Insuring defined-benefit plan value

Authors

  • Kevin Davis Department of Management, USAF Academy
  • Steve P. Fraser Florida Gulf Coast University

DOI:

https://doi.org/10.61190/fsr.v21i4.4680

Keywords:

Retirement, Pensions, Valuation, Insurance, Survivor Benefit Plan

Abstract

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.

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Published

2012-12-31

How to Cite

Davis, K., & Fraser, S. P. (2012). Insuring defined-benefit plan value. Financial Services Review, 21(4), 275–290. https://doi.org/10.61190/fsr.v21i4.4680

Issue

Vol. 21 No. 4 (2012): FSR Winter 2012

Section

New Original Submission

License

Copyright (c) 2012 Academy of Financial Services

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