Today we’re talking about the Thrift Savings Plan (TSP) Annuity option. Don’t confuse the TSP Annuity option with being a FERS, CSRS, or Military annuitant. An annuitant is someone entitled to regular payments from a pension or an annuity. OPM and DFAS will call you an annuitant because you are receiving pension payments as a retiree. If you choose to turn your TSP into an annuity, this something else entirely. .

An annuity is insurance that you can buy with all or part of your TSP savings. TSP will buy it for ou from Met Life. MetLife then sends you set monthly payments for the rest of your life (or your spouse too if you choose a joint life annuity). The money you use to buy an annuity is gone permanently in exchange for guaranteed lifetime monthly payments. The TSP has a great fact sheet at https://www.tsp.gov/annuity-basics/ The annuity is a permanent contract that can’t be changed and the annuity payment amounts are set for life. So with inflation, your annuity income will buy less and less over time. While Social Security, military and federal civilian pensions rise with inflation, called a COLA, the TSP annuity payouts are frozen in time.

There are options you can add to the annuity, at a cost. An increasing payments option an help protect against the loss of buying power due to inflation. It has a set 2% increase in the payments you receive each year, whether inflation is more or less than that.

There is joint life annuity with payments that continue at 100% or 50% until both you and your spouse die, or under certain circumstances a dependent dies.

If you die before the amount paid to purchase your annuity has been paid out, the rest will be paid to your beneficiary(ies) in a lump sum. The 10-year certain option guarantees your beneficiary will receive at least 10 years worth of payments if you die within the first 10 years. Remember, more nice options equals lower monthly payments to you.

TSP has a great online calculator that will walk you through getting an estimated payment based on the amount of TSP money you give up and the options you want. https://www.tsp.gov/calculators/tsp-payment-and-annuity-calculator/#top

Consider how comfortable are you with uncertainty or risk. If you are more afraid of running completely out of money because you live a long time, an annuity may be a good choice. Are you more concerned that a fixed income may leave you struggling to pay for your needs in the future because of higher prices? Keeping your money in TSP or other investments with growth potential may be a better bet. It may help to go back to last weeks Episode 57 on Risk Profiles.

Are you be eligible for a military pension, federal government pension, and/or Social Security? Remember, these pensions are guaranteed for life, too. But they DO increase with inflation. An annuity may not add much benefit is this case. Keeping your TSP invested instead may be a good way of maintaining some control, flexibility, and the possibility of more growth. What if you didn’t stay in long enough to qualify for a pension? An annuity might look a bit more attractive if you really don’t tolerate risk. Even then, shop around.

And lastly, if you want a fixed monthly payment out of your TSP, there is an alternative to an annuity. You can keep your money in the TSP you can choose regular installment withdrawal instead of an annuity. You recieve a certain amount from your TSP every month, quarter, or year (your choice). Your money stays in your TSP account, you choose how it is invested, you can stop and start these payments, and even change the payment amount. But, there is no guarantee that your TSP will last as