By Mike Miles
TSP lump-sum withdrawals and annuities
April 14th, 2011 | Uncategorized
Q: My wife retired in February. Our current plan is to take $50,000 from her Thrift Savings Plan to pay off some high-interest debt and leave the rest in the TSP to be invested into a monthly annuity. Is this allowed? Does she have options as to what annuity the money is invested in? Is their an option for a lump-sum survivor payment of the unpaid balance at the time of death? How does she proceed with implementing her final decision?
A: She may take one partial withdrawal from her account, if she hasn’t already done so. She may also use her TSP money to purchase an annuity from MetLife through the TSP, or she may move the money into any individual retirement account and purchase an annuity from any insurance company she chooses. The TSP’s annuities are not investment contracts, they are insurance policies, so once she makes the purchase, she has no further control over the principle. There is a TSP annuity option that provides for a lump-sum payment upon the death of the annuitant, under certain circumstances. You can learn everything you need to know about TSP annuities by visiting the TSP website here.
Tags: annuity, fund transfers, Individual Retirement Account, IRA, lump-sum payout, MetLife, thrift savings plan, TSP, TSP annuity, TSP fund transfer
Moving inheritance into TSP
April 14th, 2011 | Uncategorized
Q: I will inherit approximately $40,000 because of the death of a family member. What is the best way to get this money into my Thrift Savings Plan account?
A: If these funds are not already in a traditional individual retirement account or other eligible tax-deferred retirement plan account, you can’t add them directly to your TSP account. You could use these funds to support a higher regular contribution rate, if allowed, to your TSP or a traditional IRA. As long as the IRA contributions are tax-deductible, you can transfer the funds into your TSP account later.
Tags: Individual Retirement Account, inheritance, IRA, thrift savings plan, TSP
Annuity calculations
April 13th, 2011 | Uncategorized
Q: Can you run through a few scenarios with different annuity rates? [The Thrift Savings Plan annuity interest rate of] 3.625 percent is a fairly low rate to lock in for the long term, especially with inflation. How does the monthly annuity distribution look as interest rates change? For example, what would the distribution be for $100,000 at 5 percent, 10 percent or higher? The TSP annuity calculator doesn’t give me the ability to run these scenarios.
A: I won’t run rates for you, but you can estimate the payments with a calculator and the knowledge that the payment will scale proportionately with the interest rate.
Tags: annuity interest rate, annuity rate, thrift savings plan, TSP, TSP annuity, TSP annuity rate
TSP decisions at (and after) retirement, Part II
April 13th, 2011 | Uncategorized
Q: I realize that you can leave your funds in the Thrift Savings Plan until age 70 1/2. But can you continue to contribute to the plan in retirement? If so, how? Can you have a certain amount taken out of your retirement check? If not, what is the advantage of keeping the money in the plan? Wouldn’t it be better to take it out when you retire, reinvest it and continue to contribute to the new fund until you need the money?
A: You can’t continue to contribute to the TSP after you separate from service. You can transfer certain individual retirement accounts or other tax-deferred retirement accounts into your TSP account in retirement, however.
Tags: IRA, thrift savings plan, TSP, TSP and retirement, TSP in retirement, TSP transfer, TSP withdrawal
TSP decisions at (and after) retirement
April 13th, 2011 | Uncategorized
Q: If I retire May 1 at age 55 under the Civil Service Retirement System with 34 years of service, can I leave my $60,000 in the Thrift Savings Plan for a year or two and then, after seeing how life as a retiree goes, start up periodic payments? Or do I have to decide what to do with my TSP account right away?
A: You can delay the decision for as long as you like. You won’t have to start taking withdrawals until you reach age 70 1/2.
Tags: CSRS, thrift savings plan, TSP, TSP and retirement, TSP at retirement, TSP withdrawals
TSP-annuity basics
April 13th, 2011 | Uncategorized
Q: I saw the following comment in response to the question regarding the Thrift Savings Plan annuity rate being 3.625 percent: “The annuity rate is used to determine, at the time of purchase, the size of the payment you’ll receive in exchange for the annuity purchase price.”
My question is surrounding the phrase “annuity purchase price.” Are you telling us that after all the years of contributing our own, hard-earned money into the TSP to secure a better retirement life for ourselves and our families, that we have to buy back that money from the TSP in order to use it in lieu of a steady income?
A: It’s not a secret that the TSP is a retirement savings and investment account. You’re free to use the money for anything you’d like, including using it to purchase an annuity from an insurance company. This is not mandatory, however, and you may simply withdraw your funds to spend as you see fit.
Tags: annuity, annuity calculation, annuity payment, thrift savings plan, TSP
More on TSP annuity rates
April 12th, 2011 | Uncategorized
Q: I was reading a question submitted to you about the Thrift Savings Plan annuity rate being 3.625 percent. What does this rate have to with withdrawing from our accounts in retirement in the form of an annuity? If I have $200,000 in my account and buy an annuity with it, once it is purchased I get the monthly amount for the rest of my life, Right? I don’t understand what this annuity rate is for.
A: The annuity rate is used to determine, at the time of purchase, the size of the payment you’ll receive in exchange for the annuity purchase price.
Tags: annuity, annuity calculation, annuity rate, thrift savings plan, TSP annuity
TSP contribution methods
April 12th, 2011 | Uncategorized
Q: Are federal employees allowed to contribute directly to the Thrift Savings Plan, or does the money have to come out of their paychecks?
A: Contributions can be made only through payroll deferral or by transferring money from another tax-deferred retirement account.
Tags: thrift savings plan, TSP, TSP contribution, TSP rollover
Timing the market: Worth the risk?
April 12th, 2011 | Uncategorized
Q: I have all of my money in stocks and I have never tried moving it into anything else. What if I was pretty certain that the stock market was going to have a negative adjustment? Should I move my money into something else temporarily until it starts to rebound?
A: You’re talking about market timing; the answer depends upon the probability of being right in your prediction, the benefit to you of being right and cost of being wrong. For most investors, particularly those relying on their investments to fund retirement income someday, market timing is a poor bet.
Tags: investing, money management, stock market
Doing the annuity math
April 12th, 2011 | Uncategorized
Q: I am under the Federal Employees Retirement System and was looking at the Thrift Savings Plan annuity rate for April 2011, which is 3.625 percent. Using their calculator, at age 62 if I used $100,000 of my TSP to buy an annuity, it would pay $581 a month as long as I live. In order to get that out of the TSP, I’d have to earn 7 percent every year to be able to earn $583 a month! How is that so? Did I calculate something wrong?
A: You’re forgetting to account for the fact that once you buy the annuity, your principal is gone.
Tags: annuity, annuity calculations, thrift savings plan, TSP