The Military Survivor Benefit Program (SBP) Is a Scam: Here’s Why You Should Opt-Out

 Are you about to retire from the military, or did you retire in the last 3 years? If so, you've probably heard a lot about the Survivor Benefit Program (SBP), or maybe have already gone through the process of signing up for it. The SBP is presented as a way to protect your family’s future by preserving 55% of your pension and paying that to your spouse after you die. It sounds irresponsible to not have the SBP, but here’s the hard truth: SBP is a bad deal. In fact, it could cost you and your loved ones hundreds of thousands of dollars.

 The True Cost of SBP: Why You Get Less Than You Pay For

Let’s start with the basics: SBP requires you to pay a premium of 6.5% of your retirement pay for the rest of your life. In return, if you die first, your spouse gets 55% of your retired pay for the rest of their life. If your spouse dies first, you get nothing. If you're a man you're more likely to die first, so preserving part of your pension for your spouse after you're gone probably sounds like a decent deal, right? Unfortunately when you dig into the numbers, it becomes clear that you’re getting shortchanged. 

Net Present Value: The Hidden Scam

The SBP’s value is eroded by discounting—essentially, the future payments your spouse would receive are worth far less in today's dollars. When you factor in this discounting, the money your spouse will get in the future is worth barely more than what you pay in while you're alive.

Here's an example of what that means for someone who retires at 42, pays into SBP for 30 years until they die at age 72, and then their spouse collects benefits for 10 years until they die at age 82. We'll use a retired E-9 with the Legacy High-3 retirement pay (50% of Base Pay, or approximately $3,500 per month), and a future O-5 retiree in the Blended Retirement System (BRS) who will receive 40% of their highest three years, or about $4,200 per month.

• Value in 2024 dollars of 30 years of 6.5% SBP premiums
  • E-9 with High-3 (SBP starts at $227.50 per month) = $52,523.90
  • O-5 in BRS (SBP starts at $273 per month) = $63,028.68
• Value in 2024 dollars of 10 years of 55% survivor's benefit
  • E-9 (benefit of $1,925.00 if received today) = $173,690.41
  • O-5 (benefit of $2,310.00 if received today) = $208,431.17

The Actual Value of the SBP Benefit

In reality it's far more likely that a surviving spouse would only live for 4-6 years after you die, so the actual benefit is much less than this "rosy" picture we've just painted. As of 2024, the average American male dies at age 74.8 and the average American female dies at age 80.2, according to the Centers for Disease Control (CDC). That means that for the average person their surviving spouse is more likely to get about five years of benefits, not ten, and that reduces the actual SBP to only $85,255.69 - $102,308.14 in today's dollars. If you're female and you sign up for SBP, on the other hand, your partner is most likely to get $0 because you're going to outlive them.

-->A married woman in the military should ALWAYS OPT-OUT of the SBP, no matter their spouse's gender.

Depending on your career as an enlisted, warrant officer, or commissioned officer, you pay in $52,523.90 - $63,028.68 for an expected payout of $85,255.69 - $102,308.14. That means that for a man in the military who is married to a woman, the actual gain of the SBP is only $32,731.71 - $39,279.46. If you are getting back more than you put in, that's generally pretty good, but the next question to ask yourself is "can I do better?" than a total net benefit of $32-40k?

Better Option #1: Invest

It turns out that you can. Consider opting out of the SBP and keeping that money in your pocket. One of the SBP's obnoxious selling gimmicks is to tell you you'll save on taxes because your premium isn't taxed. For the average military retiree, their premium will be $227-273 and they'll owe 10-22% of that in taxes. Let's round up and take some averages to say that you'll save $250 a month in premiums and pay $50 extra in tax, so opting out of SBP keeps an extra $200 per month in your budget.

If your goal is to maximize the value of that $200, you would want to invest it. Because you read the Military Wealth Coach blog and listen to the Service and Wealth Podcast, you already know that the smart thing to do with a 30-year investment timeline is to invest in an S&P 500 Index Fund. You'll earn an average of 10.8% per year for the next 30 years, and lose almost nothing to fees.

