CSRS Voluntary Contributions roll over to Roth IRA or convert to annuity?

[presskh]

I'm within a year of retirement on CSRS and am about to make a sizable after-tax contribution to the voluntary contributions program. My intent is to then transfer this to a Roth IRA I have at Vanguard. However, since I will be 59 when I retire, I can also get a 7.8% fixed life annuity guaranteed by the federal government. From what I've seen, that is a great fixed annuity rate and there are no up-front fees, like there are with private annuities. Hence, I'm taking pause to consider this option, although I'm still leaning towards the Roth IRA. Thoughts?

[Lindoug]

I have always heard that we should NEVER take an Annuity.

[gegor1957]

I'm within a year of retirement on CSRS and am about to make a sizable after-tax contribution to the voluntary contributions program. My intent is to then transfer this to a Roth IRA I have at Vanguard. However, since I will be 59 when I retire, I can also get a 7.8% fixed life annuity guaranteed by the federal government. From what I've seen, that is a great fixed annuity rate and there are no up-front fees, like there are with private annuities. Hence, I'm taking pause to consider this option, although I'm still leaning towards the Roth IRA. Thoughts?

Just curious, who is underwriting a 7.8% annuity, I believe the TSP is currently offering 2.25%. Thanks

[presskh]

The Federal Government is underwriting it. I'm on the old CSRS (not FERS). One perk of this system is the ability to put up to 10% of your lifetime earnings in what is termed a "voluntary contributions" account. You can then (prior to retirement) roll all of this money into a Roth IRA. The other option is to begin receiving a lifetime fixed annuity at retirement from OPM - the yearly interest rate is 7% if you retire at age 55 and increases 0.2% each year later that you retire. So, if I retire at 59, my rate will be 7.8% per annum. Most advise to transfer the money to a Roth, which I'm probably going to do. Just looking for other's opinions - thanks, gegor.


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[uscfanhawaii]

never say NEVER. And gegor is right, FERS annuity is currently2.25%.
If your option with CSRS is in fact 7.9%, That is certainly a very enticing offer.
The question becomes, 'Can you get better than a 7.9% (after tax?) return with your Roth (which is also after tax)?'
Sounds like this is a pretty sweet deal, and I am not a fan of annuities usually.
There may be estate planning concerns involved also.
Roth is able to be passed down to heirs, who will continue to get tax advantages.
If you die, does the annuity just stop? Refund the rest of your original outlay?
I am not CSRS and have never heard of this option.
Maybe other CSRS'ers can provide more details? :cool2: