A framework for analyzing defined benefit pension insurance
The survivor benefit plan for veterans
DOI:
https://doi.org/10.61190/fsr.v27i2.3389Keywords:
Simulation, Retirement, Pension, Valuation, Insurance, Survivor Benefit PlanAbstract
Millions of defined benefit pensioners must select a pension insurance method. We present a framework for making this decision within the context of U.S. military veterans’ Survivor Benefit Plan (SBP). Federal government subsidies generate a positive expected net payout for SBP. While insurance outcomes are typically skewed, the asymmetry of SBP outcomes is stark. In a common scenario, five percent of participants receive 60% of benefits. An alternative financial planning approach incorporates private insurance and investments and often bests the SBP. Actuarially correct life expectancy, moral hazard, taxes, and individual financial needs all play important roles in selecting a pension insurance program.
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