In 30 years, your investment will be worth about $475,000. But to be fair and compare that to the value of the SBP, we have to find out what it's worth in today's dollars. Using the exact same math, we find that the value of that investment in 2024 dollars is $187,000. Compare that to the SBP value of $85,255.69 - $102,308.14 and you are about 2x better off on average. Your spouse will have to outlive you by at least 10 years for SBP to catch up and match the value of your investment.

What's more significant though is what we call the "expected payoff." To find the expected payoff you have to average both outcomes: that you die first and your spouse gets SBP or your spouse dies first and you get $0. If we assume it's a 50:50 shot, that means with the SBP you have a 50% shot at $100k for your spouse and a 50% shot at $0 for you. That averages out to an actual expected value of only $50,000 -- barely more than you paid in in premiums. On the other hand with a brokerage account, either your spouse gets the money or you get the money. That means it's 100% that you get the $187,000 payout. But can you do better still?

Better Option #2: Term Life Insurance

Instead of pouring money into SBP, you should seriously consider keeping your money and buying a Term Life insurance policy. "Term life" refers to the amount of time the policy will cover you, which can be for up to 50 years. If you are buying Term Life at age 20, you would want to buy 50 years . . . if you are approaching 40 and nearing military retirement and are still (why?) without term life insurance, you would want to buy 30 years. Basically buy enough to get you to about 65-70.

The reason to buy Term Life insurance is what's called the Death Benefit, which is a tax-free lump sum payment to your designated "beneficiary" when you die. For this reason it is already far superior to the SBP: the SBP only pays your spouse, so if your spouse dies the SBP benefit goes to $0 as it can't be transferred to your children. With life insurance if your spouse dies first, the Death Benefit can go to a child, grandchild, unmarried partner, best friend, charity, Family Trust, or just about anywhere else.

For the cost of your SBP premium you can buy a LOT of life insurance. In 2024 a 40-year-old non-smoking male can buy $1,000,000 in life insurance for a 30-year term for about $120. So for your $200-a-month savings from opting out of the SBP, you can buy about $1,750,000. A woman can buy even more because women generally live longer and are less likely to die during the policy period, so a 40-year-old non-smoking female can buy about $2,250,000 in coverage for $200.

Now let's look again at the value today of this choice, once again assuming you live 30 years and die at the end of your policy coverage, leaving your surviving spouse the Death Benefit.

• Present Value to Male Military Retiree in 2024 dollars of $1.75 million = $691,297.49
• Present Value to Female Military Retiree in 2024 dollars of $2.25 million = $888,811.06

There's no comparison: a 30-year term life insurance policy has a present value of at least 7-8x the expected value of the SBP's spousal benefit. How does the income of SBP compare to the income over 10 years from an annuity funded with that massive life insurance payout:

• Value of SBP benefit to E-9's surviving spouse in 2054 dollars = $51,926.67/year
• Value of SBP benefit to O-5's surviving spouse in 2054 dollars = $62,042.26/year
• Value of 10-year annuity of $1.75 million Death Benefit in 2054 dollars = $190,000/year
• Value of 10-year annuity of $2.25 million Death Benefit in 2054 dollars = $245,000/year

 Once again, it doesn't even compare: they can afford 4x the lifestyle than their SBP benefit would buy.

Other Benefits of Life Insurance or Investing

Control

As we've already addressed, when you opt-in to SBP the benefit is only payable to your spouse. If they die before you, no one gets anything. If you divorce, SBP stops and your kids get nothing; if you die young and your spouse remarries before age 55, SBP stops for them, too. On the other hand, you can control who gets the benefit of your investment or life insurance, making sure that the value of that money never goes to $0 because it isn't paid out when your survivors aren't your spouse.

Taxes

SBP touts an advantage as the $25-50 each month you save in Federal Income Tax. True. Yet what isn't addressed is that military pensions are taxed as "ordinary income," which falls into the current Federal Tax Brackets of 10%, 12%, 22%, 24%, or higher. A surviving spouse receiving a 55% SBP benefit worth $50,000 - $60,000 in the future could expect to pay, if they had no other income beyond Social Security and the SBP benefit, about $4,800 a year in Federal Income Tax on their SBP income.

