Why are TSP Annuities the Least Popular Withdrawal Choice?

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By on December 19, 2016 in Q&A, Retirement with 0 Comments

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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 [email protected] to discuss schedules and costs.

© 2020 John Grobe. All rights reserved. This article may not be reproduced without express written consent from John Grobe.


About the Author

John Grobe is President of Federal Career Experts, a consulting firm that specializes in federal retirement and career transition issues. He is also affiliated with TSP Safety Net. John retired from federal service after 25 years of progressively more responsible human resources positions. He is the author of Understanding the Federal Retirement Systems and Career Transition: A Guide for Federal Employees, both published by the Federal Management Institute. Federal Career Experts provides pre-retirement seminars for a wide variety of federal agencies.