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i have not yet retired, target range is in the next 3-5 years, at age 68-70. i would like to hear from those more knowledgable and experienced on the pros and cons of the "single person annuity" for TSP as a federal employee. I have been using the TSP site and it shows what monthly payment will be. However i found out that this is based on a "single person annuity" in that if you die the remaining amount of TSP does NOT pass to your heirs or estate, it is owned by the annuity fund.
So far i only know this: the pros of the "single person annuity" is that it is a higher monthly payout to me in retirement. The cons are that the remaining funds do not go to my heirs (adult children and grandchildren).
But i would like to hear more on the pros and cons. Thank you. For instance one of the reasons i am working till age 68 or 70 before retiring, is to have a higher monthly retirement income. I am not rolling in the dough, my income is modest, i do not own a home. And i need to live in a lower cost of living area when i retire.
My grown children on the other hand have much higher income than I do, they earn 3x the salary i do, they all work in IT. Two of the three already own a home, one of them owns two homes. They also have family wealth they have inherited from their dad's side of the family (we are divorced.) And two of the adult children have married into wealthy families where the grandchildren already have assured funds for college (not bad for grandchildren age 1, 3, 5, and 7). They all live in a high cost of living area (Seattle). So i feel like they are much better set financially than I am.
I guess what it boils down to is not from a selfish point of view, but from a realistic point of view, i feel like it is more important to me to have a more stable fixed income in retirement, than it is to build a pot of money for them to inherit. Also I would like to minimize having to "accept financial help from them" in the future so as not to be a burden to them as I age. A higher monthly retirement income for me is a hedge against that.
Thank you for your insights and thoughts and expertise on this subject, much appreciated. What am I missing? What other factors are there to consider?
From what you said it is an easy choice to take the annuity. Inflation will be your problem as life goes on the annuity will be able to buy less. Thus you might want to save a little of the annuity for the future.
I think you are doing your children a service by being able to support your self as opposed to leaving then a little money they do not need.
The basic idea behind the annuity is a pool of money for x number of people that pays out for life. The deal is if you die the day after you get the annuity your excess money goes to those that have lived longer than their life expectancy.
You're talking about using your TSP balance to buy an annuity from a life insurance company that has a group contract with the government. This is completely separate from your FERS pension.
You can take withdrawals from your TSP, buy an annuity, move it to an IRA. If you annuitize it, obviously the income stream will stop when you are no longer around.
You're talking about using your TSP balance to buy an annuity from a life insurance company that has a group contract with the government. This is completely separate from your FERS pension.
You can take withdrawals from your TSP, buy an annuity, move it to an IRA. If you annuitize it, obviously the income stream will stop when you are no longer around.
i have not yet retired, target range is in the next 3-5 years, at age 68-70. i would like to hear from those more knowledgable and experienced on the pros and cons of the "single person annuity" for TSP as a federal employee. I have been using the TSP site and it shows what monthly payment will be. However i found out that this is based on a "single person annuity" in that if you die the remaining amount of TSP does NOT pass to your heirs or estate, it is owned by the annuity fund.
So far i only know this: the pros of the "single person annuity" is that it is a higher monthly payout to me in retirement. The cons are that the remaining funds do not go to my heirs (adult children and grandchildren).
But i would like to hear more on the pros and cons. Thank you. For instance one of the reasons i am working till age 68 or 70 before retiring, is to have a higher monthly retirement income. I am not rolling in the dough, my income is modest, i do not own a home. And i need to live in a lower cost of living area when i retire.
My grown children on the other hand have much higher income than I do, they earn 3x the salary i do, they all work in IT. Two of the three already own a home, one of them owns two homes. They also have family wealth they have inherited from their dad's side of the family (we are divorced.) And two of the adult children have married into wealthy families where the grandchildren already have assured funds for college (not bad for grandchildren age 1, 3, 5, and 7). They all live in a high cost of living area (Seattle). So i feel like they are much better set financially than I am.
I guess what it boils down to is not from a selfish point of view, but from a realistic point of view, i feel like it is more important to me to have a more stable fixed income in retirement, than it is to build a pot of money for them to inherit. Also I would like to minimize having to "accept financial help from them" in the future so as not to be a burden to them as I age. A higher monthly retirement income for me is a hedge against that.
Thank you for your insights and thoughts and expertise on this subject, much appreciated. What am I missing? What other factors are there to consider?
