covers your mandatory expenses.

Maybe I am naïve, but to me, this looks oddly like a definition of financial independence – at least maybe Coast FI. Sure, you might not be able to accomplish all the goals you set out for your life, but at minimum, you have the income you need to keep a roof over your head, food on the table, and gas in the car. Any income beyond that is icing on the cake!

With that out of the way, now we can consider our emergency fund amount. Remember, there were two purposes to an emergency fund, and we’ve just eliminated one of them – income sourcing. The second, covering the costs of unexpected bills, remains. This is where the shift occurs. Instead of thinking about this in terms of 3-6 months income, now we can think about this in terms of what’s the worst thing that can happen that I don’t already have insurance for.

A quick trip to ChatGPT generates some of the most common large-ticket expenses to plan for:

Home repairs such as HVAC or roof replacement
An engine or transmission on your vehicle
A significant health event (not covered by Tricare)
Unplanned travel

Given these types of expenses, anywhere between $20,000 and $50,000 would almost, if not completely cover the cost.

The Trade-Off: Cash vs. Opportunity

As you consider how much to store away for those potential large expenses, keep in mind that too much cash in savings can be risky. Even highest of the high-yield savings accounts are generally only staying even with inflation. That means that if you have a lot of cash in a savings account, you may not be earning enough interest to keep up with the value of the dollar or worse, you may actually be losing value over time.

Peace of Mind Still Matters

There is a comfort factor to an emergency fund. If you decide that $10,000 would cover the worst thing that could happen to you, but you still can’t sleep at night because the account value is too low, consider the amount that would help you sleep at night. So your new number doesn’t become arbitrary, try to consider why your new number makes you comfortable. Quite often, we have a tendency to create the worst-case scenario in our mind, when in reality, our worst case scenario may not even happen – ever. Try to find a balance between your worry, anxiety, and the reality that an event may actually happen. If you find yourself getting to a number beyond $50,000 or so, perhaps shifting risk to an insurance company might be a more appropriate solution. Before you head to the nearest insurance agent, perhaps use an outside party as a sounding board for your idea.

Setting Your New Number

The key to establishing your retirement emergency fund is that it is personalized to you. With guaranteed income that covers your mandatory expenses, your emergency fund shifts from income protection to event protection; an added source of comfort and confidence to your guaranteed income. You get to set the amount balanced between what could happen, what helps you sleep at night, and the risk of too much idle cash. When aligned, your emergency fund does exactly as it is designed; it offers the ability to respond with clarity and control when life inevitably throws a wrench in your plans.

Are you reconsidering your emergency fund or even something more? A MFAA financial advisor can help.

Estate Planning Financial Planning Insurance

He Was 96: The Financial Lessons His Life (and Death) Taught Us

Post author By Andrea Clark, CFP®, AFC®
Post date December 15, 2025

He Was 96: The Financial Lessons His Life (and Death) Taught Us

My oldest client died last night. He was 96.

I received this news from his wife within four hours of his passing. It might seem odd that she got ahold of me so quickly, but I am her trusted financial advisor. I knew what she was thinking about. She was the survivor beneficiary and now, more than half of her monthly income will go away now, and she is 17 years his junior with (hopefully) many years remaining. She offers all of us important lessons in understanding financial planning decision points and taking appropriate actions at the right time.

He was an Air Force pilot and earned a military pension for his 20 years of service. His SBP was assigned to his first wife in their divorce. His 50% of the military pension will no longer be income for his surviving spouse of 50+ years.

He became a schoolteacher, met his new wife, and both earned a lifetime teacher’s pension. However, this retirement was in an era where very little financial education was provided by employers in making survivorship elections. There was no ChatGPT to guide you on your way. So, no survivor election was made, and this inflation-adjusted pension income will also end.

And then there is Social Security. The surviving spouse keeps the higher of the two benefits. Their benefits were fairly equal, but it’s a 50% income reduction in that category as well.

All totaled, her new monthly income will be roughly 35% of what it was before her husband passed. No one wants to find themselves in this situation late in retirement. Let’s look at what may have seemed like small decision points that could have led to improved financial outcomes.

Making Survivor Benefit Plan Decisions Together

When service members retire from the military, one of the most consequential, and often misunderstood, financial decisions is the Survivor Benefit Plan (SBP) election. The SBP provides up to 55% of the pension payment as ongoing income to a surviving spouse if the retiree passes away first, effectively serving as a lifetime inflation-adjusted annuity for the survivor.

