Q: In your recent article about the TSP MetLife calculation rate, you noted that the “TSP annuities were far and away the least popular withdrawal choice.” Why is that and what would you recommend?
A: As I see it there are two reasons that the TSP annuity is the least popular choice.
First is that the TSP annuity is an irrevocable choice. If your situation changes, you cannot get out of the annuity – even by paying a surrender fee. The Thrift Board is looking at ways of offering more withdrawal choices (don’t hold your breath waiting) and will hopefully offer more options in the TSP annuity in the future.
Second is the extremely low interest rate indices that we have been seeing for the last several years. If you use the TSP calculators that can be found on the TSP website and compare an increasing payment annuity with substantially equal monthly payments based on the IRS life expectancy table, the monthly payment option is higher, and if your situation changed, you could change your amount or method of payments; you could even cash out if you wanted to.
Far more TSP participants choose monthly payments than annuities.
John Grobe’s latest book, The Answer Book on Your Federal Employee Benefits, has just been released by LRP Publications. Order your copy at shoplrp.com. Ask your human resources office to contact Federal Career Experts about pre-retirement training.