Financial Frontlines®

How Long Will I Live In Retirement…or, how long does my money need to last?

Running out of money in retirement is one of many stresses facing retirees today. Military retirees are some of our nation’s healthiest retirees and with planning, many can expect to remain physically and financially fit long into their retirement years. The DoD Office of the Actuary recently published life expectancy statistics for military retired officers (see below). You can compare the average life expectancy of all military officer retirees at your current age (more exact) or estimate your Retirement Life Expectancy by anticipating your age when you intend to stop working.

Life Expectancy
in Years
at Current Age:           Male Retired Officers        Female Retired Officers
         45                                  38.6                                             40
         50                                   34                                               35.2
         55                                  29.4                                            30.3
         60                                  24.8                                            25.6
         65                                  20.4                                            21.1
         70                                  16.1                                            16.8
         74                                   13                                               13.7
Source: Statistical Report on the Military Retirement System Fiscal Year 2010, DOD Office of the Actuary, May 2011. You can view the entire report here: http://actuary.defense.gov/statbook10.pdf. The complete Life Expectancy tables are at the back of the report.

Of course, there are many factors that afffect life expectancy besides the actuarial projections. Heredity, for one, has a strong link to longevity. If your parents were long-lived, odds are that you will be too. Lifestyle choices have a lot to do with a long life too. Are you smoker or a heavy drinker? Odds are you’ll be checking out earlier than most, and might not need to save as much for retirement. Just overall heavy? Time to hit the gym. When is the last time you saw an obese centenarian?

Exercise regularly? Some think that exercise is the Fountain of Youth. Are you married? More years for both of you. Lots of friends and an upbeat view of life? You’re on your way to a long life.

Roll the dice if you want, or start saving!

Have you created a special needs trust to be the beneficiary of your SBP for your dependent adult child?  Hopefully not…

The SBP does not allow the survivor annuity to be paid to a special needs trust or any trust for that matter.  The beneficiary of a SBP annuity must be a person with a Social Security number.  If the person designated as the beneficiary cannot manage his/her financial responsibilities, then the SBP annuity must be paid to an approved third party for the benefit of the incapacitated beneficiary.

This third party person can be a court appointed guardian, custodian or fiduciary.  The annuity may also be paid to a representative payee who is responsible for the care of the beneficiary once approved by DFAS or your Service SBP administrator.  To appoint a representative payee, provide your SBP administrator (DFAS for military and your pay agency for other uniform services) with the proper documentation:

• Determination of incompetency per a state court, doctor or psychologist.
• Representative Payee Form (http://www.dfas.mil/dfas/retiredmilitary/forms.html) appointing the representative payee by the Service member.

The representative payee is required to use the SBP payments solely for the benefit of the beneficiary and must certify/report this fact regularly.

MOAA has ongoing efforts on the Hill to allow special needs trusts for SBP beneficiaries.  Until you read something official about the passage of a law from MOAA, please plan accordingly.  See your Pay Agent’s web site or call them for details.

In a previous post , I explained how concurrent receipt works and tried to dispel some of the common misconceptions.  The application of concurrent receipt for a Guard/Reserve (G/R) member who is medically retired prior to age 60 is another source of confusion.

When tallying your years of service for retirement, G/R members can have active duty years of service and drilling years of service.  The drilling years are combined with the active duty years to provide the total years of service; ‘good’ years of service vested for retirement eligibility (= or >20 years) and for retirement pay at age 60.  If medically retired, the medical retirement orders separately indicate your vested active duty and your total years of service.  Distinguishing between these two types of years of service is critical when a person is medically retired for determining eligibility for concurrent receipt.

A medical retirement is categorized as an ‘active duty’ retirement.  That’s why you don’t have to wait until age 60 for your retired pay; you get paid retired pay immediately.  Being an active duty retirement, you only get credit for your active duty time served; not your total time served.  However, for pay purposes only, your total years of service are used.

Here’s where the confusion and problems develop.  As a retired active duty member, which a medical retirement is, it takes 20 or more years of active duty service before you are eligible to receive CRDP.  Or, you’re eligible for CRDP if you have 20(+) years of total service and you are age 60 with a G/R retirement.  If you are G/R and medically retired with less than 20 years active duty service, you don’t qualify for CRDP.

The rub…“but I do have more than 20 years service!”  You have more than 20 years service vested for a G/R retirement.  Your 20+ years are a combination of drilling years and active duty years.  Active duty years count for active duty retirement and total years count for a G/R retirement.  The G/R retirement doesn’t pay retired pay until age 60 and that’s when CRDP eligibility begins.

Let’s say you’re medically retired with less than 20 years active duty time but more than 20 years total time served.  You received your retirement Notice of Eligibility letter prior to your medical retirement.  You may want to do some math to see if at age 60 you are better off with a G/R retirement since you will be CRDP qualified under a G/R retirement.  Check with your G/R Retirement office for details.

On the other hand, you can qualify for CRSC IF your disabilities are the result of combat and you have less than 20 years of active duty time served.  The combat nature of your disabilities is also noted on the medical retirement orders.

Want some evidence that the federal budget crunch is hitting home? Wait by your mailbox for your annual Social Security Annual Earnings Statement. You’ll be waiting quite awhile.

In an unpublicized move, the Social Security Administration (SSA)  has suspended delivery of the paper statement most wage earners in this country received about three months before their birthday each year. The Statement contained valuable information regarding covered earnings over your lifetime, your anticipated benefits amount at full retirement age and the data needed to explore other scenarios such as the expected reduced benefits available at the early retirement age of 62, the enhanced benefits amount available to those interested in waiting until age 70 to maximize their benefits, and the ability to extrapolate other scenarios in between. This information is no longer readily available.

A search of the Social Security Administration web site reveals only the following statement: In light of the current budget situation, we have suspended issuing Social Security Statements. You may be able to estimate your retirement benefit using our online Retirement Estimator.

I used the SSA’s Retirement Estimator. It does not provide the level of detail that the paper statement did. For one thing, there is no table of covered earnings over a lifetime. For another, you must enter your covered wages for the previous year. If you don’t know, the estimator returns nothing of value.

It’s not known why the SSA has kept a low profile about this issue, or whether it  will resume mailing statements to at least those approaching retirement age if the budget picture brightens. However, it’s safe to say that for now, a valuable piece of retirement information is largely unavailable to those interested in planning ahead. With more Americans facing a dimmer retirement picture than they may have hoped and potentially relying even more heavily on their Social Security benefits, this lack of credible information will hurt.

At this time, the future of the HAP is no different than the past—there are no changes on the horizon.

The HAP for PCSs was a generous benefit passed because the cosmic planets aligned and money was made available at a time when everyone seemed to receive consideration for a bail out.  The original legislation came from out of the blue, MOAA supported the cause and the bill passed.  But honestly, even we were a bit surprised.

There is a current bill (H.R. 237) that has been referred to the Subcommittee on Insurance, Housing and Community Opportunity for consideration that would give DOD more authority to expand the HAP eligibility requirements.  However, while this bill gives the DOD authority it does not provide any money that would be necessary to expand the HAP to more members.

MOAA has written letters of support for efforts to expand the HAP to more members.  We support H.R. 237 even though in reality we realize there are no teeth in the bill…but you never know how things can change.  Heck, no one expected the original HAP would pass.  But I wouldn’t bet your lunch money on HAP expansion.  The calls for big cuts in the budget make asking for programs that cost money more than a challenge.