However, the SBP election must be made at the time of retirement, and it becomes irrevocable in most cases. Too often, the decision is made quickly or without meaningful discussion between spouses. In the case of my clients, the SBP was assigned to a prior spouse as part of a divorce decree, a common but often overlooked detail that can have lifelong consequences.

When a new spouse comes into the picture later in life, that person may be left without access to any survivor benefits. Unless deliberate steps are taken during open enrollment periods or upon remarriage, the coverage cannot be transferred.

Both spouses must be active participants in the SBP decision, and a service member needs to review that decision after major life changes such as divorce or remarriage. A small percentage of income given up during retirement for SBP premiums can provide decades of income security for the surviving spouse. While “the numbers” might suggest acquiring life insurance as a substitute, there are some spouses who are more comfortable with that “check of the month club”. This is a tradeoff that deserves detailed analysis and joint agreement.

Optimizing Social Security Claiming Strategies for Couples

Social Security remains one of the most under-optimized components of retirement planning, particularly for married couples. Many retirees view it as a simple “start as soon as you can” benefit. But the timing and coordination between two spouses can significantly impact the lifetime and survivor benefits.

When one spouse passes away, the surviving spouse keeps the higher of the two benefits. That means the larger benefit becomes a “joint and survivor” payment — it continues for as long as either spouse lives. Therefore, it often makes sense for the higher earner to delay claiming benefits until age 70, maximizing the survivor benefit.

In the case of my clients, both had similar benefit amounts and claimed early, a decision that seemed harmless at the time. But now, the surviving spouse faces a permanent 50% reduction in household Social Security income on the already much smaller lifetime benefits.

When one spouse is significantly younger, as in this case by 17 years, the long-term implications of early claiming can be profound. A couple may live comfortably in their 70s, only to have the younger spouse face financial hardship for 20 or more years after the first death.

The best strategy is often collaborative: delay benefits for the higher earner while allowing the lower earner to claim earlier, creating a balance of near-term income and long-term protection. Your financial planner can model multiple claiming scenarios, not just for the retirees’ lifetimes but also for the survivor’s projected longevity. Factors such as taxes, Medicare premiums, and portfolio withdrawals also help determine how Social Security fits within the broader income plan.

Using Life Insurance or Annuities to Protect the Surviving Spouse

For many couples, particularly those with single-life pensions, there is a significant risk that income will disappear at the first death. When survivorship options were not elected, or not available, life insurance and annuities can serve as powerful tools to fill that gap.

Life insurance is often overlooked as couples approach retirement, yet it can be one of the most efficient ways to replace lost income. A well-structured insurance plan maintained into retirement, can provide tax-free funds to supplement income or establish a personal “survivor benefit” when pensions cease. Even modest policies can make a meaningful difference in preserving financial independence for the surviving spouse.

For retirees who are beyond the point of insurability or who prefer guaranteed lifetime income, annuities can offer similar protection. These instruments create a contractual income stream that continues for both spouses, or for a predetermined number of years, ensuring that the survivor’s essential needs are met.

The Broader Lesson: Plan Together, Decide Intentionally

The passing of a spouse is an emotional event that becomes exponentially harder when financial uncertainty is added to the grief. What stands out in my client’s story is not just the financial loss but the accumulation of small, missed opportunities, each one seemingly minor at the time, but together resulting in a 65% drop in household income.

Financial planning is, at its core, about anticipating transitions. Life, health, and relationships evolve, and the plans we make in our 40s or 50s must be revisited regularly to ensure they still serve us in our 70s, 80s, and beyond. Whether it’s reviewing pension elections, updating beneficiary designations, or exploring insurance and annuity options, every couple should treat these as shared decisions.

The key takeaway is simple but vital: every financial decision has a survivor dimension. The question to ask at every major juncture is, “If I’m not here, what happens to the person I love?” The answer should guide not only the math of retirement but also the heart of it.

Closing Reflection

My client lived a long, full life; one marked by service, dedication, and love for his wife. But his story reminds us that financial planning is not just about growing wealth; it’s about ensuring stability for those who remain. The surviving spouse now faces the challenge of living on one-third of her prior income, a difficult reality that could have been softened with just a few different decisions decades ago.

This serves as a timeless reminder: the best financial plans are made together, with both lifetimes in mind.

If this article spoke to you, the advisors at MFAA are here to help. All MFAA advisors are fee-only and will not sell you a product. Instead, they will help you understand how the decisions you make today can affect your financial future. They’ll also help you make a financial plan to make more informed decisions. Find an MFAA advisor here and reach out today!

