TSP Annuities: Introduction

After a long hiatus (too long, I know...), TSP Tips is back with a series on TSP annuities.  Due to personal time constraints, this series will be my last.  If you're interested in writing future “Tips,” please let Tom know.  Ok, enough public services announcements—let's get back to the topic.

An annuity is a contract in which an insurance company pays you for a specified time.  Some annuities are paid for a fixed period, such as 20 years.  However, all TSP annuities are lifetime annuities.  This means the participant (or annuitant) receives payments for his or her entire life.  In some cases, another person may receive payments after the original annuitant dies.  We'll cover this in more detail in just a minute. 

Now since we're talking about the TSP, you may be wondering how and why an insurance company gets involved .  Well, annuities are only sold by insurance companies, and Metropolitan Life Insurance Company (MetLife) is the provider for TSP. 

TSP offers three different annuity types:

1)      Single life.  This annuity is only paid to you over your lifetime.

2)      Joint Life with spouse.  This is paid to you while you're alive.  If you pass away before your  spouse, it's then paid to your spouse for as long as he or she lives.

3)      Joint Life with someone other than your spouse.  In this case, someone other than your spouse can receive the payments after your death.  The catch is that this person must have an “insurable interest” in you.  This means they must depend on you to some extent for their financial well-being.  Generally, this person should be an ex-spouse or a relative who is closer than a first cousin to you.

Next time we'll look at other annuity features that you can customize.  These deal with exactly how you or your beneficiaries are paid.

John, AKA “SystemTrader”