Income for Life

By Tammy Flanagan

February 19, 2010

The topic of withdrawing funds from the Thrift Savings Plan is always a subject of great interest at my pre-retirement seminar presentations. The March issue of Money magazine, contains a short article claiming that one of the best ways to ensure your retirement savings last is to buy an immediate annuity, which provides a monthly payment for life.

So what options does a federal retiree have with a TSP annuity?

What Is a TSP Annuity?

The options to withdraw your investment from the TSP after you retire include taking a lump-sum payment, electing a series of monthly payments and purchasing an annuity. Keep in mind you can do a combination of all three options. For example, you can choose to receive 30 percent of your balance as a lump sum (you can transfer some or all of it to an IRA); 30 percent as a series of monthly payments (either a set dollar amount or payments computed based on your life expectancy); and the remaining 40 percent can be used to purchase an annuity.

The lump-sum option to transfer some or all your TSP funds to an IRA and the series of payments option both require you to continue to manage the balance in your investment to receive payments. Once purchased, the annuity provides a steady stream of income for life. To read more about the TSP withdrawal options, click here.

Whether you use some or all your plan investments to purchase a life annuity, this choice boils down to removing money from your TSP account and allowing the TSP to purchase a life annuity for you from MetLife Insurance Co. MetLife has been the provider for the TSP annuity program since it began in January 1988; the insurance company has assets of more than $120 billion, with more than 320 million individual annuity contracts and group pension certificates in force. In exchange for your money, MetLife pledges to send you a check every month for the rest of your life.

The advantage of this option is you'll have no more worries about the stock market and no fear of running out of money. Ironically, those are the two reasons why many people don't pursue this option because they think they can make more money by keeping their funds invested and diversified. And looking at a lump sum of $250,000 or more, it is tempting to think that it would be hard to spend that much money over your remaining lifetime.

How Does It Work?

The insurance company will compute your monthly payment based on the answers to the following questions:

Let's look at some examples. The following case studies were calculated using the annuity calculator on the TSP Web site.


The advantages of purchasing a TSP annuity include:


The disadvantages of purchasing an annuity include:

If you have additional questions about the annuity option or the TSP in general, tune in to "For Your Benefit" on Monday, Feb. 22 at 10 a.m. on Bob Leins and I are hosting the show with our guests from the Federal Retirement Thrift Investment Board, Executive Director Greg Long and Thomas Trabucco, director of external affairs. E-mail or call 877-936-9333 to get answers to your questions. If you miss Monday's segment, the show will be archived so you can listen to it anytime, or download it to a portable device.

Tammy Flanagan is the senior benefits director for the National Institute of Transition Planning Inc., which conducts federal retirement planning workshops and seminars. She has spent 25 years helping federal employees take charge of their retirement by understanding their benefits.

By Tammy Flanagan

February 19, 2010