single person annuity from TSP, pros and cons (coverage, retiree, friend)

[elnrgby]

Longevity annuities are cheap if you buy them long in advance (as I did in my 50s - I suspect they are still reasonably affordable in the 60s). If you have them (particularly in addition to inflation-adjusted soc security and even pension), then you know you are set for life, and can spend everything else before 80.

Also, in your earlier years, you can still work to supplement your income (nowadays even in your 70s), which is impossible in most occupations after 80. And your money management skills might not be very sharp after 80, particularly if you haven't started investing until after 70. Annuity takes care of you even if you are stone-demented. And, if you are withdrawing from your modest investment account for your daily needs, that account will not particularly grow, ie, it is more likely to get depleted than to grow.

[mathjak107]

but for most the lost time on that money tied up so far in advance and future compounding will be considerable on whatever the money is they pay and likely can buy an annuity for way more in payments when the time comes .

but that’s for them to decide.

would i do it if i was relying on a much smaller nest egg . NO

i would need much more efficiency out of my money working for me the less i had

[Tzaphkiel]

so then i need to continue to work as long as i can, which is the plan. I am at the highest earning of my career currently, so I may as well maximize that while I can. For a few years now and this will continue, 32% is going in to my TSP. So each year between now (i turn 65 in a few months) and age 70 i will keep checking the TSP balance. I was late getting into the work force at all, so have been trying to save aggressively through contributions to TSP.

yes, i am definitely delaying SS until 70. That is do-able.
Plan is also to work up until 70 (consider 68, look at balances then) to minimize the gap of covering expenses until SS kicks in.
where i work yes there are people still working in their 70s.

for me what has been comforting or appealing of using the "annuity figure" which TSP provides is it gives me a way to even begin planning what my retirement income may look like. i use the FERS pension formula for that figure, i use the SS tables for that figure, and it is all loaded into a calculating spread sheet which i update every time there is a change (i.e. salary increase). TSP though has been the biggest "unknown" for me in terms of knowing how much it will provide in retirement. The "annuity figure" has been useful for that. whether or if or when i actually end up getting an annuity is a separate decision which does not need to be made at the moment.

it also sounds like it is prudent to delay as much as possible using the TSP funds, and when i do, to withdraw as little as possible so the amount lasts longer and continues to grow.

it looks like the "required" distributions from TSP begin for me at age 73. But i don't see anywhere on the site the $ amount that is required to withdraw. What is the formula for that or what have people found in their own experience?

i also need to get a more exact working figure for what the health benefits will cost me out of pocket once i retire. Because after rent, which is the biggest ticket item in monthly expenses, the next biggest is monthly cost of health insurance. I do carry federal health plan with me into retirement, but i don't know the $ figure and have been using a very rough estimate. For federal retirees is your out of pocket health cost the same figure that was deducted from paycheck, while still working?

thank you again everyone for sharing information knowledge experience and views. much appreciated

[elnrgby]

Originally Posted by Tzaphkiel

so then i need to continue to work as long as i can, which is the plan. I am at the highest earning of my career currently, so I may as well maximize that while I can. For a few years now and this will continue, 32% is going in to my TSP. So each year between now (i turn 65 in a few months) and age 70 i will keep checking the TSP balance. I was late getting into the work force at all, so have been trying to save aggressively through contributions to TSP.

yes, i am definitely delaying SS until 70. That is do-able.
Plan is also to work up until 70 (consider 68, look at balances then) to minimize the gap of covering expenses until SS kicks in.

for me what has been comforting or appealing of using the "annuity figure" which TSP provides is it gives me a way to even begin planning what my retirement income may look like. i use the FERS pension formula for that figure, i use the SS tables for that figure, and it is all loaded into a calculating spread sheet which i update every time there is a change (i.e. salary increase). TSP though has been the biggest "unknown" for me in terms of knowing how much it will provide in retirement. The "annuity figure" has been useful for that. whether or if or when i actually end up getting an annuity is a separate decision which does not need to be made at the moment.

it also sounds like it is prudent to delay as much as possible using the TSP funds, and when i do, to withdraw as little as possible so the amount lasts longer and continues to grow.

