Insuring defined-benefit plan value: an examination of the survivor benefit plan (SBP) decision

The U.S. Military Survivor Benefit Plan (SBP) allows military retirees to protect a portion of their retirement income stream. Specifically, retirees can pay a pre-tax premium from their retirement income to insure up to 55% of the retirement income stream. Two recent changes have dramatically improved the value of the plan. In this study, we construct a Monte Carlo simulation model to describe the distributions and implied discount rate for SBP participants. Our model demonstrates that the program is quite lucrative for most male retirees. In contrast, the program is less rewarding for female retirees, especially when they are somewhat younger than their spouse. Retirees and their financial planners can use our results to make more informed retirement planning decisions. [PUBLICATION ABSTRACT]