Thread: TSP Annuity?

Originally Posted by Mari

Has anyone out there had experience with converting their TSP fund to an immediate annuity?
My husband and I are considering doing this. The stock market scares us for the long term. (Has anyone read "Rich Dad..."?)

Using the single/not increasing annuity choice means it would not go up, nor would there be survivor benefits. However, we would have more money early in our retirement when we will need more, and it will last as long as we do, with no worries by us about the stock market.
The biggest expense possible in the distant future would be long term care. We have long term care insurance for that possibilty ($100/d; for unlimited time).
Is my thinking correct? What am I missing?

I have no experience since I haven't retired, but have "what ifed" this choice in my spreadsheet, slicing and dicing it everyway I can.

Bottom line: An annuity will only do a little better on monthly income than a safe investment fund, e.g. Vanguard's retirement fund (based on insurance contract, not stocks), or just putting money in bonds. For me, I would rather have a little less each month and get to keep the principal, rather than handing it all over to an insurance company. I'll use the money while I live and leave it to my children. If disaster strikes, I want to have this pot of money to reallocate as I need to, instead of only a monthly income.

I have long maintained a retirement spreadsheet and have tweaked it over the years so that it could accurately predict what I could expect to have when I retired. One of the calculations it does concerns the TSP annuity. Using published tables from the TSP website and some basic curve fitting, it calculates the value of a TSP annuity assuming a balance and the prevailing interest rate index. All I have had to do is update that single number each month as the interest rate index changed.

Beginning on April 1 of this year, TSP did a new contract with Met Life and changed all of the tables. The primary change was to take account of the fact that people are living longer, and annuities were therefore too generous. You can guess the result.

When I put the new numbers into my spreadsheet and calculated estimates of an annuity from age 60 to age 70, using estimated balances for my account, I find that the dollar amounts I would receive each month are about 25% smaller than they were using the old tables.

If anyone is considering a TSP annuity, rather than taking a lump sum and investing it your self, be aware that as of April, 2006, the value of a TSP annuity has been reduced by 1/4.

Originally Posted by Mari

Has anyone out there had experience with converting their TSP fund to an immediate annuity?
My husband and I are considering doing this. The stock market scares us for the long term. (Has anyone read "Rich Dad..."?)

Using the single/not increasing annuity choice means it would not go up, nor would there be survivor benefits. However, we would have more money early in our retirement when we will need more, and it will last as long as we do, with no worries by us about the stock market.
The biggest expense possible in the distant future would be long term care. We have long term care insurance for that possibilty ($100/d; for unlimited time).
Is my thinking correct? What am I missing?

As you pointed out, an advantage of an annuity is you will never outlive the income. Expenses associated with a TSP annuity may be lower than industry average which is another plus. You may want to wait to lock in annuity rate until the interest rate scenerio plays out over the ensuing months (higher "i" rate the higher annuity payout). You may also want to consider annuitizing part of your TSP account; leaving some to manage on your own?

Ed