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The Thrift Savings Plan (TSP) is a retirement savings and investment plan for federal employees and members of the uniformed services. One of the decisions you’ll have to make when you reach retirement age is whether to take the annuity option. An annuity is a financial product that provides a series of payments to you after you retire, typically for the rest of your life.
So, should you take the TSP annuity option? The answer depends on your individual financial situation and retirement goals. Here are some factors to consider when making this decision:
1. Guaranteed Income: One of the biggest advantages of choosing the annuity option is that it provides a guaranteed income stream for the rest of your life. This can help you plan for your expenses in retirement and provide peace of mind knowing that you’ll have a steady source of income.
2. Longevity Risk: By choosing the annuity option, you can protect yourself against the risk of outliving your savings. With an annuity, you’ll continue to receive payments regardless of how long you live, which can be especially valuable if you expect to live a long life.
3. Inflation Protection: Some TSP annuity options offer inflation protection, which means that your payments will increase over time to keep pace with the rising cost of living. This can be important for maintaining your purchasing power in retirement.
4. Limited Flexibility: On the other hand, choosing the annuity option means that you’ll have less flexibility with your TSP savings. Once you opt for the annuity, you won’t be able to access the lump sum of your TSP savings, which could limit your ability to respond to unexpected financial needs or opportunities.
5. Investment Risk: When you opt for the annuity, you transfer the investment risk to the annuity provider. This means that you won’t have to worry about managing your investments in retirement, but it also means that you won’t benefit from any potential investment gains.
Ultimately, the decision to take the TSP annuity option depends on your individual financial goals and needs. It’s important to carefully consider your options, taking into account your overall financial situation, risk tolerance, and retirement goals. Additionally, you may want to consult with a financial advisor to help you understand the pros and cons of the annuity option and how it fits into your retirement plan.
In conclusion, the TSP annuity option can provide a secure and predictable income stream in retirement, but it also comes with trade-offs in terms of flexibility and investment potential. Before making a decision, it’s important to carefully weigh these factors and consider how the annuity option fits into your overall retirement plan.
With a TSP balance of $500,000.00, the 4% rule allows you to withdraw $20,000.00, but you retain the risk and 4% seems risky right now. If you use $400,000.00 of that money to purchase the TSP annuity, you can get $28,000.00 a year for your life and the life of a beneficiary and still keep $100,000.00 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 even full survivor benefits – and FSB would cost 25% of their 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.
There must be some annuity success stores, no?
Wow, not helpful at all. TSP annuity is one of the best low cost annuities out there, why risk your money go the safe route. retired military pension, disability, SS, why not take the annuity? It's 4.7% now, that guy is just blowing smoke, even admits he doesn't like annuities, his title to this waste of time video should've been I hate the tsp annuity.
This guy is good at talking in circles and not actually saying anything just to make his video longer
Your videos would be better if you got straight to the point and stop talking like a salesperson. Then I would subscribe to your channel. This video could have been 3mins long.
How would my TSP be taxed if I turned it into an annuity? Would I pay taxes on the full amount and then use the remaining to purchase the annuity, or could I use the full amount to buy an annuity and then pay tax on the monthly payments?
You already get an annuity when you retire from the feds + social security. There is no need to have a third.
I do agree, going 100% either way is ill-advised, but having a portion of your portfolio being in fixed income is not a terrible decision if it affords you sequence of return risk protection; you also have the option of in bullish markets you can withdraw more from your variable investments and re-invest your fixed income (there's no rule saying you have to spend your fixed income amounts).
Would be interesting to know if there's any benefit to having a 200k-300k income annuity vice just chucking that 200-300k in the G fund and drawing down your projected annuity monthly income that way.
"there are some things that look good on paper, but they're actually not…"
When you sign up for annuity to a financial group or insurance company, can you designate a beneficiary so that when you pass your beneficiary will get your money or will continue to receive the monthly benefit?
I heard that the TSP 70 form is obsolete and is being replaced by TSP 99. Have you heard anything about this change?
