Ask The Experts: Money Matters

By Mike Miles

Doing the annuity math

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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.

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