it looks like the "required" distributions from TSP begin for me at age 73. But i don't see anywhere on the site the $ amount that is required to withdraw. What is the formula for that or what have people found in their own experience?

i also need to get a more exact working figure for what the health benefits will cost me out of pocket once i retire. Because after rent, which is the biggest ticket item in monthly expenses, the next biggest is monthly cost of health insurance. I do carry federal health plan with me into retirement, but i don't know the $ figure and have been using a very rough estimate. For federal retirees is your out of pocket health cost the same figure that was deducted from paycheck, while still working?

thank you again everyone for sharing information knowledge experience and views. much appreciated

Good plan! But check whether there is a tax advantage to converting a part of TSP to a longevity annuity. If you convert a trad IRA to longevity annuity, I believe you do not pay any tax on the conversion (only later on the taxable interest in your annuity, not on the money converted from the trad IRA). But check this because I am not sure, I have only a vague idea about it (I had already bought my 80 and 85 longevity annuities before this bacame possible to do with trad IRA). In other words, if you convert a part of your TSP to a longevity annuity, that part may not be subject to tax (that you'd be paying after 73 on your required TSP distributions). In that case, I still vote for converting a part of your TSP into a longevity annuity.

[Tzaphkiel]

i'm trying to find the post that talked about "amount to withdraw monthly" and what may be "too much" to withdraw monthly on say a TSP balance of oh let's say $240,000 balance at retirement. What are guidelines people can offer on that? Thank you.

And regarding "will i be able to live on SS and FERS pension alone" i am looking at that figure also. there have been times when i did live on that $ amount, but rent was a lot less then too. I do know it is necessary for me to retire in a lower cost of living area.

[elnrgby]

Originally Posted by Tzaphkiel

i'm trying to find the post that talked about "amount to withdraw monthly" and what may be "too much" to withdraw monthly on say a TSP balance of oh let's say $240,000 balance at retirement. What are guidelines people can offer on that? Thank you.

And regarding "will i be able to live on SS and FERS pension alone" i am looking at that figure also. there have been times when i did live on that $ amount, but rent was a lot less then too. I do know it is necessary for me to retire in a lower cost of living area.

You may not need a lower cost of living area. The income limits for subsidized senior housing in California for one person are between $35,000 (the lowest) and $82,950 (the highest) per year! If you continue making inflation-adjusted $35k per year in retirement (sounds as though you are not in danger of making over $83k), you can get subsidized housing in California, where you would pay only 1/3 of your income in rent per year, ie, a little under $1k per month. Waiting lists are long in very desirable places, but you can anticipate that, and apply early. You may in fact have a better chance of supporting yourself in retirement in a high-cost area than in a low-cost one, because of a greater amount of subsidized senior housing in large high-cost cities! You just need to snag a subsidized apartment, and in your situation, the only factor would probably be willingness to apply and wait 5-7 years for the housing.

[Wile E. Coyote]

Originally Posted by mathjak107

i would never consider any commercial annuity without delaying ss until 70 …

you can not buy any a commercial annuity for the amount of money it would cost you to delay ss until 70 and get as much in payments , cola adjusting , tax favored and potentially going to a spouse .

taking early ss and then buying an spia would not be a good move.

at best i can see an spia used as a part of the bond budget in a diversified portfolio but only after delaying ss first .

i definitely wouldn’t recommend an annuity as a place for the majority of retirement money.

i would avoid complex variable annuities and glwb products .

few are going to understand what they are really getting and they can be very complex to fully understand .

tax structure on variable annuities can be terrible.

longevity annuities are also a double edge sword . they are still deferred annuities with all the loss of good compounding while you wait to collect .

while they seem cheap on the outside , not only are the odds of getting back what you gave them decrease the older you go out but the opportunity cost on that money is very high more often then not .

so make sure you do your homework before going with an annuity product. , and never go by the illustrations the insurer provides .

and remember , it isn’t just about your premiums but about the combined premiums and time value of that money compared to other opportunities.

these insurer illustrations conceal the real deal on these more complex products …they don’t lie but they do portray things in a way that is not representative of what happens once you look under the hood.

i have shown how many times in these forums

I agree with this. When my brother approached me about this subject (wanted to buy an annuity with some of his cash) I convinced him to instead delay Social Security for the best annuity that is available. He was initially confused because he was done working at 66 and thought I meant he should keep working. I told him, no, you don't need to work, just delay collecting. He was able to live out of his checking account for three years and collected at 69. He said it was a great method because he also really got his spending back under control (he hated work for a long time and kept his lifestyle pretty affordable).

