TSP Annuity VS monthly payments...can u provide any insight??

[CorMaGa34]

Hope this helps in answer to your question:

OPM PUBLICATION: WITHDRAWING YOUR TSP ACCOUNT AFTER LEAVING FEDERAL SERVICE, JUNE 2007

IRS Rules that Affect Separated Participants Who Are 70 ½
or Older​

The Internal Revenue Code requires that you receive a portion of your TSP account (your​

​

“required
minimum distribution”) beginning in the calendar year when you become age 70 ½ and are separated
from service. If you do not withdraw your account balance or begin receiving payments from
your account, the TSP is required to make the required distribution
to you by April 1 of the following
year. If you separate after age 70 ½, your account will immediately be subject to the IRS minimum
distribution requirements.
If you are receiving a series of monthly payments from your TSP account when you turn 70 ½, you
will be subject to the IRS minimum distribution requirement, and your monthly payments will be
used to satisfy that requirement. (If the total amount of your monthly payments does not satisfy the
requirement, the TSP will issue a supplemental payment for the remaining amount in December.)
If you do not make a full withdrawal of your account before you turn 70 ½, you may make a partial
withdrawal through December of the year in which you turn 70 ½. However, you must select a withdrawal
option for the balance of your account before April 1 of the following year. Your partial withdrawal
will be subject to the IRS required minimum distribution rules.
The minimum distribution payment cannot be transferred or rolled over. This means that if you
withdraw your account in a single payment or monthly payments in a year to which the required
minimum distribution applies, you cannot transfer the entire payment(s) to an IRA or an eligible employer
plan. Instead, before transferring any money, the TSP will calculate your required minimum
distribution amount and mail it directly to you (or, if applicable, to the savings or checking account
designated to receive your direct deposit).
The TSP calculates minimum distributions based on your account balance and your age, using the
IRS Uniform Lifetime Table, Treas. Reg. § 1.401(a)(9)-9, Q&A 2. For detailed rules regarding minimum
distributions, see the TSP tax notice “Important Tax Information About Your TSP Withdrawal
and Required Minimum Distributions.”
16​

Note:​

​

If you do not withdraw (or begin to withdraw) your account by the TSP withdrawal deadline,
your IRS required minimum distribution for the prior year will be sent to your last address of record.​

(See page 1, “Limitations on Leaving Your Money in the TSP.”)

CorMaGa34

 

[CorMaGa34]

More on the subject:

from OPM PUBLICATION : WITHDRAWING YOUR TSP ACCOUNT AFTER LEAVING FEDERAL SERVICE, JUNE 2007:

Limitations on Leaving Your Money in the TSP​

Withdrawal Deadlines.​

​

You are required to withdraw your account balance in a single payment, begin
receiving monthly payments, or begin receiving annuity payments by April 1 of the later of:
the year following the year you become age 70 ½, or
the year following the year you separate from Federal service or the uniformed services.
If you do not withdraw (or begin withdrawing) your account by the required withdrawal deadline,
your account balance will be forfeited to the TSP. You can reclaim your account; however, you will
not receive earnings on your account from the time the account was forfeited.​

•
•
•​

*​

​

If, after your agency or service reports that you have left service,
your vested account balance is less than $200, your balance will be
automatically paid directly to you in a single payment (i.e., cashout). You will not be eligible to make any other withdrawal election.
Nor will you be allowed to remain in the TSP. The TSP will not withhold any amount for Federal income tax on your cashout if all your
withdrawals from the TSP throughout the year of your cashout add up to less than $200. If your account balance is less than $5.00
when you leave service, the TSP will automatically forfeit the balance to the Plan. Your quarterly participant statement will indicate that
the balance has been forfeited.​

**​

​

Forms for civilian TSP participants have the prefix “TSP-” before the form number. Forms for members of the uniformed services have​

the prefix “TSP-U-”.

Hope this helps!

CorMaGa34

 

[Zebra]

I highly recommend all FERS employees to sign up and attending the retirement seminar.

When the Financial instructor started his sessions, the first thing he yelled out when it came to Annuities he stated, NOT!!! He went on to state, "Monthly payments is the way to go".

To better understanding how your TSP can do different things concerning growth and payments, I highly recommend viewing the following Training Video: http://csrs-fers.com/TSPmwoVideo.html

Hope some of this helps!

 

[Texarkandy]

More on the subject:

from OPM PUBLICATION : WITHDRAWING YOUR TSP ACCOUNT AFTER LEAVING FEDERAL SERVICE, JUNE 2007:

Limitations on Leaving Your Money in the TSP​

Withdrawal Deadlines.

