So, I was all set to go with a TSP Metlife annuity with my entire TSP account balance when I retire. Recently, I started to look at the possibility of monthly payments instead, and after doing some research, I'm now leaning toward. By the way, has Metlife adjusted (decreased) the annuity payments within the last few years?? Seems like I read something on that at some point, maybe on this forum. Doesn't seem to be nearly as generous as it was.I'm no expert on this by any means, but it seems to me that on the one hand, with the annuity, you are guaranteed income for life, if not very generous. You don't have to worry about gyrations in the stock market, as God only knows what the market will do in coming years (maybe even God doesn't know LOL). On the other hand, if u take monthly payments of a certain amount, u can keep your balance in the TSP and earn potentially higher returns, but you run the risk of running out of money, especially in the case where future markets don't do well over the long haul.Read on this forum that only 2% of retirees go with the TSP Metlife annuity.Wow, that sure says something. Can that be right?? Anybody with any insight on this subject?? Have I missed and important considerations??
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TSP Annuity VS monthly payments...can u provide any insight??
- Thread starter carbonblk
- Start date
SkyPilot
Well-known member
The annuity option provides poor returns and you loose all your money, as they take the money from your TSP account.
You might do better to just leave it in the G fund and take monthly payments based on life expectancy. Or maybe the L "income" fund?
What is truly the greater risk? Possibly running out of money, or having very poor returns and living with less money than you need for the rest of your life?
An annuity is very expensive insurance to buy for a guarantee of very small payments for the rest of your life. And, over time, the market will likely produce a better return than bonds, so you might want to consider if you can tolerate any risk, and if so, allocate accordingly. Many retirement experts now are saying that it is prudent to invest some portion of your portfolio in stocks as most "boomers" will need to grow their accounts to keep pace with inflation.
You might do better to just leave it in the G fund and take monthly payments based on life expectancy. Or maybe the L "income" fund?
What is truly the greater risk? Possibly running out of money, or having very poor returns and living with less money than you need for the rest of your life?
An annuity is very expensive insurance to buy for a guarantee of very small payments for the rest of your life. And, over time, the market will likely produce a better return than bonds, so you might want to consider if you can tolerate any risk, and if so, allocate accordingly. Many retirement experts now are saying that it is prudent to invest some portion of your portfolio in stocks as most "boomers" will need to grow their accounts to keep pace with inflation.
James48843
Well-known member
Or, better than the G fund, if you are talking long term ( and you are, if you are talking about making sure you don't run out of money before you expire, you could live another 30 years after you retire, and that is certainly long term), then you might consider the L Income rather than the G fund. It's rate of return should be higher than the G over just about any time period.
Note: One mistake I am already seeing with the L fund people- They are choosing the "age appropriate" fund based on their retirement date.
There is another school of thought- that being that they should be choosing an "age appropriate" fund based on when they think they will be using the money instead. I.E. if they are 56 years old, and think they are going to retire in 2 years, they are choosing the L2010, when in fact they should probably be choosing the L2020, because the bulk of their money will be taken out around that year. They won't simply be taking it all out in 2010, and then living another 20 years or 30 years, and expect to get enough growth from it to maintain payments.
The L funds vs. an annuity are a great subject to debate. If you have a long-term horizon, you can stretch L fund age-based payments out for quiet a time period, and you get to change the amount you are taking out each year, not a one-time shot like an annuity.
Each person has to look at all their options carefully, and learn a great deal about managing their own future.
(If they let us manage our own future....the cads! )
Note: One mistake I am already seeing with the L fund people- They are choosing the "age appropriate" fund based on their retirement date.
There is another school of thought- that being that they should be choosing an "age appropriate" fund based on when they think they will be using the money instead. I.E. if they are 56 years old, and think they are going to retire in 2 years, they are choosing the L2010, when in fact they should probably be choosing the L2020, because the bulk of their money will be taken out around that year. They won't simply be taking it all out in 2010, and then living another 20 years or 30 years, and expect to get enough growth from it to maintain payments.
