# FINANCIAL ANALYSIS ****** UPDATED FOR 55% BENEFIT ****** ****** FOR ALL SURVIVORS ******

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4 retirees should use the tables with themselves as spouses and their husbands as retirees. Consider a male enlisted retiree age 48 with a wife age 46. Enter the first table with a retiree age 48 with a spouse age 46. There is a 68 percent chance the retiree will die first. If the female is the retiree, then the chances of her dying first is 32 percent (100-68). Percent Chance That A Male Retiree Will Die Before His Spouse Enlisted Members CurrentCurrent Spouse Age Retiree Age % 63% 57% 52% 46% 40% 35% 30% Officers CurrentCurrent Spouse Age Retiree Age % 63% 57% 51% 44% 38% 32% 27% Most military retirees have spouses 0 to 3 years younger. If that s true for you as well, then there s about a two-thirds chance you ll die before your spouse and SBP benefits will be paid. If your spouse is more than 3 years younger than you, the chance is greater

5 that you will die first. If your spouse is as much as 3 years older, there s still at least a 50-percent chance you ll die first. But even if the chance is less than 50 percent, you may want to take SBP to protect against the risks of your early death. Remember that probabilities are only numbers, but you and your spouse are real people with real needs. Even when the probability is low, it still happens in some cases. Your spouse may still outlive you for many years. Look at the risk, i.e., what is the loss if you die without SBP. The following table gives you an idea of the number of years your spouse might live after your death. It is based on military experience and can be applied to 100 couples, each consisting of a retired male enlisted member 1 age 45 and a wife 42. Statistically speaking, 70 of these retirees will die before their wives, who as widows will live, on average, another 13 years. The 50 longest-living widows will survive at least 10 years, and the 25 longest-living will survive at least another 18 years. That means that you can interpret these results as follows: there is a 25 percent chance that if your spouse outlives you, she will live at least 18 more years. A major strength of SBP is that it continues paying 2 for your surviving eligible spouse's entire remaining life, even though you can t know beforehand exactly how long that may be. Minimum Years Spouses Age 42 Survive Retired Enlisted Members Age 45 Longest-Surviving Spouses (In Percent) Surviving Life Span After Member s Death (In Years) SBP Compared to Insurance: Another way of looking at the value of SBP is to compare it to a lump-sum insurance settlement which the surviving spouse could invest, but withdraw monthly amounts equal to SBP. In this case, how long would the insurance money last? The examples below use 3 percent cost-of-living adjustments (COLAs) and assume the spouse can earn 6.0 percent interest. Remember that these examples assume this specific interest rate and COLA. Higher interest or lower COLAs would make the insurance money last longer. Lower interest or higher COLAs would consume it more quickly. 1 Results for officers are similar. 2 SBP stops if a surviving spouse remarries before age 55, but resumes if that marriage later ends by death or divorce.

6 a. Example 1 is based on an E-7 with 22 years of service who is age 45 with a spouse age 42. The E-7 dies immediately and the spouse is expected to live until age 83. In this example, the spouse is left with \$200,000 in insurance money to live on and invest. The spouse is assumed to be in a 10-percent tax bracket. Initially, the \$200,000 holds steady and the earned interest is almost equal to the SBP payments. However, the SBP withdrawals rise with expected COLAs, and eventually begin to deplete the investment. When the spouse is 64, the money runs out. The SBP withdrawals start at an annual rate of \$11,856 (after taxes) and grow to \$22,718 at age 64. No income would be available after this through the spouse s remaining expected lifetime, which is another 19 years and could be much longer. EXAMPLE 1 SBP vs Life Insurance E-7 With 22 Years of Service \$250,000 \$200,000 \$150,000 \$100,000 Insurance SBP \$50,000 \$ Spouse's Age Example 1a assumes the E-7 dies 30 years from now leaving the same \$200,000 in insurance. At this point, the spouse can expect to live to age 86. Because of inflation, the \$200,000 will be worth less than it is today, while the SBP withdrawals will be much larger. As a result, the \$200,000 drops fairly rapidly and, at age 80, the spouse has used up the insurance investment. No income would be available after this through the spouse s remaining lifetime, which is another 6 years and could be much longer.

7 EXAMPLE 1a SBP vs Life Insurance E-7 With 22 Years of Service \$250,000 \$200,000 \$150,000 \$100,000 Insurance SBP \$50,000 \$ Spouse's Age b. Example 2 is based on a 45-year-old O-5 with 24 years of service with a spouse age 42 who can expect to live to age 87. The COLAs and interest rate are the same as before, but the officer s spouse is assumed to be in a 15 percent tax bracket. In addition, the spouse is left with \$500,000 in insurance. The \$500,000 holds fairly steady at first, then declines rapidly until it s gone by age 70. The SBP withdrawals start at \$24,385 (after taxes) a year and rise to \$55,791 at age 70. No income would be available after this through the spouse s remaining lifetime, which is expected to be another 17 years and could be much longer. EXAMPLE 2 SBP vs Life Insurance O-5 With 24 Years of Service \$500,000 \$400,000 \$300,000 \$200,000 Insurance SBP \$100,000 \$ Spouse's Age

8 Example 2a assumes the O-5 dies 30 years from now leaving the same \$500,000 in insurance. At this point the spouse can expect to live to age 89. Because of inflation, the \$500,000 will be worth less than it is today, the SBP withdrawals will be much larger. As a result, the \$500,000 drops fairly rapidly and, by age 82, the spouse has used up the insurance investment. No income would be available after this through the spouse s remaining lifetime, which is expected to be another 7 years and may well be much longer. EXAMPLE 2a SBP vs Life Insurance O-5 With 24 Years of Service \$500,000 \$400,000 \$300,000 \$200,000 Insurance SBP \$100,000 \$ Spouse's Age There are three major points to remember when comparing insurance to SBP. First, it takes a surprising amount of insurance to do for your spouse what SBP will if you re the average retiree and a lot more insurance if your spouse is among the large percentage of those who outlive their mates by the longest periods of time. Second, the amount of insurance you ll need to match SBP rises over time because of inflation. Third, although insurance may seem to be an inexpensive alternative when you retire, it s harder to obtain and increasingly expensive as you get older. SBP - A GOOD VALUE Costs Versus Benefits: Let s see if the premiums you might pay for SBP are worth the benefits your spouse might receive. To do this, we create what we call lump sum present values. The present value of a future payment is the amount of money you d need to invest today to make that payment in the future. The actuarial present value of a future payment is its present value multiplied by the probability it will be made. As an example, let s take a 45-year-old male enlisted member with a spouse 42 who has chosen a monthly SBP base amount of \$2,000. Assume future COLAs are 3 percent, interest is 6.0 percent, the retiree while married is in the 15% tax bracket, and the

11 SBP Subsidy and Insurance programs: The DoD Office of the Actuary provides a set of computer programs to Service retirement counselors that will perform the computations shown in this fact sheet including compute your SBP subsidy. You and a counselor can access the programs with a personal computer from the actuary s website, and enter your own age, spouse age, and retired pay. You can input different SBP base amounts, COLAs, interest assumptions, and tax rates. You can even adjust the computations to reflect the impact your health (and your spouse s) might have on mortality. The output from these programs can be extensive and you will likely need a knowledgeable person helping you. But for retirees who want it, this flexible and expert financial analysis of SBP is available.

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