TSP Hosted Annuities

Managing your TSP and alternate investment options after retirement or separation from service.

Moderator: Aitrus

Post Reply
KeithN
Posts: 1
Joined: Thu Oct 03, 2013 7:18 pm

TSP Hosted Annuities

Post by KeithN »

I'm 70 1/2 now and need to start withdrawals.
The TSP website has a calculator that shows a level payment amount for a lifetime, no survivor annuity that appears to be based on the principle amount and my age. It uses a 2.75% interest rate. Without any growth, my total payments equal my invested principle in 12 years. After that, it seems like free money. Too simplistic? (Chuckle)
I see no mentions of fees associated with this annuity.
Can anyone who has actually bought one of these annuities tell me whether they like them or if they've had any surprises or problems?
Also, has anyone done more research than I have the energy for and concluded they're not worth it?
Thanks for your help.

crondanet5
Posts: 4324
Joined: Tue Aug 19, 2008 8:51 pm

Re: TSP Hosted Annuities

Post by crondanet5 »

If you have knowledge of investing with a rollover 401k brokerage account an annuity is not worth it. While there are certain specific situations where an annuity can be a blessed thing, in general, with a good balance in your account, you should make more with your account than you withdraw in your annual minimum required amount. Why not get a bigger withdrawal check next year rather than a smaller one? The idea was to have money in old age (75+) to cover living and medical expenses. Having old age money should be a prime goal at this point in your life. Work closely with your doctor to improve your health from this point forward. Hope this answers your question.

User avatar
Relevant
Posts: 505
Joined: Thu Apr 26, 2012 1:01 pm

Re: TSP Hosted Annuities

Post by Relevant »

Hi Keith,

While I'm not a fan of annuities in general, the TSP annuities are structured well and are relatively inexpensive as annuities go. The fees are built in and are reflected in the interest rate factor, and there's the rub. Although interest rates have been climbing over the past 18 months they are still at historically low levels.

Go to https://www.tsp.gov/whatsnew/rates/annuityRateIndex.shtml and you will find that the new annuity factor for October 2013 is now 3.0% but it was nearly 4% in Aug 2009 and nearly 6% in 2007. In 2012 TSP annuity rates bottomed at 1.75% and have been climbing slowly since. Interest rates are expected to continue climbing over the next several DECADES!

For example, if you bought a $100k single life annuity indexed for inflation at the current rate of 3% you would receive $500 per month in the first year. If the interest rate was 6% currently you would receive $700 per month. But if you die 5 years from now the insurance company would be the big winner pocketing all what is remaining of your $100k.

Go to: http://estimatepension.com/annuity-calculator.aspx and you can experiment with different variables and see the results for yourself.

I personally prefer not to gamble with insurance companies unless it's absolutely necessary but there are situations where annuities make "cents". If your finances dictate that you need to squeeze every nickel out of your TSP and you are reasonably sure you are going to live a very long life, and you are comfortable with Met Life being the sole heir of your annuity, then an annuity may be your best choice.

If on the other hand, you would prefer to maintain control of your savings you could withdraw 4% of your TSP balance in the 1st year and increase this amount each year thereafter based on inflation. This would accomplish virtually the same thing as the annuity without the guarantee. Of course you would need to make sure that you were not reckless with you investment choices. You can set up these withdrawals within TSP or rollover your TSP to a self directed IRA brokerage of your choosing. (USAA is a popular choice within the military community)

For additional insight on the Pro's & Con's of annuities you might want to got to:
http://www.govexec.com/pay-benefits/retirement-planning/2010/02/avoiding-annuities/30927/

For additional info on self managing your TSP account please got to:
http://relevantinvestments.com/step-by-step-investment-guides/

If you have any other questions please don't hesitate to ask.

crondanet5
Posts: 4324
Joined: Tue Aug 19, 2008 8:51 pm

Re: TSP Hosted Annuities

Post by crondanet5 »

I got a bit confused about your options, so I reviewed TSP-536, page 4, "Required minimum distribution if you are over 70 1/2". The way I read it it says you can keep it in the TSP Funds providing you begin making at least the required monthly payments commencing NLT April 1 of the year following the year you turned 70 1/2. That said, maybe I should make my opinion of annuities clearer: Don't take it except under extreme conditions that any good Certified Financial Planner can assist you with. I say this because the payout is too low. Like many of the members on this site I got an offer from an insurance company to take out an annuity. If you lay it out on a year-by-year payout, you discover you end up only getting your money back over 20 years. Surely you could follow some of the IFTs the champions on this site have made to make double digit gains in their account. And if your physical conditions deteriorate you could find a family member or Financial Planner to manage your account with the intent of continuing to grow its value. It's your call, but ask yourself how you will feel if interest rates rise to 10% and you are only getting 2%.

