A Framework for Analyzing Defined Benefit Pension Insurance: The Survivor Benefit Plan for Veterans
Posted: 1 Feb 2018
Date Written: January 19, 2018
Abstract
Millions of defined benefit pensioners must select a pension insurance method. We present a framework for making this decision within the context of US 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, 5% (95%) of participants receive 60% (40%) of benefits. An alternative 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.
Keywords: pension, retirement, simulation, survivor benefit plan, insurance
JEL Classification: G23, H55, J38
Suggested Citation: Suggested Citation