You are required to withdraw your account balance in a single payment, begin

receiving monthly payments, or begin receiving annuity payments by April 1 of the later of:
the year following the year you become age 70 ½, or
the year following the year you separate from Federal service or the uniformed services.
If you do not withdraw (or begin withdrawing) your account by the required withdrawal deadline,
your account balance will be forfeited to the TSP. You can reclaim your account; however, you will
not receive earnings on your account from the time the account was forfeited.
​

Do I take this to mean that when I retire early at 49 as a 6C LEO with 25 years that can't just leave it in the TSP to manage & grow, but must do one of the following?

A. Buy an Annuity
B. Take Life Expectancy Payments from TSP
C. Roll it all into a private IRA & exercise 72t payments if I want money

Question 2: If I take option B - can I still move the money around in different funds?​

 

[nnuut]

Yes!

 

[Howxotk]

Texarkandy,
Do I take this to mean that when I retire early at 49 as a 6C LEO with 25 years that can't just leave it in the TSP to manage & grow, but must do one of the following?

A. Buy an Annuity
B. Take Life Expectancy Payments from TSP
C. Roll it all into a private IRA & exercise 72t payments if I want money

Question 2: If I take option B - can I still move the money around in different funds?

I guess I'd disagree with nnuut, You can leave your money and take no proceeds until 70 yrs. old. and continue to move it as you do now in the tsp retirement funds.

 

[Silverbird]

You can leave your money in the TSP post 70. BUT you have to withdraw a minimum amount every year after 70.

If you take the "monthly payments" option, you determine - adjustable once a year - how much is paid to you each month. If you do not reach the minimum, as I understand it, TSP will send you the rest to make it to the minimum - well, the rest minus 20% income tax deduction to the IRS. Monthly payments give you the most control *but* you have to keep an eye on what you are doing to keep from depleting your TSP prematurely.

If you take life expectancy payments, be warned, what that does is pay you the maximum amount per year until you reach your life expectancy according to the IRS chart. Then your TSP runs out of money (you will still get social security and FERS/CSRS of course...).

Buy an Annuity - Annuity company pays you monthly payments until you die - take a cut in monthly payments and your spouse gets life payments as well. Nothing will be left in the TSP account as you have sold it, but you will get money every month.

 

[Texarkandy]

Retiring early as a 6C LEO as I plan/hope to retire at 48.5.

I know I can buy an annuity or take "equal monthly payments based on life expectancy" without the 10% penalty

However when I go to the TSP calculator & have it a calculate my monthly payments it shows that my payments will increase every year in accordance with whatever % assumed earnings rate I insert into the calculator.

Specifically, the calculator shows the payments will:
- increase from 49 till age 69
- then decreasr for age 70 & 71
- then increasr at age 72 (but not to the amount it was at 69)
- then continuous increases to age 100
- then continuous decreases to age 115 where it finally zero's out

What gives here with the TSP calculator?

How does this relate to "equal monthly payments based upon life expectancy"?

 

[clester]

Retiring early as a 6C LEO as I plan/hope to retire at 48.5.

I know I can buy an annuity or take "equal monthly payments based on life expectancy" without the 10% penalty

However when I go to the TSP calculator & have it a calculate my monthly payments it shows that my payments will increase every year in accordance with whatever % assumed earnings rate I insert into the calculator.

Specifically, the calculator shows the payments will:
- increase from 49 till age 69
- then decreasr for age 70 & 71
- then increasr at age 72 (but not to the amount it was at 69)
- then continuous increases to age 100
- then continuous decreases to age 115 where it finally zero's out

What gives here with the TSP calculator?

How does this relate to "equal monthly payments based upon life expectancy"?

My understanding is that TSP takes your balance divides it by your life expectancy which gives a yearly amount. Divide that by 12 to give monthly payments. For example, $500,000 balance at age 49 and life expectancy of 34 years = (500000/34 ) / 12 = 1225/mo. the next year the balance is divided by 33 years then 32 years etc. The balance is affected by withdrawals and fund performance.

 

[RAE]

Retiring early as a 6C LEO as I plan/hope to retire at 48.5.

I know I can buy an annuity or take "equal monthly payments based on life expectancy" without the 10% penalty

Also - remember that if you use the "life expectancy" method, you are not locked into that method for the rest of your life. You can change to a monthly withdrawal amount that you choose, but not until you receive payments based upon the life expectancy method for 5 years, or until you reach age 59.5 (whichever is longer). So, in your case, you would have to take the life expectancy payments that TSP calculates until age 59.5, but at that time you could switch to a monthy withdrawal amount of your choosing.