Plus, the fact MJ that, the annuity is never going to pay $18k per year for 20-30 years. The annuity is going to offer $500 a month or something (which will help OP decide not to do it).

[Wile E. Coyote]

Originally Posted by Tzaphkiel

i'm trying to find the post that talked about "amount to withdraw monthly" and what may be "too much" to withdraw monthly on say a TSP balance of oh let's say $240,000 balance at retirement. What are guidelines people can offer on that? Thank you.

And regarding "will i be able to live on SS and FERS pension alone" i am looking at that figure also. there have been times when i did live on that $ amount, but rent was a lot less then too. I do know it is necessary for me to retire in a lower cost of living area.

I agree with Elnrgby to apply to subsidized housing as soon as you retire and your income drops. It could take years, but, it may be well worth it. I know a friend of a friend who applied for 7-10 years and finally nabbed a brand new 1 bedroom apartment that takes 1/3rd of her social security (which she took too soon at 62). It was a lot of work to get to that apartment; but, it's now saving her. I believe she is also working part time and maybe earning an extra $1k per month.

As I previously stated 3% will last approximately 33 years.

Here's a calculator that will tell you with $240k and your G fund earning 2% and a withdrawal rate of $850 per month the money will last 29 years. So, that's $10k instead of $18k. https://www.mutualofomaha.com/calcul...-my-money-last

You really need to spend a few years attending medicare and fehb seminars. It's all too complicated for someone else to boil it down for you. You pay the same for your policy as you do while you are working; but, after you are no longer working it turns into a medicare-style plan (and pays the medicare rate). Most people know they have to pay for both fehb And Medicare. Out of pocket expenses will be a Lot more of a wildcard if you only take one or the other. There is a lot of material to sift through to come to this conclusion. The maximum out of pocket expenses keep going up every year. You may need $6k to $10k per year to pay out of pocket if you end up needing medical care. This is why I would not consider that TSP part of your regular budget. I don't mean to be discouraging; but, you are going to want to be able to pay your bills.

[Chas863]

Originally Posted by Wile E. Coyote

Here's a calculator that will tell you with $240k and your G fund earning 2% and a withdrawal rate of $850 per month the money will last 29 years. So, that's $10k instead of $18k. https://www.mutualofomaha.com/calcul...-my-money-last

Why would you use the 2% interest figure when the G fund is currently paying DOUBLE that amount?

"4.125%
As of August 2023, the TSP G Fund interest rate is 4.125%1. The rate is calculated monthly, based on the average yield of all U.S. Treasury securities with 4 or more years to maturity1. The interest paid by the G Fund is set (and is recalculated every month) to the average rate of return of U.S. Treasury securities with 4 or more years to maturity2. In the very long run, this has worked out to be a good deal: the G Fund has earned a compound annualized return of 4.3% since August 1992."

https://www.tspfolio.com/tspgfundinterestrate

[Wile E. Coyote]

Originally Posted by Chas863

Why would you use the 2% interest figure when the G fund is currently paying DOUBLE that amount?

"4.125%
As of August 2023, the TSP G Fund interest rate is 4.125%1. The rate is calculated monthly, based on the average yield of all U.S. Treasury securities with 4 or more years to maturity1. The interest paid by the G Fund is set (and is recalculated every month) to the average rate of return of U.S. Treasury securities with 4 or more years to maturity2. In the very long run, this has worked out to be a good deal: the G Fund has earned a compound annualized return of 4.3% since August 1992."

https://www.tspfolio.com/tspgfundinterestrate

4% would be nice. The last 10 years have averaged closer to 2% and a lot of people think that rates will go down when we hit the recession. It's just a conservative estimate on my part. Plan for the worst and hope for the best.