The L funds vs. an annuity are a great subject to debate. If you have a long-term horizon, you can stretch L fund age-based payments out for quiet a time period, and you get to change the amount you are taking out each year, not a one-time shot like an annuity.
Each person has to look at all their options carefully, and learn a great deal about managing their own future.
(If they let us manage our own future....the cads! )
SkyPilot
Well-known member
http://hffo.cuna.org/12433/article/1164/html
This is a simple and handy calculator to figure payout factoring in growth and inflation.
This is a simple and handy calculator to figure payout factoring in growth and inflation.
Spaf
Honorary Hall of Fame Member
Annuity
Your Civil Service retirement check is like an annuity.
Annuity options are expensive.
Annuity options can have great short commings. i.e., survivor benifits.
It's an insurance instrument that you buy.
You forfit your TSP funds.
TSP-payments
Low expenses.
Good index funds.
Transfer funds.
Change payments annually and or other options.
Your funds can still grow.
It's still your $$$.
Your Civil Service retirement check is like an annuity.
Annuity options are expensive.
Annuity options can have great short commings. i.e., survivor benifits.
It's an insurance instrument that you buy.
You forfit your TSP funds.
TSP-payments
Low expenses.
Good index funds.
Transfer funds.
Change payments annually and or other options.
Your funds can still grow.
It's still your $$$.
SkyPilot
Well-known member
Birchtree
Well-known member
My suggestion is take the monthly payment from the TSP account and roll some of those funds into a Roth IRA. Pay your taxes up front and then trade the Roth IRA for the next 20 years all tax free. Everything you do going forward will be impacted by your AGI - if you live off savings for a year or two your AGI will be lower. Prolong taking ss if possible - the objective is to keep your AGI in the 15% bracket - that will allow any outside accounts to be 95% tax free including dividends. You have to work and plan at keeping the AGI low. I wish I could trade my defined benefit plan for a defined contribution plan - that would allow setting my own income level.
Just ran a few numbers re taking the TSP Metlife annuity VS monthly payments (based on life expectancy). The monthly payments based on life expectancy start at roughly HALF what the poor annuity pays!!!! They do increase as the years pass, and eventually exceed what the annuity pays for a time, but wow, that (taking monthly payments based on life expectancy)doesn't seem to be the way to go either. I plugged in 5% as a guess as to what the G Fund would return. Seems to me, the only chance I'd have at bettering the annuity would be to take monthly payments of a set amount, invest somewhat agressively, and hope I don't run out of money (beyond ss and the FERS annuity)later on in my retirement.
I then did the following. I took the monthly figure that the TSP Annuity gave me based on my entire TSP balance. I took that monthly amount and plugged it into the calculator for monthly payments of a specific dollar amount and again used 5% for G Fund return, and it indicated payments lasting about 24 years. I plan on retiring at 56 years of age. So, I would run out of payments by 80, VS payments for life with the annuity, which would guarantee income beyond 80, should I live that long.
Have I got any of this straight??? Your comments and experience are greatly appreciated.
I then did the following. I took the monthly figure that the TSP Annuity gave me based on my entire TSP balance. I took that monthly amount and plugged it into the calculator for monthly payments of a specific dollar amount and again used 5% for G Fund return, and it indicated payments lasting about 24 years. I plan on retiring at 56 years of age. So, I would run out of payments by 80, VS payments for life with the annuity, which would guarantee income beyond 80, should I live that long.
Have I got any of this straight??? Your comments and experience are greatly appreciated.
clester
Well-known member
Try using the monthly payments calculator on TSP (not life expectancy) and play with those numbers. If you retire at 56 you don't have to use the life expectancy calculator. You can change the monthly payment at the beginning of each year. So, if you get worried you're running out too fast you can lower your withdrawal amount for the next year.
If you make 5% in G fund and take out 5% in payments you can't run out. You may lose buying power through inflation though.
If you make 5% in G fund and take out 5% in payments you can't run out. You may lose buying power through inflation though.