Insurance

Life Insurance Decisions During Military Transition

Post author By Erik Baskin
Post date January 3, 2024

Photo by J. Amill Santiago on Unsplash

Life Insurance Decisions During Military Transition

Introduction

Life insurance decisions during military transition are some of the most critical decisions. Most military members do not carry enough insurance. The majority have SGLI (Servicemember’s Group Life Insurance) which is $500,000 of term life insurance coverage. This coverage is inexpensive at $31 per month and comes out of your paycheck each month. Most members should have more commercial term insurance from a company like USAA.

In this post, I want to focus on the decision to get a life insurance policy when you separate from or retire from the military. This brings up some complex decisions due to the principles of insurability. Many military members will be applying for disability benefits from the VA (Veterans Affairs) during transition. This process may unearth medical problems that will drive up your term insurance rates, or even make you uninsurable. The decision between Veteran’s Group Life Insurance (VGLI) and a commercial policy is complicated for transitioning members. The goal with insurance is to have enough insurance to cover the financial loss of death. You typically need more insurance earlier in your life when your risk is greatest. Later on in life, you can afford to carry less insurance as your life outstanding expenses decrease.

First: Determine How Much Life Insurance you need

This is the first step in any insurance discussion. The amount of insurance you need throughout your life changes. Here are the steps (for each spouse):

Estimate the expenses that would need to be replaced and multiply it by 240 I.e. $5k/month*240 = $1,200,000)
Add the mortgage balance or debt you would want to be paid off in the event of death
Add the present value of education that you would want to pay for (I.e. You would need to put away $X for your 2 kids to go to college in 10 years)
Subtract any investment amount that would be available to use upon death (I.e. TSP)

When you get to the end of this analysis, you will likely realize that you may need 7 figures of life insurance. For military families with a mortgage and kids, $500,000 of SGLI is not enough. You also have to assess how life may change in the coming years with a bigger mortgage or family.

The Military Transition Life Insurance Decision: VGLI Premiums are Very Expensive; Commercial Term Can Make More Sense

When you separate from the military, you have options when it comes to insurance. Here are the main options when you leave:

Stop your SGLI payments and don’t get more insurance
Convert SGLI to a whole-life insurance product
Get a VGLI policy
Get a term insurance policy (can also get VGLI)

Stopping SGLI payments makes sense if you have guaranteed pension income, and don’t see the need for insurance. This might be if you don’t plan to have kids or get married, so very few will be in this camp. If you have determined that you will need life insurance to replace financial loss, then going with no insurance is not a realistic option.

Converting your SGLI policy to a whole-life policy is not a great option either. A whole life insurance product is going to be very expensive, likely 5-15 times the cost of term life insurance per dollar of coverage. It is best to keep insurance and investments separate, and costs low.

VGLI

Getting a VGLI policy is an option as you can get up to $500,000 of term life insurance coverage. You have 1 year and 120 days after separation to apply for VGLI. If you apply in the first 240 days, you don’t have to answer any health questions to qualify. For those who have severe disabilities that make them uninsurable, VGLI could be the only option. This should be the last resort after you have attempted to get a commercial term insurance policy. Click here to find out more about VGLI details.

Commercial Term Insurance

Getting a commercial term insurance policy should be the first option, and VGLI should be the backup. Term insurance is usually level, meaning you have the same premiums for the length of the policy. VGLI rates increase every 5 years of age, so the premiums are very expensive. The below table shows how VGLI rates increase. The graph shows the premiums for 20 years of VGLI coverage versus commercial term policies for a 30-year-old male at the three different health classes of super preferred, preferred, and standard. You can see that even at standard (the worst health class), the cost of a $500,000 policy is far less than that for 20 years of VGLI coverage. This is because VGLI covers a pool of individuals with more health problems (disabled veterans), than commercial insurance policies.

VGLI Premium Schedule (as of the date of this blog publication date)

VGLI vs. Commercial Term Premiums for 30 Yr Old Male

Term Insurance is Cheaper the Earlier and Healthier You Get It

Commercial term insurance is cheap in your 20s and 30s, but may become more expensive or unattainable if you have these conditions:

Anxiety and depression
Asthma
Diabetes
Heart disease
High blood pressure
High cholesterol
HIV
Obesity
Cancer
Sleep apnea
Smoking

Many military members may have these conditions or others and not know it. This fact could come to light during the VA disability exam process. Also, many life insurance applications ask if you have ever filed for disability benefits, which could hurt your health class and your insurance rates if you have to answer yes. The below table shows the benefit of getting classified at a healthier level for a 20-year $1M policy for a 30-year-old male.

