TSP Required Withdrawal or Annuity, Age 71

[dohaco]

I was going to tack on to an already existing thread, but it seems to be over three years old. I'm 71, and I am now required to take money out of my TSP, Uncle Sam wants his tax money. (Note: my wife and I are doing ok on my Navy pension, FERS, and both our SS's; our CD's of course are way down right now.)

Question is, Full TSP withdrawal (and reinvestment, my wife and I do not need a wheelbarrel of money right now) less 20% to fed income tax right off the top, and a bump to a higher tax bracket, NO. Or put my entire balance into the ANNUITY. Or take the monthly Minimum Withdrawal?

Using the tsp.gov Calculator, I come up with this comparison ($ amounts are approximate, but close):

Total Accumulative by Year
10 Annuity $91000 vs TSP $58000
15............137000............ 94000
20............183000........... 130000
25........... 229000........... 166000
30........... 275000........... 196000

Contrary to posts I've read, isn't the Annuity the better choice? Even if I went 50/50, that is, split my TSP balance evenly between Annuity/Monthly Minimum Withdrawal, the Annuity still wins by a good margin. Seems to me the LFund would have to grow substantially to be a good investment for me in my 'golden years'. Why should I not choose the annuity route? I've got to decide soon.

 

[Handballer]

Thanks for bringing up this topic. Seems like we are in the same boat. I received my package from TSP last week while I was out of town. I have to make my withdrawal election no later than 2/25 to ensure it can be completed by 4/1. We don't have much time.

I was about to select the monthly payments but there may be a better selection. I look forward to input from our fellow TSPers for advice.

Ira aka Handballer

 

[dohaco]

Let me clarify re the Annuity. The "100% Survivor" would be selected as an Option. That is if I should die first, my wife would continue receiving the full monthly amount, and vice versa. An additional Option, after both of us die, a beneficiary would receive the remainder of my initial purchase price. It would be $zero about Year 15.
Incidentally, I compared the MetLife Annuity with two other major companies on their websites. It came out out about $30/month better than them.

 

[dohaco]

Well Handballer, I guess no one has any reasons to not choose the Annuity option rather than the mandatory Monthly Withdrawals from a TSP, when push comes to shove. Surely some one has faced this decision, and can speak from experience. Or someone contemplating this huge decision, just like us.

 

[tsptalk]

Welcome dohaco! Sorry I haven't been able to help. Since I am a long way from retiring, I haven't given this much thought.

You may need to ask a specific retired member on the board to get their attention (in their Account Talk thread perhaps) to see if they have any insight.

 

[Birchtree]

Why does an insurance company want to sell anyone an annuity - they think they can make more money on your money than you can. I say stay with TSP and continue to participate in the future growth of the economy and this stampeding bull market that has years of life left - you can always sit in the G fund when your feet get cold. Put your required montly distributions into a Roth IRA where there is no RMD. Buy stocks for the Roth IRA and keep your heart pumping with some stimulation from further gains and it's all tax free and a great plan for any heir.

 

[alevin]

Why does an insurance company want to sell anyone an annuity - they think they can make more money on your money than you can. Put your required montly distributions into a Roth IRA where there is no RMD. Buy stocks for the Roth IRA it's all tax free and a great plan for any heir.

Birch, that would bea great idea, if only....my understanding is that Roths can only be funded with earned income, not mandatory distributions from iras, tsp. Have i got it wrong? somebody set me straight if i am.

 

[Birchtree]

All the income in TSP qualifies as earned income. Before you were able to transfer TSP money to a traditional IRA without tax. The transfer of a traditional IRA to a Roth IRA had an income limitation that has now disappeared for 2010. So a transfer from TSP to a Roth IRA is acceptable as long as the tax is paid. That's my understanding from TWSJ.

 

[jpcavin]

"Roth IRAs are based on after-tax contributions. So, if you transfer your tax-deferred TSP contributions and earnings to a Roth IRA, you must pay income tax on the entire amount of the transfer for the year of the transfer"
http://federalretirement.net/tsproth.htm

 

[dohaco]

I made my decision, and now receiving a monthly distribution. However I have a CAUTIONARY suggestion for you.
Follow the procedural steps, 1) complete and submit Form TSP-70, 2) wait for the Agency to process, 3)start receiving money. Get past step 1, and the process is realitively smooth. My caution is to complete the TSP correctly before submitting. I checked my form carefully and submitted by certified mail. Agency replied with a letter saying I had failed to X one of the many boxes. Resubmit 'new' form please. (I had to get a Notary signature again.) Submitted again. Agency letter comes back again, it now points out a second error. At this point I have a phone conversation with an Agency person. Why wasn't second error mentioned in first letter? Because Computer generates error letter on first detected error, does not continue to check for another possible error. ONLY when a error less TSP-70 form gets past the Computer, does it get the attention of a Person. Resubmit another 'new' TSP-70 again please! It was about five weeks after first submission of TSP-70 to when a Person called and said I was 'successful'. Once in the 'system' it awaits approval at a once a month 'meeting' of Board Members (as I understand it). Then some administrative details are tended to, and the money poured into my bank savings account.
I realize this is a short story made LONG. Complete the TSP-70 CORRECTLY before submitting! Otherwise, you might be be a victim of decreasing interest rates, (less money). (Maybe someday the computer software will be improved.)

 

[Handballer]

I haven't visited this thread since my last post on February 13th. I also selected monthly payments and my first payment was on April 1st. My paperwork was accepted on first try. I would like for other old farts posting their selection. Surely there are more than us.

 

[nasa1974]

dohaco, Thanks for the information. You would think the computer would look for all errors before belching it back for corrections. Good luck in retirement and thanks for your service.