I have a variety of fixed annuities, but only those starting at the age of 80 or later have no beneficiary (ie, they are what you call single person annuities) .
As a federal retiree, I assume you will get a federal pension, in addition to what you would convert from TSP into an annuity? Are you healthy and with a family history of longevity? If so, you can buy a large delayed payout annuity for a relatively small premium that your heirs wouldn't miss in case that you die before you collect a good annuity payout.
For about $177k, I bought a single life annuity (no death beneficiary) in my early 50s, which will start paying $6k per month on my 80th birthday, for life. Then next year, I bought for about $40k an annuity that will start paying additional $2k per month on my 85th birthday, for life. Then in my late 50s I bought one last annuity for $29k that will start paying additional $3k per month on my 90th birthday. In the year 2050, nobody in my extended family (I don't have kids) will miss my premiums of about $250k total for these annuities without beneficiaries (particularly since the purchasing power of that sum in my 50s would be equal to about $60k in my 90s). On the other hand, if I am still alive, I will not mind extra $13k per month in my 90s (even if that will have a purchasing power equal to what about $3.5k per month had in my 50s).
Again, my family is long-lived, I don't have any potentially deadly problems that I know of, nobody in extended family needs an inheritance from me, and I didn't need those $250k for anything else. So to me, longevity guarantee annuities (which is what they call those late-life annuities) without death beneficiary made sense.
Again, I have other annuities before (and some continuing after) age 80, the first of which had started paying out when I was 45 (I'm 63 now), but those earlier annuities all have a death beneficiary, because it was inexpensive (or for time-limited annuities, free) to add a death beneficiary to contracts that started, or will start, paying out before or at the age of 70.
To state this long story in a shorter way, if you plan to work til 70, and have other resources to live on in your 70s (ie, an adequate federal pension), you could buy a longevity guarantee annuity starting to pay out at 80, without death beneficiary, for whatever amount your family will not miss if it's lost. That will give you the greatest payout in very old age, to assure you never completely run out of some supplemental monthly $ in addition to the pension.
I have a variety of fixed annuities, but only those starting at the age of 80 or later have no beneficiary (ie, they are what you call single person annuities) .
As a federal retiree, I assume you will get a federal pension, in addition to what you would convert from TSP into an annuity? Are you healthy and with a family history of longevity? If so, you can buy a large delayed payout annuity for a relatively small premium that your heirs wouldn't miss in case that you die before you collect a good annuity payout.
For about $177k, I bought a single life annuity (no death beneficiary) in my early 50s, which will start paying $6k per month on my 80th birthday, for life. Then next year, I bought for about $40k an annuity that will start paying additional $2k per month on my 85th birthday, for life. Then in my late 50s I bought one last annuity for $29k that will start paying additional $3k per month on my 90th birthday. In the year 2050, nobody in my extended family (I don't have kids) will miss my premiums of about $250k total for these annuities without beneficiaries (particularly since the purchasing power of that sum in my 50s would be equal to about $60k in my 90s). On the other hand, if I am still alive, I will not mind extra $13k per month in my 90s (even if that will have a purchasing power equal to what about $3.5k per month had in my 50s).
Again, my family is long-lived, I don't have any potentially deadly problems that I know of, nobody in extended family needs an inheritance from me, and I didn't need those $250k for anything else. So to me, longevity guarantee annuities (which is what they call those late-life annuities) without death beneficiary made sense.
Again, I have other annuities before (and some continuing after) age 80, the first of which had started paying out when I was 45 (I'm 63 now), but those earlier annuities all have a death beneficiary, because it was inexpensive (or for time-limited annuities, free) to add a death beneficiary to contracts that started, or will start, paying out before or at the age of 70.
To state this long story in a shorter way, if you plan to work til 70, and have other resources to live on in your 70s (ie, an adequate federal pension), you could buy a longevity guarantee annuity starting to pay out at 80, without death beneficiary, for whatever amount your family will not miss if it's lost. That will give you the greatest payout in very old age, to assure you never completely run out of some supplemental monthly $ in addition to the pension.
this is great information. thank you. i like the idea of purchasing an additional annuity
i will have a fixed amount FERS pension as a federal employee.
i will have social security, which i won't start drawing until age 70.
i may also work until age 70, the job i have now that is feasible. i turn 65 this year.
would my FERS pension and Social Security together be enough to live on without the TSP income stream? If i can work to 70 then yes that amount is about what I am living off of now. Are there formulas for when to start drawing money out of TSP once a person stops working?
yes there is longevity in my family, mother lived until 91, dad until 89. i am in good health, exercise daily and not on any medications at all. the TSP is its own "single person annuity." where does a person buy additional annuities like the ones described above that kick in at say age 75 or 80, which would be additional monthly income? I may have a chunk of money coming in from an inheritance, which i could see going towards purchase of this type of annuity.
for TSP is it required to start drawing at age 70? and does it have to be in the form of annuity, or can it just be "as needed" withdrawals? if i stop working at age 70 does TSP amount continue to accrue interest?
thank you again for the helpful ideas and input.
