10% or 5%

[offroad]

So looking at all the planning long term for withdrawal of annuity from TSP. They all assume 4% interest yearly. Not sure why they would not think 5% for easier discussion. But why are we not thinking about 10% interest? is 10% so hard to expect year after year for interest?


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[Frixxxx]

So looking at all the planning long term for withdrawal of annuity from TSP. They all assume 4% interest yearly. Not sure why they would not think 5% for easier discussion. But why are we not thinking about 10% interest? is 10% so hard to expect year after year for interest?


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The expectation is that you will not be in the stock market. More than likely, once a 401 (?) account is used for retirement income, it would be protected.

[jkenjohnson]

So looking at all the planning long term for withdrawal of annuity from TSP. They all assume 4% interest yearly. Not sure why they would not think 5% for easier discussion. But why are we not thinking about 10% interest? is 10% so hard to expect year after year for interest?


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Not for some people, but yes for others, so playing it safe 2-4% is usually utilized in annuity calculations. It would be nice if you could find an annuity that pays 10% per year.

[jkenjohnson]

The expectation is that you will not be in the stock market. More than likely, once a 401 (?) account is used for retirement income, it would be protected.

I am curious to know if most people will buy an annuity or just manage their TSP and withdraw accordingly. An annuity is a nice guarantee for life, but it pays so little (2-4%). I guess it depends on the amount in your TSP. 2% of $4,000,000 would be great (but who has that kind of money in their TSP?) 2% of $1,000,000 sucks.

[Cactus]

Can you really get 10% year after year? If so, you should start a premium service. As for me 4% is too high. Look at my current & past performance to see why. I go with 2% because it is more realistic in my situation.

[Frixxxx]

I am curious to know if most people will buy an annuity or just manage their TSP and withdraw accordingly. An annuity is a nice guarantee for life, but it pays so little (2-4%). I guess it depends on the amount in your TSP. 2% of $4,000,000 would be great (but who has that kind of money in their TSP?) 2% of $1,000,000 sucks.

Depends on all your other income and their prospects. When you retire do you want to manage your accounts or set it and forget it? Is your TSP going to cover just one fixed cost in your retirement?

Also, your TSP withdrawals and annuities can be taxed differently or not at all.

[WorkFE]

Depending on the type of annuity as well. Some folks like a bit more control in case of an emergency. Final balance, financial prowess, individual health etc I would think helps make those decisions as well.
I read some where that in a recent 2 year period OPM processed something like 100,000 retirements and during that time only 2500 TSP annuities were purchased. Granted that does not mean folks did not go out and purchase an annuity on their own or other alternatives, of which there is no shortage of.

[jkenjohnson]

Depends on all your other income and their prospects. When you retire do you want to manage your accounts or set it and forget it? Is your TSP going to cover just one fixed cost in your retirement?

Also, your TSP withdrawals and annuities can be taxed differently or not at all.

How can they not be taxed at all?

[jkenjohnson]

Depending on the type of annuity as well. Some folks like a bit more control in case of an emergency. Final balance, financial prowess, individual health etc I would think helps make those decisions as well.
I read some where that in a recent 2 year period OPM processed something like 100,000 retirements and during that time only 2500 TSP annuities were purchased. Granted that does not mean folks did not go out and purchase an annuity on their own or other alternatives, of which there is no shortage of.

Interesting. Only 2.5%. But like you said, they could have bought from somewhere else. I'm not sure I want to keep managing my TSP, but it might be the best way to insure that I have growth and adequate income. Course when I get old timers disease or something, I may lose it all.

[Frixxxx]

How can they not be taxed at all?

Generic statement. If it is considered retirement income, then certain states do not tax it.

[jkenjohnson]

Generic statement. If it is considered retirement income, then certain states do not tax it.

OK. NC is one that does not tax federal pensions. I know there are some more, I just don't know which ones.

[Frixxxx]

OK. NC is one that does not tax federal pensions. I know there are some more, I just don't know which ones.

States That Don't Tax Federal or State Pensions | eHow (http://www.ehow.com/info_10014130_states-dont-tax-federal-state-pensions.html)

[WorkFE]

Interesting. Only 2.5%. But like you said, they could have bought from somewhere else. I'm not sure I want to keep managing my TSP, but it might be the best way to insure that I have growth and adequate income. Course when I get old timers disease or something, I may lose it all.

Found the article. That 2.5% is specifically the TSP annuity option which is through MetLife.
Avoiding Annuities - Retirement Planning - Pay & Benefits - GovExec.com (http://www.govexec.com/pay-benefits/retirement-planning/2010/02/avoiding-annuities/30927/)

I wonder what the number was in a 2 year period, say 2006-2007, when annuity interest rates were 2% higher?

[WorkFE]

"Advantages: If the interest rate index is high, you will lock in this rate for the life of the annuity. In the 1980s, interest rates on fixed annuities were as high as 18 percent".
Income for Life - Retirement Planning - Pay & Benefits - GovExec.com (http://www.govexec.com/pay-benefits/retirement-planning/2010/02/income-for-life/30878/)

Could you imagine locking in an 18% annuity rate. If that were the case now I definately would let them do the leg work:D