By Mike Miles
July 9th, 2012 | Uncategorized
Q. I think I have heard that the Thrift Savings Plan annuity rate index for calculating monthly annuity amounts is tied to the 10-year treasury rate. For the past five months, the annuity rate has held at 2.125 percent while the 10-year treasury rate has fallen substantially below this. Can you help me understand the relationship between the two rates? Is there a “floor” in the annuity rate agreement with MetLife?
A. The TSP annuity rate index is an eight-week moving average of the 10-year interest rate swaps, which are published by the Federal Reserve in statistical release H.15. You can find statistical release H.15 at www.federalreserve.gov/releases/h15/data.htm.
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.
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.