 

[Texarkandy]

My understanding is that TSP takes your balance divides it by your life expectancy which gives a yearly amount. Divide that by 12 to give monthly payments. For example, $500,000 balance at age 49 and life expectancy of 34 years = (500000/34 ) / 12 = 1225/mo. the next year the balance is divided by 33 years then 32 years etc. The balance is affected by withdrawals and fund performance.

Seems to me if they were doing it that way - the divisor would be "1" when I'm 83 (life expectancy) and the account would zero out?

(I'm thinking I really might need to get a few thousand more each year than the payout they offer under this method between 49 & 59)

 

[clester]

Seems to me if they were doing it that way - the divisor would be "1" when I'm 83 (life expectancy) and the account would zero out?

(I'm thinking I really might need to get a few thousand more each year than the payout they offer under this method between 49 & 59)

Good point. It seems to work for the first computation though. I think your life expectancy changes as you age. For example, if you make it to 70 your life expectancy goes from 84 to 88 (just a wag). You would have to look at the IRS life expectancy tables. That would explain the way the payments change.

 

[Texarkandy]

Oh, well - they're only gonna let me have (of my money) what they're gonna let me have per their rules I guess

- till 59.5 at least - then I get to decide

Maybe I'll have to consider doing a rollover to IRA & then do the 72t annuitize or amortize method if I think I'll need to withdraw more in the early years - am just starting to learn about that. It sounds kind of a complicated hassle though.

 

[clester]

Oh, well - they're only gonna let me have (of my money) what they're gonna let me have per their rules I guess

- till 59.5 at least - then I get to decide

Maybe I'll have to consider doing a rollover to IRA & then do the 72t annuitize or amortize method if I think I'll need to withdraw more in the early years - am just starting to learn about that. It sounds kind of a complicated hassle though.

Thats my plan (72t amort. method). The only negative is that it's set until your 59.5

 

[Texarkandy]

72t Annuitization vs Amortization

Thats my plan (72t amort. method). The only negative is that it's set until your 59.5

I'm not real clear on those two 72t methods (annuitization & amortization) - what's the difference and why would one be preferable over the other?

I know they pay out roughly the same

 

[clester]

I understand the annuitization method is much more complicated method (easier to mess up and get the IRS on you). Also Amoritization method pays out more.

Does anyone know which IRA companies do the calculations for you?

 

[kistari]

I'm retiring next month and have gone through the same calculations many a time. The thought is: You already have one annuity - your CSRS or FERS retirement. If you buy one with your TSP funds, you do have a set amount for life. But, Metlife is using 4.625 as the interest rate. Don't you think you can do better than that averaged over the long haul? I do. Second item... There's no possibility of taking out more or less money one year with the annuity but there is with the monthly payments. Let's say I have a part time job and know I won't need a huge monthly amount one year. Or, perhaps I'm ready to take that dream Alaska vacation next year. I can adjust the amount taken out the December before.

Anyway, I decided to use the monthly payment option. It does mean I have to pay more attention to my tsp, but I think it will provide both the security and flexibility I need in retirement.

 

[survivedfriendlyfire]

On this subjesct of annuity.
I heard from someone that you take monthly payments based on when you think you are going to die but that you can adjust that estimate of your longevity by requesting a new form every year and adjusting your estimate.
Is this true and how does this exactly work.
Thanks
Retirment neophyte - - -5 maybe 6 to go or sooner!

 

[tsptalk]

Welcome SFF! I am not sure this fully answers the question, but according to the TSP website:

How is my annuity purchased?
After the TSP receives all of the information and documentation necessary to purchase your annuity, we will generally process your annuity request and disburse the funds for your annuity within 10 business days.
On the date when the annuity provider receives your request and the money from your TSP account — generally within 2 business days after the money is disbursed — the annuity is purchased. Once the funds for your annuity have been disbursed, you cannot cancel the annuity, change the annuity option, or change the joint annuitant. After the money has left your account, you should direct all communications concerning your annuity to the annuity provider. The annuity provider will send you a package of information and an annuity contract. Your monthly annuity payments will begin approximately one month after the annuity is purchased.

More on annuities... http://www.tsp.gov/features/chapter14.html (clicking on this link may only take you to the TSP home page, so you may need to cut and paste the link into a browser.)

 

[SkyPilot]

The TSP Annuity will almost never equal the G fund payout, plus you lose control of your capital.

Equal Payments for those retiring before age 55 is often the best way to access your TSP account if you absolutely have to have it to retire.

Many would say that if you need it that bad, maybe you should consider that you don't really have the resources in place to retire yet. Every one has a different situation, but before you walk out that door be sure you have really thought through the situation.