TSP annuity VS monthly payments...revisited

[carbonblk]

So, I've been plugging some numbers into the TSP site calculators and still am not totally convinced ( please convince me) that the Annuity is not the way to go.

Here's what I came up with. I'd like to retire at age 56 (MRA). I input my entire estimated TSP balance at that time into the annuity calculator using 5% return from the G fund. I then took that dollar amount and plugged it into the monthly payments of a fixed amount calculator. It indicated my payments would run out in 21 years, 11 months, at about age 78 ( level payments, no add features). But, it's possible I could live well into my 80's and beyond. So why would I want to go with the monthly payments when the annuity would be guaranteed for life???

The advantages of going with the monthly payments would be that I could adjust the amount yearly, up or down. OK, that's certainly good. If I found that I didn't need as munch money, I could take less out so it would last longer. And, I MIGHT want to invest my TSP balance more aggressively in the market to take advantage of potentially higher returns.

Correct me if I'm wrong, but it seems to me that the latter would be the main reason for going with the monthly payments, i.e. control over the money and potentially higher ruturns. But isn't this just gambling? I would have to get and average return of 6.5 to 7% to get the monthly payments to last till 90-95. That doesn't sound too hard, or is it??

I'm no expert, obviously. Birchtree (and others), could you chime in on what I might be overlooking?

 

[Silverbird]

For me, the big question is, how often does that "increasing payments" based on CPI kick in? 3% a year is around the inflation rate, but that's the *maximum* you can get annually.

I also don't like the lack of control if inflation decides to do something insane or some emergency comes up.

A lot of the plus comes in *if* you expect to live beyond the age of 95, because that's when some other scenerios I plugged in for automatic monthly payments started to run out of money. That is, IF the cost of living increase kicks in all the time, or at least most of the time

More or less, if you want to take the annunity, first I would check up on how often the CPI kicks in - I haven't been able to find this information. Also, if you have heirs other than spouse, and you want more control over your payments, annuity takes away the control and under the annuity scenario. Even if you take the cash refund feature, taken the annuity usually means you are assuming that you are going to live long enough for the monthly payment scenario to run out of money, which means your original annuity amount + 5.6% a year that it earns will also run out of money - leaving no cash to refund.

Hope I'm making some sense here, I still have enough questions about the annuity that I'm not convinced it will keep up with inflation if I live into my 90's.

 

[fedguy07]

I don't know much about the annuity optoin, but here is an informative online video on the monthly options to consdier that may help in your decision:
http://www.myfederalretirement.com/public/193.cfm

 

[Zebra]

I recommend everyone attending a Retirement Seminar. The financial advisor had this to say about annunities NOT!!! He went on to say, your agency purchases on your behalf the annunity which is MET Life. At that time it is no longer your money, it belongs to MET Life. He recommended taking monthly payments from TSP, whereby you remain in control of your money, playing to the funds to continue growth on your funds. Additonally, you can yearly change the amount of your monthly payment and of course you can daily monitor the funds you have your funds invested in.

I like knowing my money is money! Whether you are a CSRS or a FERS employee, enroll in a retirement seminar ASAP. You learn a lot of good information you may not know of............I certainly did!!

 

[nnuut]

What about the around 3% they charge you for an annuity?

 

[saturneptune]

A related question. If one bought the annuity with MetLife, what would happen if MetLife went bankrupt?

 

[RPM]

Hope I'm making some sense here, I still have enough questions about the annuity that I'm not convinced it will keep up with inflation if I live into my 90's.

I always say this to people who debate about CSRS vs FERS. It's not how much you get back each month, it's how long you expect to live. So if you have good genes and have family history of long life expectancy, then go with the annuity (similar to the pension choice in CSRS), so between your annuity and your FERS pension, you are almost where the CSRS are with their pension. The only difference then is that the CSRS still have their TSP at their disposal, while you have your SS.

 

[Silverbird]

Not to muddle things - but if you want a bit of both worlds you can put some of your TSP into an annuity and leave the rest in TSP. There will be some wierdness when you reach age 70 1/2 as you will have to start taking money out of the TSP (IRS doesn't want you to sit on all your retirement without them getting their bite), and I haven't tried the calculators yet to see if this is worth it..but I will be looking at it since my family has one of those long life expectancies (my grand-aunt still raises ornamental cherries and grafts her own persimmons)

 

[BlueMax]

A related question. If one bought the annuity with MetLife, what would happen if MetLife went bankrupt?

That should be the least of your concerns. MetLife's annuity, is as secure as the the annuity from either the CSRS or FERS.
If we get to that point, our economy and government will be in shambles, so it wouldn't matter anyway.

 

[saturneptune]

That should be the least of your concerns. MetLife's annuity, is as secure as the the annuity from either the CSRS or FERS.
If we get to that point, our economy and government will be in shambles, so it wouldn't matter anyway.

MetLife is a private company just as Bear Stearns, GE, Ennron, Washington Mutual, etc, etc, etc. As good Met may be today, so were all these companies. Met could go bankrupt, or lose most of its stock value, just like the others. If you have purchased a MetLife annuity through the federal government, once you purchase it, the feds are no longer involved.

MetLife is secure today, but it is not as secure as equal monthly payments from TSP. In bad times, guess which one will last longer? The point is MetLife would be in shambles as you put it long before the federal government.

 

[Rick]

I could not agree more.
Any option we chose will be is at some kind of risk.
For me.. I will leave the money in the TSP fund and take the monthly payment option.