Savings of Getting Insurance When In a Healthier Class

You can see that it is well worth it to get classified into a better health category. The “Breakeven” column shows the number of years of savings you would have by getting classified in the lower health class. For example, if I can get classified as super over preferred and I see myself not needing that insurance for another 3 years, I would want to decide to buy insurance as the breakeven is 5.36 years of savings from lower premiums. In other words, I don’t mind paying for 3 years of insurance that I don’t “need” yet due to having a lower mortgage and no kids, because I will save more than that in reduced premiums.

Conclusion

The life insurance decisions during military transition are not simple. This is due to acronyms (SGLI, VGLI, whole, term, etc.) and insurance agents that want to get paid. It is important to ignore the noise and accurately estimate your insurance need. To summarize, before you go down the road of separation and filing for your VA disability benefits, you should:

Estimate insurance needs (and your insurance needs in 3 years, we want to be generous with this estimate). If you don’t need life insurance and won’t for any foreseeable future because you are financially independent or have a large pension, stop here and go live your life.
Apply for a level term life insurance with a reputable insurance company as soon as you can but before filing for any VA disability claim.
If you are unable to get a policy, go get $400,000 of VGLI coverage within 240 days of separating.
If you at any point decide you don’t need your term insurance policy for any reason, stop paying the premiums.

The goal of this thinking is to cover the event of a financial loss when the impact is the greatest (early in life) at a reasonable cost. For the majority of transitioning members, the solution to this goal will be applying for a 20-30 year, 7-figure term life insurance policy when you are at your most insurable point in life.

If you need help with insurance or any other financial matter during your transition, reach out to an MFAA advisor that specializes in working with military and veteran families!

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Military Retirement: Should You Take SBP?

Post author By Pam Bergeson, CFP®, MQFP®
Post date May 20, 2021

Military Retirement and the Big SBP Decision

This article was jointly written by Adrienne Ross, CFP ®, AFC ®, and Pam Bergeson, CRPC

As you’re working your way through your pre-retirement checklist, you may have discovered a couple of decisions that you need to make before you out process one last time from the military. Of all these decisions, none is more important or more permanent than your decision to accept or decline the military’s Survivor Benefit Plan (SBP).

This blog dives into some of the most common questions about SBP and shares a few examples of when the SBP can be most useful. It also addresses some of the common myths surrounding the military’s SBP.

What is the Survivor’s Benefit Plan (SBP)?

The most important fact to know about the amazing military pension you’ve earned during your 20+ years of service is that it ends at your death. The only way to ensure your spouse and/or your dependents continue to receive a portion of your retired pay is to sign up for the Survivor Benefit Plan.

In the event you pass away before your spouse or your dependent children, SBP continues to pay an inflation adjusted monthly benefit, known as an annuity, to your survivors. In the case of your spouse, the annuity continues until their death or remarriage in some instances.

What may surprise you is that while you’re on active duty, you’re already covered by SBP at no cost. If an active duty service member dies of a service connected cause, their survivors are covered by the Survivor Benefit Plan.

Of all the decisions you’ll make at retirement, the SBP election is the most critical because it is largely irrevocable.

Why is your SBP decision so critical?

The exact decision comes in the form of either accepting or declining SBP in the weeks before your final out processing. If you’re married and decide to decline SBP or accept less than the full SBP benefit, your spouse will need to sign off on that decision during your out processing. The rationale behind requiring your spouse’s concurrence is he or she has the most to lose if you decline SBP.

If you decline SBP, it is very unlikely that you’ll ever have a chance to regain it, your decision is final. On the other hand, if you elect to accept SBP, you will have an opportunity to discontinue it during the period between 25-36 months after your retirement. To be extra clear – this window of opportunity to change your mind in your third year of retirement is a one-way decision – exit only. You can only choose to discontinue SBP, you cannot regain access to SBP.

The only other opportunities to change your SBP decision occur when you have a qualifying major life event that changes the status of your dependents. The death of your spouse, marriage to a new spouse, or the birth/adoption of a child are examples of potential events that could trigger a short window to change your SBP decision. The rules surrounding these life events and which ones do or don’t trigger an opportunity to add SBP coverage are complicated and require detailed information to understand fully.

The decision to accept or decline SBP is unique to each service member and their family. Because there are so many important variables to consider, it is vital to make your own decision with your family’s specifics in mind rather than simply following the decisions of your peers.

