Should I Take The TSP Annuity Option?
One of the key components of a successful retirement plan is understanding all the benefits available from the government. One such benefit is the Thrift Savings Plan (TSP) annuity, which is designed to provide financial protection for those who have served in the federal government throughout their careers.
In this guide, we will explore whether a TSP annuity is the right choice for you given your unique retirement needs and goals.
What is the TSP Annuity?
If you’re a government employee and nearing retirement, you may be wondering if taking a Thrift Savings Plan (TSP) annuity is right for you. While there are pros and cons to consider, it’s important to understand what a TSP annuity is and how it works before deciding.
A TSP annuity is essentially an income stream that provides regular payments from your TSP account after retirement. It’s designed to supplement other sources of retirement income, such as Social Security and any pension benefits you may receive from your federal employment.
One of the benefits of taking a TSP annuity is that it offers guaranteed income for life, regardless of market conditions or interest rates. However, this also means that if you pass away early on in retirement, any remaining funds in the annuity would stay with the insurance company and not go to your heirs or beneficiaries.
Types of TSP Annuities
Metropolitan Life Insurance Company (MetLife) has been the sole provider of TSP annuities for the government since 1986. Before deciding if taking the TSP annuity is a good option for you, ask yourself:
- Do you want to provide survivor benefits to your spouse or another beneficiary?
- Do you want payments that remain the same over time or payments that will increase by 2% every year?
The single-life annuity is the easiest option and provides the highest monthly payments because it does not include survivor’s benefits.
The joint-life annuity provides either 50% or 100% benefits for the rest of the joint annuitant’s life.
What Happens When You Pass Away?
If you select a joint-life annuity, the payments will continue to the named beneficiary or joint annuitant, for the rest of their life. Otherwise, MetLife will keep the remaining value of the annuity after your death.
Is the TSP Annuity the Same as the FERS Annuity?
No. These are different programs. Your FERS annuity is the pension that you receive from the Federal Employee Retirement System. Once you retire, you will receive monthly payments from the government for the rest of your life.
Should You Choose the TSP Annuity?
For most federal employees, the consensus is that the TSP annuity is not a good option. The reasons for this include:
- If you don’t want an annuity, you can find a better payout option elsewhere.
- You give up access to a large portion of your retirement funds.
- Federal employees already have a substantial portion of guaranteed retirement income from their FERS annuity and Social Security payments.
If a federal employee chooses to put their TSP in an immediate annuity, they will forgo access to the lump sum that they saved. Generally, it is never a good idea to give up access to most of your retirement funds.
Further, federal employees already have guaranteed income from their FERS annuity pension and social security payments. Therefore, a TSP annuity will provide little additional benefit for most federal employees.
Read More > Are Your TSP Investments Right for You?
Security for Your Future
It is important to consider the pros and cons of taking the TSP annuity option before deciding. Carefully weigh your individual needs when deciding if this option is right for you, as it may not be the best choice for everyone. By understanding your retirement goals and considering the various alternatives available, you can make an informed decision that is tailored to your specific situation.
Need help deciding if the TSP Annuity is right for you? Call the Federal Educators at (813) 755-7037 to get expert advice on annuities after retirement. We’re here to help!