The Reserve Component Survivor Benefit Plan

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This earlier post describes the SBP and its options, as well as the pros and cons of buying it for your survivors. If you landed here from a search engine or some other link then I’d recommend reading the previous two posts before proceeding with this one.

Some of the references and links in this post include articles from the Association of the United States Navy (AUSN), a support group for sailors and officers formerly known as the Navy Reserve Association. Although AUSN is a Navy organization, the SBP is covered by Congressional legislation implemented by the Department of Defense for all services, both active & Reserve/Guard components. The AUSN links to their February-April 2009 magazine may only be accessible if you’re a member. (AUSN is a great group, and I’d highly recommend joining just for their career advice and their benefits updates.) Please let me know if you have public links from the DoD or another service and I’ll add them here.

The SBP was enacted by Congress in 1972, and the Reserve Component SBP was added in 1978. The RCSBP sells insurance to Reserve/Guard who have applied for retirement but who are not yet age 60 (“gray area”). Once they reach age 60, their RCSBP is the same program as the SBP but with slightly different premiums to cover a portion of the cost of the years before age 60. Congress pays about 40% of the program and the rest is covered by the retiree’s premiums paid to the SBP and the RCSBP.

Although only about 75% of active duty retirees buy the SBP, over 90% of retiring Reserve/Guard enroll in the RCSBP. The difference appears to be the inexpensive insurance coverage during the “gray area” years before age 60, and the fact that premiums aren’t due until age 60.

RCSBP is another incentive offered by the Department of Defense to encourage Reserve/Guard to retire awaiting pay instead of resigning pending retirement. When Reserve/Guard reach 20 years of qualifying service they can either apply for retirement (awaiting pension at age 60) or resign from the Reserve/Guard until their pension starts (at age 60). For the DoD, the difference is that “retired awaiting pay” means the member can be recalled in the event of a full mobilization of the armed forces. (Even though recalling a retiree is highly unlikely.) There are a number of financial reasons to retire instead of resigning, and an additional reason is that Reserve/Guard who have “retired awaiting pay” can buy SBP coverage for their beneficiaries.

Another reason to buy RCSBP coverage is because it starts as soon as the Reserve/Guard member retires instead of at age 60. It’s possible to reach 20 years of qualifying service in your late 30s and wait over two decades before drawing the pension at age 60. If SBP is elected at the time of applying for retirement, then the Reserve/Guard member has SBP coverage for that entire time before age 60. (By law, upon retirement the member is automatically signed up for full coverage. The decision to reduce or decline coverage is actually made by the spouse.) If the retiree dies prematurely then one of their survivor’s options would be to receive up to 55% of their pension immediately instead of waiting until they would have been age 60. The Reserve/Guard member doesn’t actually have to pay the SBP premiums for that coverage until their pension starts. In other words, Reserve/Guard who have “retired awaiting pay” can have over two decades of “free” insurance coverage before they even start drawing their pension. Better still, at age 62 (after paying two years of SBP premiums) they can either continue their SBP coverage or cancel it.

The RCSBP has three options:

  • A: Decline coverage until age 60 and revisit the decision then.
  • B: Deferred Coverage – If you die before age 60, a RCSBP annuity begins paying out on what would have been your 60th birthday.
  • C: Immediate Coverage – The RCSBP annuity would begin on the day after your death, even before age 60. This is the default option.

The RCSBP’s enhanced “free” gray-area coverage comes at a price: the premiums are calculated at a slightly higher rate than the conventional SBP’s 6.5%. The premiums are determined from data tables and fact sheets provided when the Reserve/Guard member receives their notice of eligibility for retirement (20 good years). Members can also estimate their payments from a RCSBP calculator.

Spouses can elect the full amount of coverage (55% of the Reserve/Guard pension) or smaller amounts. As discussed in the last post, the decision should be based on the survivor’s projected spending or to insure the ability to pay off a large expense such as a mortgage.


Related articles:
Survivor Benefit Plan
Retiring from the Reserves and National Guard
2011 Guard and Reserve Handbook

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WHAT I DO: I help you reach financial independence. For free. I retired in 2002 after 20 years in the Navy's submarine force. I wrote "The Military Guide to Financial Independence and Retirement" to share the stories of over 50 other financially independent servicemembers, veterans, and families. All of my writing revenue is donated to military-friendly charities.

8 Comments
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  7. Reply
    Doug Nordman April 14, 2011 at 6:02 PM

    Thanks!

    I think the AF is unique among the services in letting their retired members return as drilling Reservists, but I don’t know each of the services’ Reserves or Guard as well as I know Navy.

    Navy Reserve would also prefer that their members not “homestead”, and eventually it can count against them at promotion boards. However in the Reserves there’s at least a choice, while we all know what would happen if we tried to homestead on active duty…

  8. Reply
    Tomcat98 April 14, 2011 at 6:07 AM

    Wow another great article! While I am not very familar with the Reserve system (other than they do a great job and are interchangable with AD folks), I sure do wish someone would have talked to me about them years ago. At that time the perception was “join the military for college money or just be a weekend warrior.” Boy how times have changed. We have great reserve/NG units.

    One thing that I have not see a lot of discussion on is how much more beneficial reserves could be overtime in terms of “secondary affects.” I think we always hit the main points, however AD can actually have a negative impact on ones ability to accumulate wealth and have a good quality of life over time. (No one should serve for the money that is for sure.) I guess what I am hinting at is that with all the moves, uncertainty, potential for impacting spouses career, impact on family etc. it seems to me the Reserves/NG has some great points. The best of both worlds. I would love to see a pro/con list of both options. I am sure many topics would show up on each side.

    I see a lot of AD folks in an all or nothing mindset in planning life “after” the military. Even with planning my upcoming retirement it is like changing chapters in a book. I have really worked hard on continuity and making the event as seemless as possible. I can imagine this would be real rough on folks that go back to a hometown after being away for 20 plus years.

    Talk about unit cohesion. I bet if you stayed in your home reserve unit over a 20 year career (or longer), you would definately have a sense of belonging. Plus the additional “opportunities” that would present themselves through the contacts you serve with in your own community. There has got to be a way to put value on these!

    Great post Nords!

    Tomcat98

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