TRAFFIC_DOG
Member
Personally, I would never, ever, ever take the annuity.
Be very careful when comparing the annuity payment vs others with an early retirement scenario.......
That gives an unwaranted bias toward the annuity.
Don't ever forget that you are BUYING that annuity. There is nothing for your heirs after you are gone.
Be very careful when comparing the annuity payment vs others with an early retirement scenario.......
That gives an unwaranted bias toward the annuity.
Don't ever forget that you are BUYING that annuity. There is nothing for your heirs after you are gone.
Aviator_Guy
Member
I agree with “Traffic Dog”, I would never take the TSP annuity. But, if you take the annuity, it’s very safe. And as “Traffic Dog” states, if you die, they keep 100 % of whatever you managed to save. I would prefer to leave what I have managed to save to my wife and kids.
My goal is to retire at my MRA of 56, and take equal payments (12 months) that you can adjust once per year. Leave the bulk in the TSP and allow it to grow tax free. If you have a large amount in the TSP, you can take those equal payments to make up the difference or even exceed your current civil service pay. But, what’s really cool is to allow your TSP to continue growing faster than inflation!! Each year you can adjust your fixed payments up or down as needed. I think you’re required to close out your TSP account at age 70 or 72. I will turn 51 this year, so I have a while to go. I will have 34 years of service when I reach my MRA.
If you plan it correctly, you will make more in retirement than you do today. That even takes in account the early tax penalty for pulling some of your TSP out prior to age 62!! The TSP gives you control of your retirement and that’s a VERY good thing. Just max it out for 30 years and when you reach your MRA, you have the option of staying employed or move into retirement making more than if you decide to stay working for the feds! Good luck with your TSP investment strategy.
My goal is to retire at my MRA of 56, and take equal payments (12 months) that you can adjust once per year. Leave the bulk in the TSP and allow it to grow tax free. If you have a large amount in the TSP, you can take those equal payments to make up the difference or even exceed your current civil service pay. But, what’s really cool is to allow your TSP to continue growing faster than inflation!! Each year you can adjust your fixed payments up or down as needed. I think you’re required to close out your TSP account at age 70 or 72. I will turn 51 this year, so I have a while to go. I will have 34 years of service when I reach my MRA.
If you plan it correctly, you will make more in retirement than you do today. That even takes in account the early tax penalty for pulling some of your TSP out prior to age 62!! The TSP gives you control of your retirement and that’s a VERY good thing. Just max it out for 30 years and when you reach your MRA, you have the option of staying employed or move into retirement making more than if you decide to stay working for the feds! Good luck with your TSP investment strategy.
alevin
Well-known member
Birch, thanks for weighing in on this. I've already been thinking when the time comes that I'd put much if not all of account into monthly and rolling cash excess to needs into Roths for long haul. And I was already thinking I'd (maybe need to) work part-time til 70 or so, even after exfed (to reduce need for SS or TSP as long as possible). My family on both sides has history of living well beyond life expectancy so my TSP and other investments will have to be available. The part of your comment I hadn't figured out yet for myself is the part about AGI objectives. Still mulling that one, not completely clear to me yet how that would work, but I'll get there.
I agree with “Traffic Dog”, I would never take the TSP annuity. But, if you take the annuity, it’s very safe. And as “Traffic Dog” states, if you die, they keep 100 % of whatever you managed to save. I would prefer to leave what I have managed to save to my wife and kids.
My goal is to retire at my MRA of 56, and take equal payments (12 months) that you can adjust once per year. Leave the bulk in the TSP and allow it to grow tax free. If you have a large amount in the TSP, you can take those equal payments to make up the difference or even exceed your current civil service pay. But, what’s really cool is to allow your TSP to continue growing faster than inflation!! Each year you can adjust your fixed payments up or down as needed. I think you’re required to close out your TSP account at age 70 or 72. I will turn 51 this year, so I have a while to go. I will have 34 years of service when I reach my MRA.
