The TSP annuity is a topic that most all FERS retirees or soon to be retirees have considered at some point. With the rise in interest rates, does it make more sense to buy an annuity with Thrift Savings Plan dollars today?
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Should You Get a TSP Annuity?
If you are a federal employee or member of the military, chances are you have heard about the Thrift Savings Plan (TSP). The TSP is a retirement savings and investment plan for federal employees and members of the uniformed services, including the Army, Navy, Air Force, and Marines. One of the options available to TSP participants is the TSP annuity. But is a TSP annuity the right choice for you?
An annuity is a financial product that provides a stream of income for a specified period of time, typically for the rest of your life. With a TSP annuity, you can convert a portion or all of your TSP account balance into a guaranteed monthly income for the rest of your life, as well as the lives of your beneficiaries if you choose a joint annuity option.
One of the primary advantages of a TSP annuity is that it provides a guaranteed stream of income, which can help provide financial security in retirement. With a TSP annuity, you won’t have to worry about outliving your savings, as the payments will continue for the rest of your life. This can be particularly beneficial for individuals who do not have a pension and want a reliable source of income in retirement.
Additionally, TSP annuities are backed by the full faith and credit of the U.S. government, which means they are considered very secure. This can provide peace of mind knowing that your retirement income is protected.
However, there are also some potential drawbacks to consider. One of the main disadvantages of a TSP annuity is that once you convert a portion or all of your TSP account balance into an annuity, you no longer have access to the lump sum of money. This means you will not be able to make any changes or withdrawals from that portion of your TSP account, which could limit your financial flexibility in retirement.
Additionally, TSP annuities have a fixed interest rate, so you may miss out on potential market gains if the stock market performs well. This could impact the purchasing power of your annuity payments over time.
Ultimately, the decision of whether or not to get a TSP annuity will depend on your individual financial situation and retirement goals. It is important to carefully consider your options and consult with a financial advisor before making a decision. You may also want to consider other retirement income options, such as taking regular withdrawals from your TSP account or purchasing a private annuity from an insurance company.
In conclusion, a TSP annuity can provide a secure and reliable source of income in retirement, but it is important to weigh the pros and cons before making a decision. By carefully considering your options and seeking professional guidance, you can make the best choice for your financial future.
With a TSP balance of $570,000.00, the 4% rule allows me to withdraw $20,000.00, but I retain the risk and 4% seems risky right now. If I use $400,000.00 of that money to purchase the TSP annuity, I can get $28,000.00 a year for my life and the life of my significant other and still keep $170,000.00 to invest for a rainy day. That $28,000.00 annually is larger than the 4%, and much more than most employees are able to leave their spouse with FERS survivor benefits – and FSB would cost 25% of my pension. I'm preparing to retire at age 56 and 8 months, and my "break even" age for the annuity would be 70. After that, the annuity payments are all gravy for me and my girlfriend for life. Am I missing something? Because I'm seeing a lot more pros than cons. With no children, we have no need to grow our savings above and beyond what we need for ourselves, but even so, the annuity should allow me to continue investing the $170,000.00 in the market.