The Survivor Benefit Plan (SBP), Explained

A military pension is valuable, but it has one important limit: it stops when the retiree dies. The Survivor Benefit Plan (SBP) is the program that lets you convert part of that pension into a lifelong, inflation-adjusted income for your spouse or children after you're gone. For many retirees it's one of the most important — and most overlooked — decisions at retirement.

What SBP does

SBP is a government-backed annuity. You pay a monthly premium out of your retired pay, and in exchange your designated survivor receives a monthly payment for life if you pass away. Because the payment is tied to the military pension, it also receives the same annual cost-of-living adjustments — protection that's very hard to buy in the private market.

How much it pays

• SBP pays your survivor 55% of your chosen "base amount."
• The base amount can be your full retired pay or a smaller portion you elect.
• The benefit is adjusted for inflation over time, helping it keep its value across decades.

What it costs

For spouse coverage, the premium is roughly 6.5% of the base amount you elect, deducted from your retired pay before taxes (which lowers the effective cost). Choosing a smaller base amount lowers both the premium and the eventual benefit.

The "paid-up" rule

SBP premiums are not forever. Coverage becomes paid up — no more premiums, but the coverage continues — once you have paid premiums for 30 years and reached age 70. After that point your survivor keeps the benefit at no further cost to you.

Enrollment and decisions

• If you're married at retirement, you're generally enrolled at full spouse coverage automatically unless your spouse formally agrees in writing to less or none.
• You can also cover children, or a former spouse, under specific rules.
• The decision is made at retirement and is difficult to change later, so it deserves careful thought.