Last edited by Tzaphkiel; 08-20-2023 at 06:54 PM..
The TSP money is YOUR money. It consists of money that you put in, plus money that your employer put in, plus any earnings from your investments over the years. It's all YOUR money and you can withdraw it in just about any way that you want. You can take monthly withdrawals, quarterly withdrawals, or even random withdrawals as needed.
If you should happen to kick the bucket before you draw it all out, the plan will pay the remainder that you have left in your account to whomever you designate as beneficiary. Meanwhile, the money that remains in your account while you're still alive keeps working for you until you draw it out or until you die, at which time it will be paid to your beneficiaries as you have instructed them to do in writing.
I don't see the point of buying an annuity. You'll have your TSP money, plus you'll have your federal retirement (FERS), plus you'll have your Social Security, plus you'll have any private savings or investments that you've saved over the years.
I can see no good reason for tying up your TSP money in an annuity when you have all these sources of income. Again, it's YOUR money. Just withdraw it as you need it and leave the remainder in there to work for you through your investments until you need it. Just be sure to observe any minimum withdrawal amounts that you may need to take after a certain age (about 70 1/2, I think).
Here's info on when you must start taking the RMD (required minimum distribution). It's at age 70.5 unless you're still working. Read this:
let's say there is $200,000 in a TSP. Drawing $1,500 a month, that balance is gone in 11 years. ($1,500 a month = $18,000 a year). If I start drawing at age 70, then the money is gone by age 81. However with an annuity, it pays a fixed amount for life. that is how i see the advantage of an annuity, fixed amount for the rest of my life, and if i live to 90 then it works in my favor. i am not concerned with leaving an inheritance at this point because my adult children and grandchildren are very well off. I am concerned with maximizing my income stream in retirement, for peace of mind and to reduce financial burden on family as i age.
again, i know very little about this which is why i'm seeking more information from the collective wisdom of people on CD. thank you. i don't have investments. i don't own property. i rent and i live very modestly. so after i stop working (age 68 or 70, goal is 70) there is FERS pension, plus Social Security, plus TSP income stream. Plus savings which may be around $80,000. That's it. And no debt.
let's say there is $200,000 in a TSP. Drawing $1,500 a month, that balance is gone in 11 years. ($1,500 a month = $18,000 a year). If I start drawing at age 70, then the money is gone by age 81. However with an annuity, it pays a fixed amount for life. that is how i see the advantage of an annuity, fixed amount for the rest of my life, and if i live to 90 then it works in my favor. i am not concerned with leaving an inheritance at this point because my adult children and grandchildren are very well off. I am concerned with maximizing my income stream in retirement, for peace of mind and to reduce financial burden on family as i age.
again, i know very little about this which is why i'm seeking more information from the collective wisdom of people on CD. thank you. i don't have investments. i don't own property. i rent and i live very modestly. so after i stop working (age 68 or 70, goal is 70) there is FERS pension, plus Social Security, plus TSP income stream. Plus savings which may be around $80,000. That's it. And no debt.
You are failing to consider the EARNINGS that your TSP investments would earn after you retire. In fact, your TSP is earning money RIGHT NOW. The amount it earns depends on which investments you choose. A conservative investment of stocks, bonds, and money market for your TSP should average at least 5% per year and more likely 7% to 8% over the long run.
This means that the $200,000 you have in the TSP should be earning you somewhere in the neighborhood of $10,000 to $16,000 per year (on average) when you retire. Therefore, if you start withdrawing $18,000 per year, your TSP account balance is decreasing at only about $2,000 to $8,000 per year, not the $18,000 per year that you stated.
Again, the money is working for you until you take it out of your TSP. Even then, it COULD continue to work for you if you invest it in private investments (stocks, mutual funds, ETF's, or bank account) instead of spending it immediately.
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