If you plan it correctly, you will make more in retirement than you do today. That even takes in account the early tax penalty for pulling some of your TSP out prior to age 62!! The TSP gives you control of your retirement and that’s a VERY good thing. Just max it out for 30 years and when you reach your MRA, you have the option of staying employed or move into retirement making more than if you decide to stay working for the feds! Good luck with your TSP investment strategy.
Aviator Guy,
You made two miscalculations.
1. You are not required to close your TSP at 70 or 72; you are only required to take out the IRS life expectancy minimum in the year that you turn 70 1/2. You will have "Open season" to change the withdrawal amount the beginning of each year, so if you turn 70 1/2 in December, you will need to make that election in the previous January.
2. There is no "penalty" for withdrawing a monthly amount before 62 as long as you retire with an immediate annuity at your MRA or older.
Birchtree
Well-known member
alevin,
The AGI (adjusted gross income) of 15% for a married couple is probably now around $63,700 and increases yearly. The 15% bracket provides several opportunities to save taxes on outside income - there is a 5% tax on capital gains and a 5% tax on dividend income. Any defined benefit income from your FERS annuity and social security will boost you into the higher tax brackets - this is income you can't control. When a 1099 is generated there is no place to hide. You can control income from TSP to a certain extent. Of course any income from a Roth is tax free. My wife opted out of her defined benefit pension plan for a defined contribution plan and is now in control of her investments and when she retires she takes only what may be needed or as little as possible because all my funds are with Merrill and I want to take profits at 95% tax free when the time is ready. It's all in the AGI - it impacts the level of any deductions you may have later like health care, and miscellaneous deductions. If you retire with the most you can get it will increase your AGI and subsequently your tax basis. That's why living off savings for a year or so is beneficial because you won't have an AGI.
The AGI (adjusted gross income) of 15% for a married couple is probably now around $63,700 and increases yearly. The 15% bracket provides several opportunities to save taxes on outside income - there is a 5% tax on capital gains and a 5% tax on dividend income. Any defined benefit income from your FERS annuity and social security will boost you into the higher tax brackets - this is income you can't control. When a 1099 is generated there is no place to hide. You can control income from TSP to a certain extent. Of course any income from a Roth is tax free. My wife opted out of her defined benefit pension plan for a defined contribution plan and is now in control of her investments and when she retires she takes only what may be needed or as little as possible because all my funds are with Merrill and I want to take profits at 95% tax free when the time is ready. It's all in the AGI - it impacts the level of any deductions you may have later like health care, and miscellaneous deductions. If you retire with the most you can get it will increase your AGI and subsequently your tax basis. That's why living off savings for a year or so is beneficial because you won't have an AGI.
alevin
Well-known member
I've puzzled over that as well. The way i've approached it is to play with several possible scenarios just to see the difference different assumptions make, and then working off the one that I hope is conservative.
scenarios I've played with:
1) My GS payscale with periodic within-grade increases will continue until I pull the plug (which in theory would result in topping out about the time I had had enough of working for the govt and think I could finally afford to bail-sometime between 2019-2021). I can make a guess about what that top 3 salary might be approximately based on typical increases between grades/steps on GS payscale. This one makes me reasonable comfortable with outcomes.
2) My GS predictable raises will not continue, due to potential for conversion to paybanding within the next few years-average earner doesn't get the within-grade raise, just (RUS) increase. For me to move to a higher grade level at this point, I'd have to become a manager or move to a location with much higher cost of housing, neither of which is especially appealing to me. This scenario is conservative one (I hope it doesn't come to pass but it may regardless of how I feel about it). In that case I am calculating high-3 based on current salary+ estimated annual RUS increases.
#2 is the scenario I am actually working off of for myself, as a way to limit the downside risk that I won't have the safety net I think I may need in retirement. The numbers I come up with here don't make me particularly comfortable, which means I will work harder to make sure I do better than this.
Play with assumptions you think are reasonable for yourself based on your time horizon, you might surprise yourself in a good way.