Ericdelee
Posts: 210
Joined: Thu May 30, 2013 7:09 pm

Re: TSP Hosted Annuities

Post by Ericdelee »

Old thread; but have a question:
Withdrawing say 4% a month from your TSP upon reaching 59 1/2; does that require an annuity?
My goals were to leave money in my TSP and allow it to continue to earning profits (at a safer risk than I’m currently doing). Then withdraw 4% a month just to be safe

1. Is there an option to do that without buying an annuity?
2. If not and you have to buy an annuity; will the Cash stay in the TSP account where you can change things and earn extra throughout the year?

User avatar
evilanne
Posts: 1886
Joined: Thu May 14, 2015 6:52 pm

Re: TSP Hosted Annuities

Post by evilanne »

You don't have to buy an annuity.

You can do a full withdrawal with life expectancy payments which will give you 3-4% of your end of year balance as monthly payments after you retire (it is calculated based on Dec 31 balance divided by your age factor). Use https://www.tsp.gov/PlanningTools/Calcu ... lator.html to see how this works.
If you retire before you are 55, this is the only way to access TSP funds without penalty. If you retire at or after age 55 you can pick your monthly payment and adjust each year as you wish.

Important Notes: If you plan on doing a partial withdrawal for any reason, you need to do it before the full withdrawal based on current rules. Once you submit full withdrawal it is irrevocable and they won't allow you to do a partial payment. You can only change amount (minimum allowable monthly payment is $25) on annual basis. If you retire before 55, you much follow the rules for the stated time period (5 years or until 59.5, whichever is longer) to avoid the penalty--any deviation will result in penalty.

mindofmush
Posts: 353
Joined: Mon Jul 02, 2012 1:38 pm

Re: TSP Hosted Annuities

Post by mindofmush »

Remember that once you BUY that annuity, your money is gone and you only have the promises of that insurance company to take care of you.

The TSP.gov website has calculators to compare monthly withdrawals to purchasing an annuity that showed me that monthly withdrawals is always better for me and my wife. Survivor benefit for my wife is automatically built into the monthly withdrawal plan if I die early without reducing before or after death payments. The annuity can't match that for my situation.

Also, monthly payments will always be greater than annuity payments as long as I keep my TSP money in anything but the G fund.
mo meng, mo ching (which loosely means: no money, no life)

Ericdelee
Posts: 210
Joined: Thu May 30, 2013 7:09 pm

Re: TSP Hosted Annuities

Post by Ericdelee »

Ok... so there IS an option for just doing monthly withdrawals...
I had always thought this; but started hearing about annuities and got a bit worried that it was my only option. Monthly withdraw set at 4% or so is what I was looking to do (obviously it gets a bit higher at 70 or so when they make you take out a percentage based on life expectancy). I call it pension #2.

One thing I noticed on this site when compared to other sites: there is a lot of talk about moving money out of TSP upon retirement to a different provider (Fidelity or VanGuard). There’s a lot more talk in here than anywhere else. I planned to keep money in TSP; but will be looking through these forums to see what you guys are chatting about.

Thank you.

Post Reply

Fund Prices2021-04-13

FundPriceDayYTD
G $16.56 0.00% 0.33%
F $20.63 0.24% -2.65%
C $61.91 0.33% 10.73%
S $82.51 0.51% 11.20%
I $37.56 0.28% 6.13%
L2065 $13.54 0.34% 9.12%
L2060 $13.54 0.34% 9.12%
L2055 $13.54 0.34% 9.12%
L2050 $27.70 0.30% 7.33%
L2045 $12.66 0.28% 6.87%
L2040 $46.29 0.26% 6.44%
L2035 $12.25 0.24% 5.93%
L2030 $40.88 0.22% 5.43%
L2025 $11.64 0.17% 4.30%
Linc $22.75 0.09% 2.13%

Pending Allocations

Under development. For now, you may view Pending Allocations by going to "fantasy TSP" and selecting "Leaderboard sort" of "Pending Allocations".

What else

"Don't ever half-ass two things. Whole-ass one thing."
- Ron Swanson