I had 2 annuities and I found out that once the principal amount was gone, I would still receive payments but if I died, my beneficiaries got nothing. They also had no COLAs so with inflation, so the value decreased every year. When they matured, I cashed them in and invested them in my 401k and my brokerage account. I'm NOT a fan of them either.
Over the years companies/businesses come and go. Although unlikely, potential down side of purchasing an annuity is that the purchaser may out live the insurance company with whom the annuity is purchased. The term of the annuity is only as good as the health of the insurance company.
So by your logic, one should stay single, rent everything and never plan for the future. Seriously, there are so many annuities available other than SPIA (single premium immediate annuities).
I think to keep this from sounding misleading a true discussion on annuitization vs. LIBRs would be good. Every financial advisor bad mouths annuities because they don't make as much money with them, but truth is they are a great solution for some people. Every person's #1 goal should be to find someone they trust to help them with their money. If you have an uneasy feeling about them or the solutions they are providing, just walk. They can ALL offer you the same solutions, it really comes down to whether or not they have your best interests in mind, or their own pocket book.
I think that you have not mentioned the key points. What is age when the money in TSP will be equal to that from annuity? that is very important since people can make decision with the health status.
Not quite like an annuity, but if I have a major expense (like I need a new $20K roof), should I take that all out of my TSP, or pay the cost in installments/loans?
I will take the contrarian view here, just for fun 🙂 There will be some for whom a TSP annuity is a reasonable choice, especially when interest rates are rather high resulting in a higher lifetime annuity. Some just don't have an appetite for wild market fluctuations in retirement. Theoretically, a stock portfolio could lose 50% in a single year, or there could be an entire decade of lousy stock performance; we've seen it before. Some would prefer the certainty of regular (or even increasing) lifetime payments available with a TSP annuity, rather than an uncertain market. Yes, there are drawbacks to the TSP/MetLife annuity such as its inflexibility, but stock markets have their drawbacks too in retirement. In fact, an annuity provides a guarantee, but the stock market certainly does not. Additionally, that contract with MetLife is certainly monitored by the TSP board and Congress itself, so I wouldn't dismiss the TSP/Metlife annuity "just another insurance company trying to rip you off with hidden fees", as some commenters claim. The cost and benefits of the TSP/Metlife annuity are rather clearly displayed upfront, on the TSP withdrawal modeler website.
No.
Thank you for another great video with valuable information for upcoming and future retiring government employees.
Retiring soon. I appreciate the info. Thanks!
Thanks. Like always great information. Did not know that I can tell Tsp to send me a monthly amount
I had almost decided to get an annuity from one of those groups that target federal employees. Then I started looking at all the different annuities, and almost all of them were terrible. Finally figured out that the one I was planning to buy was actually pretty terrible, too, compared to other things. Still not sure what I want, but at least I have choices.
Another downside: what if the underwriter (insurance company) goes out of business.
I retire in 4 years and have always done traditional TSP. Want more cash on hand when I go, should I switch all new money to Roth or is it too late or not worth it? Love all your videos….
Secure Act 2.0 appears to open the gates on annuities with traditional 401Ks. If there are more players in this space, maybe over time the these products will become more transparent with lower fees. However, fed FERS employees already have 2 annuities, pension and SS. A diversified retirement income plan many would argue doesn’t need a third annuity. I would put considerations of Roth conversion strategies, etc over annuity for TSP funds.
Thanks for helping out Fed govt employees with very important financial decisions. This information is very useful!
Any financial planner that offers you an annuity – they are not looking out for your better interest. Get a new financial planner. As a FED your pension is fixed income, plus social security (at some point) are basically the fixed income, that actually get COLAs. So the TSP is for everything else.
Omg Mr Haws, you need a mega phone, tell them to RUN!!. Those insurance annuities are scams. They're full of restrictions and fees. They only benefit the company.
No and no
No!!!
Thanks for sharing. You’re a wealth of knowledge!
Makes sense. Thank you! Still, with interest rates historically high right now (current TSP annuity rate is 4.2%), a TSP annuity is much more lucrative now than when rates were closer to 1.5% One can use the TSP Withdrawal Modeler to see for themselves.