Why are TSP Annuities the Least Popular Withdrawal Choice?

FedSmith.com author John Grobe recently stated that TSP annuities are one of the least popular withdrawal choices for plan participants. One user wanted to know why this was the case. Here is his answer.

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.

Agencies can request to have John Grobe, or another of Federal Career Experts' qualified instructors, deliver a retirement or transition seminar to their employees. FCE instructors are not financial advisers and will not sell or recommend financial products to class participants. Agency Benefits Officers can contact John Grobe at johnfgrobe@comcast.net to discuss schedules and costs.

About the Author

John Grobe is President of Federal Career Experts, a firm that provides pre-retirement training and seminars to a wide variety of federal agencies. FCE’s instructors are all retired federal retirement specialists who educate class participants on the ins and outs of federal retirement and benefits; there is never an attempt to influence participants to invest a certain way, or to purchase any financial products. John and FCE specialize in retirement for special category employees, such as law enforcement officers.