Ask The Experts: Money Matters

By Mike Miles

TSP annuity

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Q. My question has to do with choosing to withdraw my TSP account upon retirement. I understand I can leave my balance with the government and either choose equal payments for my expected lifespan or have the government purchase an annuity on my behalf. What I do not understand is the difference between choosing equal payments for the rest of my life and purchasing an annuity solely for myself? What are the pros and cons for each? I also don’t understand why I am also given a choice to choose a survivor benefit with my wife as the beneficiary should I decide on the annuity available through the government. If I die before my wife, isn’t she entitled to my TSP balance regardless if I choose the equal monthly payout or the annuity? Since she is the beneficiary of my TSP remaining balance, why should I even consider purchasing an annuity with a survivor benefit when this will have the effect of reducing my monthly pay? She will get the remaining TSP balance should I die anyway, won’t she? I also would like to know  if I choose either option for withdrawing my TSP retirement funds, do I retain control of the balance? Can I still move the money around from the C, S, and I funds in order to sustain the longevity of my retirement account?
A. If you use your TSP money to buy an immediate annuity, the money is no longer yours. It’s paid as an insurance premium in exchange for guaranteed payments during your lifetime. Once the annuity is purchased, the money is taken from your TSP account by MetLife and you no longer own it. If you request monthly withdrawals from your account, you still own the money and control it as you see fit. The annuity guarantees that you’ll receive a steady income for life. The price is the money you pay for the annuity. With monthly withdrawals, you bear the risk of running out of money while you’re still alive, but retain control of, and access to, the principal along the way.

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