Your SBP decision requires careful consideration of your family’s make-up including your ages, age differences, health status and each spouses’ earning potential along with your children’s ages, health, and educational goals, and finally your spouse’s financial interests. We take a closer look at many of these variables in the next few paragraphs.

Why do you need SBP?

If your family depends on your income, then your decision on SPB is critical to your financial plan.

If you’re married or have dependent children, chances are they rely on your military pension for a portion of their monthly living expenses. If your family depends on both your post retirement civilian income and your military retirement income to cover their living expenses, the impact of your passing would be even more devastating.

If your spouse’s lifetime earnings have been hindered by multiple military moves over the course of your military career, they most likely have accumulated fewer retirement assets of their own. In this case, the SBP annuity may prove even more important in providing long term security to your family.

As difficult as it is to imagine, you must ask yourself if your family had to live without you, and without your civilian income and your military pension, could they pay the mortgage or rent, would your family be able to afford college tuition, and would your spouse have sufficient income to cover their living expenses well into retirement and old age?

What’s so special about SBP?

In today’s retirement savings environment, pensions are rare; a pension with a cost of living adjustment is like finding a unicorn.

Inflation protected. Your military pension and its survivor benefit are that rare unicorn. Your military pension adjusts each year to keep up with inflation and your SBP will continue to do so as well. SBP ensures your survivors continue to benefit from your decades of dedicated service through continued payments from your inflation-adjusted pension.

As the cost of living increases, so does the SBP payment to your survivors. For example, if your spouse lives twenty years longer than you, the value of their SBP annuity will keep pace with inflation over those two decades. A payment of $1000 in 2021 could more than double over the course of your spouse’s lifetime.

SBP eliminates two of the most significant risks a widow or widower faces – longevity risk and inflation risk.

Risk management. Longevity risk is the risk that your surviving spouse will outlive the money you’ve saved for retirement. With SBP, you don’t have to worry how long your surviving spouse will live, the payments continue as long as he/she is alive, or in some cases, until he/she remarries.

Inflation risk is the risk that the value of the money you’ve saved for retirement won’t keep up with the cost of living over the decades after you retire. The SBP payments increase each year commensurate with the national inflation rate. This increase ensures the payment your spouse receives can still cover key expenses as their costs increase.

A third type of risk avoided with SBP is default risk. Default risk is the risk that your life insurance or annuity provider will run out of money or go out of business before paying all the payments they’ve promised you. Because the SBP is backed by the US Government, the risk of default is nearly zero.

Pre-tax premium. Beyond eliminating risk in your long-term retirement plan, your SBP premium is paid before your taxes are calculated, meaning the amount you pay is lower than it appears. For example, if your SBP premium is $300 per month and you’re in the 15% tax bracket; your pre-tax SBP payment is only $255. For more senior retirees the benefit of SBP’s pre-tax premium is even greater. A $800 SBP premium for someone in the 28% tax bracket only costs the retiree $576.

Are there situations when I don’t need SBP?

There are certainly a few examples of situations where you might not need SBP. First, if you don’t have anyone depending on your income, no spouse or dependent children, you likely don’t need SBP.

If you’re a dual military couple without dependents who’ve earned very similar military retirement benefits, you may not need SPB, or you may be able to take less than the full SBP rate and still cover your future expenses.

This isn’t true of all dual military couples. When a dual military couple has substantially different career lengths and where there is a significant difference in rank at retirement between the two service members, the SBP decision is less straightforward.

The same comparison is true if your spouse has their own pension through their civilian employer. Or if the non-military spouse has higher life-time earnings and retirement savings that set them up for a self-sufficient retirement.

What are some special considerations with SBP?

Special needs. If your retirement income will support a dependent with special needs you may want to designate a special needs trust to receive your SBP benefits instead of passing directly to the special needs child, so as not to negatively impact their access to other government benefits. If this situation applies to you, you’re advised to work closely with an attorney who specializes in special needs trusts in advance of making your SBP election.

Divorce. If you’re divorced, your former spouse may have a legal claim to a portion of your pension and therefore a court order could require you to obtain SBP coverage. Learn more about these requirements at this link. https://militarypay.defense.gov/Benefits/Survivor-Benefit-Program/Costs

Reserve Component. The rules for Guard and Reserve retirees differ slightly in terms of when you make your SBP election and the cost of your SBP premium. We’ll cover the specifics of the Reserve Component Survivor Benefit Plan (RCSBP) in a future post.

If you’re still wondering why you need SBP, let’s explore some of the myths about the costs and benefits of the program.

