The Federal Retirement Thrift Investment Board (FRTIB) announced at its monthly meeting that in the first eight months of 2024, TSSP participants put about $175 million into annuities. That is almost equal to last year’s total of $182 million. According to the FRTIB, private sector plans are also experiencing spikes in annuity purchases.
One reason for annuities’ popularity is the generational surge of Baby Boomers entering retirement. Baby Boomers are often defined as people born from 1946 to 1964 during the mid-20th-century baby boom. As usual with investments, there are pros and cons to purchasing an annuity. There is more security in monthly income but less opportunity for growing the amount of money that has been invested. The security aspect of a higher monthly income will often appeal to those who are in or nearing retirement.
What is a TSP Annuity?
Here is a brief summary that may be helpful for those who may not be familiar with TSP annuities.
A TSP annuity is a life annuity contract purchased using funds from your Thrift Savings Plan (TSP) account. Here is information on TSP annuities that may be useful:
- Purchase: When buying a TSP annuity, your funds are transferred to MetLife—the sole annuity provider for the TSP. The minimum investment account for purchasing an annuity is $3,500.
- Monthly Payments: MetLife guarantees a monthly payment stream for the rest of your life in exchange for your investment. The amount of the monthly income depends on several factors.
- Your (and your joint annuitant’s, if applicable) age at the time of purchase.
- The amount you use to purchase the annuity.
- The type of annuity you choose.
- The options and features you select.
- The annuity interest rate at the time of purchase.
- Types of Annuities: You can choose from different types of annuities. These options include single-life or joint-life annuities. The Joint Life annuities provide payments for both you and your spouse.
- Control: When purchasing an annuity, you give up control of the money used to buy it. An investor cannot access the principal amount but will receive lifetime income security.
- Options: With a TSP annuity, if you die with money left in your annuity, MetLife will keep the remaining funds. Two optional features provide some value to beneficiaries. These options will reduce the monthly income.
TSP Returns in 2024 and September 2024
| Fund | MTD | YTD |
|---|---|---|
| G Fund | 0.25% | 3.23% |
| F Fund | 1.53% | 4.73% |
| C Fund | 1.33% | 21.09% |
| S Fund | 1.16% | 11.26% |
| I Fund | -0.38% | 11.88% |
| L Income | 0.45% | 6.73% |
| L 2025 | 0.48% | 7.68% |
| L 2030 | 0.62% | 11.32% |
| L 2035 | 0.66% | 12.11% |
| L 2040 | 0.69% | 12.89% |
| L 2045 | 0.71% | 13.55% |
| L 2050 | 0.73% | 14.21% |
| L 2055 | 0.72% | 16.41% |
| L 2060 | 0.72% | 16.41% |
| L 2065 | 0.72% | 16.41% |
| L 2070 | 0.72% | N/A |
September is Historically The Worst Month for Stocks
September has historically been the worst month for U.S. stock performance. Dow Jones data going back nearly a century show the S&P 500 has seen an average September return of minus 1.2%. Other major indexes have similar negative results.
Recently, the September performance for stocks has been more dismal. The S&P 500 fell nearly 5% in September 2023 and more than 9% in September 2022. Selloffs in 2021 and 2020 were also larger than average.
That is not the case so far in 2024.
The S&P 500 (the index for the TSPs C Fund) is up about 1% so far this month. The C Fund is up 1.33% as of the close of the market on September 24th. This may be a precursor for the best September since 2019, the last year when stocks tallied a September gain. It’s a similar story for the Dow Jones Industrial Average DJIA, which is up about 1.6% this month.
Even better news for TSP investors: In 2019, the C Fund had a return of 31.45%, the S Fund was up 27.97%, and the I Fund was up 22.47%.
Why Is September Different This Year?
The most likely reason for the September returns in 2024 was the Federal Reserve’s cutting interest rates. The 50-basis-point interest-rate cut announced by the Federal Reserve this month helped revive expectations that the economy would have a soft landing instead of sliding into recession. The latest inflation report spurred the rationale for the interest rate cut.
Does the stock market’s turn this month mean stocks will be a breeze for the rest of the year?
That is probably just wishful thinking. While the Federal Reserve took decisive action, the attention of investors will likely turn to the November election. Here is the observation from Barron’s:
That’s not because the so-called Trump trades or Harris trades will become sure things. Their campaign promises may not become policies after the election, no matter who wins.
But with the Fed out of the way, stock traders may have little else to distract them. Wavering perceptions that the country is headed in one way or another is bound to create volatility.
As always, we wish FedSmith readers the best in achieving their investment returns and enjoying a comfortable retirement!