In contrast, the money received from a life insurance Death Benefit is tax-free. Placed into a Revocable Trust and invested, the proceeds can be distributed tax-free; if used to purchase a non-qualified annuity to provide sustained annual income, only the profits of the investment are taxable. Investment profits aren't taxed as ordinary income but as Long-Term Capital Gains (LTCG). LTCG have a 0% tax bracket up to $47,025 for single tax filers, and 15% or 20% maximums after that. Your surviving spouse will save on taxes when they draw income from an investment account compared to the SBP.

Opportunity Cost 

Do you need to invest your SBP premium savings, or buy life insurance? No, of course not. That's yet another benefit of opting out of SBP: you keep control of your money. While $227-273 a month doesn't sound like much today when prices are going through the roof, that money can still be a difference maker in your budget. When you opt-in to SBP, that money is gone for a very specific future purpose, one that you'll never see -- and may never even get if your spouse dies first. By opting out you can keep that extra $2,500-3,000 per year to use today on important things like child care, vacationing with your family while you're young, saving for a new car, saving for college, or just about anything else.

Action Plan

1. Buy Life Insurance Now. The younger you are, the cheaper the life insurance premium. Even better, once you buy the policy, your rate stays the same and won't go up. If you have only had Service Members Group Life Insurance (SGLI) coverage up to this point for $500,000, chances are you don't have enough coverage anyway. You should have enough to replace 8-10 years of income and pay off all your debts. For any mid-career service member who owns a house, they need at least a million dollars worth of life insurance. For an extra $50-150 a month, you can add $1-2 million in coverage. So buy it now to protect your family and your legacy today.
2. Insure Your Spouse. The irony of the SBP and Life Insurance on you is that you pay for it while your spouse gets the benefit -- but you get zero benefit if they die before you. Buy a life insurance policy for your spouse at the same time you buy yours. In many cases you will get a decent discount on your monthly premium for buying two policies. No one wants to see their life partner die before they do, but that doesn't mean you shouldn't prepare for it financially. 
3. Make a Retirement Plan. There's no time like now to plan, and if you're already considering retirement options like SBP, why not go all-in on planning? You and your spouse can log into the Social Security Administration's website for a free statement and estimated benefit by clicking here: https://www.ssa.gov/myaccount/statement.html. Figure out how much you'll receive from your military pension and Social Security, then find out the difference between that income and how much income you want. Set a savings goal and start saving today to reach it. 

Addressing Common Objections

It’s natural to feel hesitant about opting out of a government-backed program like SBP. After all, it’s promoted as a safety net. But here’s the reality: the SBP premium is a costly and inefficient way to provide for your spouse and family. The real beneficiary of the SBP is the federal government: each retiree is committing to paying $50,000-60,000 in premiums in the form of monthly payments, but it actually is just giving the government a discount on the pension they owe you.

First, you should want to be paid what is owed you for your service. Second, you should want a good deal on any part you give up: a good deal would be paying a premium that insured your entire benefit, not just 55% of it. The government is not going to give anything away for free, and the same applies to SBP. They did the math and figured they can offer you a "generous" 55% and still come out ahead financially -- if they're coming out ahead, the only way for them to do that is for you to be left behind.

Conclusion

Instead of falling victim to the sweet-sounding promises of the Survivor's Benefit Program, which distracts you from the actual numbers, safeguard your financial future by opting out. It's a simple section on your DD2656 to complete and hand in with the rest of your retirement paperwork. It also requires that your spouse acknowledge and sign, and that your signatures are notarized. So you'll also need to explain the true costs of SBP to your spouse, and show them the far more lucrative alternatives to care for them after you're gone. And definitely make sure you work together on the plan (a solid start would be to forward them this blog post!).

If you’re approaching retirement, now is the time to make these critical financial decisions. If you've recently retired, you have an opt-out window that opens on the 2nd anniversary of the date you began receiving retired pay and closes one year later. So if you've retired in the last 35 months and are paying into SBP, you have one more chance to get it right and opt-out.