Data from 2018 suggests that retirees from each service have different outlooks on the benefits of SBP. On average, the participation rates of Army and Air Force retirees exceed 60 percent, while Navy and Marine retirees participation remains below 50 percent. These differences between services may reflect variations in understanding and potentially misunderstanding of the benefits of SBP. Let’s explore some of the myths surrounding SBP that may impact your decision on SBP.

Some myths about SBP

Myth #1: I can buy term life insurance a lot cheaper than SBP.

Fact: Depending on your age and health, term insurance may in fact be less expensive than your SBP premium. What is important to consider is that term life insurance is a temporary solution to a long-term challenge. Term insurance by its very nature is for a specific term or period of time. The premium you pay is based on your age and your health; as you age, your premiums will increase dramatically. Have a history of high blood pressure, smoking or asthma? These and other health conditions will dramatically increase your premiums. Love to scuba dive or pilot airplanes, you may not be insurable.

Fact: The second part of the “buy term” equation is that you need to “invest the difference” in order to cover your family’s loss of your military pension when your access to inexpensive term life insurance ends. Because it is difficult to secure affordable term life insurance beyond age 60-65, you will need to use the time between your military retirement and reaching your sixth decade to build up a substantial investment portfolio to offset your lack of life insurance. The savings you reap between the cost of SBP and the cost of term life insurance needs to be invested in order to earn sufficient gains to cover your family’s expenses and to stay ahead of inflation. This requires not only persistent discipline to save, but also the willingness to take on investment and market risk to generate long term gains.

Myth #2: I’ve done the math; I’ll save money by not selecting SBP.

Fact: There is way more to your SPB decision than just a math problem. For that math problem to work in your favor, you need to accurately predict how markets and inflation will behave and then you must accurately predict how you and your beneficiaries will behave.

Inflation & Markets: To adequately replace SBP with term life insurance requires you to accurately estimate several very important unknowns, including inflation over the next four to five decades, investment returns over the same 40-50 years, your life expectancy and your spouse’s life expectancy. These are some important variables, all of which you have no control over.

In the case of future inflation and investment returns, even economists won’t venture to estimate these factors forty years into the future. If you’re able to create a scenario where the math works in favor of term life insurance, all you need is a steady increase in inflation or a couple of stock market declines to turn your carefully crafted mathematical solution upside down.

Human Nature: There are also several key behavioral predictions necessary to make this math problem work out. First is the one mentioned above, you need to follow through with the disciplined investment of the “save the difference” if you buy term life instead of taking SBP. Then you need to have the aptitude and willingness to take on the necessary market and investment risk to grow your investment in order to come out ahead of inflation.

Next, your spouse will need the aptitude to safely manage the life insurance windfall. She/he will need to continue to manage these investments, balance risk factors and make decisions about taxes in order to generate sufficient income to pay the bills for the rest of their lives.

Myth #3: Life Insurance proceeds are tax-free, SBP payments are taxable.

Fact: Life insurance proceeds are income tax-free, but once those proceeds are deposited in your spouse’s checking account, she/he will need to invest them in order to generate sufficient income and capital gains to keep up with inflation and replace the loss of your military pension for the remaining decades of their life. Guess what? Investment earnings are taxed as either income or long-term capital gains, depending on the type and duration of the investment.

Conversely, SBP premiums are paid before tax and life insurance premiums are paid post tax. This means you can discount the cost of your SBP premium by a factor equal to your tax bracket. Once you calculate the tax advantaged cost of SBP, there may be very little difference from your post tax term life premiums.

Concluding thoughts on SBP

Unfortunately, myths and misinformation surround SBP. What’s key to remember is that your SBP decision is the single most important decision you’ll make when you retire from the military because your decision to accept or decline SBP will impact your family when you’re no longer there to support them.

It’s critical to consider all the facts and make an informed decision that best supports your family. Because this decision can have impacts well beyond a carefully crafted math equation, it is important to consider the lasting impacts on your family and your financial plan.

Sometimes it comes down to one simple consideration: which decision helps you sleep at night knowing your family is protected.

Because the right answer is unique to each military family, we recommend working with a financial planner who understands your military benefits from firsthand experience. As financial planners who help military families every day, we know from experience that each military family’s SBP decision is unique and depends not just on their present-day budget, but on all the elements that go into a great financial life plan.

The financial planners at the Military Financial Advisor Association can help you work through the various SBP scenarios so you can make the decision that best meets your family’s needs. Reach out to one of us today!