Ask The Experts: Money Matters

By Mike Miles

MetLife

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Q. My mother’s plan was purchased by MetLife. She wants to make a withdrawal but is told she can’t, or she needs a higher monthly payment. It’s only $300 due to a paperwork mistake, but she was told she could only submit this one time this year. Is there anything to do?

A. If she bought an annuity, her monthly payments from that annuity are fixed for life. If she has a balance left in her Thrift Savings Plan account, she has the option of terminating her monthly payments with a final, lump-sum distribution of the remaining balance in her account, which she can roll over to an IRA, which will allow her to withdraw money as she likes.

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TSP

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Q. I’m unsure of what to do with my Thrift Savings Plan account. I understand that I could leave it in the account as it is until I’m 70½. I can also make a full or partial withdrawal.  Full withdrawal is not an option for me. A TSP life annuity (both single or joint life) option is based on life expectancy or until the money runs out. Also there is the TSP annuity vendor (MetLife) where I could get the annuity but money used to purchase this annuity goes to the insurance company if you die before it’s used up.

I’m thinking of purchasing a fixed index annuity with my TSP. This fixed index annuity guarantees that I will receive at least the minimum guaranteed interest (3 percent to 7 percent) credited to the contract. Taxes are deferred until you receive money from the contract. I can choose from several different payout options based on personal needs, including option for lifetime income, guaranteed. I’m wondering what to do with my TSP. I don’t need the money right away. I don’t want to lose money when the market falls. I would like to make as much as possible.

A. 1. Your assumptions about the options available to you are incorrect. You need to review the information available at www.tsp.gov more carefully or seek guidance.

2. You don’t need the money now, so why would you consider converting it to income now? Don’t.

3. You don’t want to lose money but want to make as much as possible. The only investment option that meets both of these requirements is the G Fund. Use it.

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TSP vs. variable annuity

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Q. I am 63 years old and will be retiring under CSRS in January. I have about $150,000 in my Thrift Savings Plan account. I have talked with a financial adviser who told me it would be better to buy from outside and cheaper than MetLife annuity. The annuity is from Prudential and has a living benefit rider. They claim it is the cheapest one out there. Can you give me any advice as to which annuity would be best?

A. Your “financial adviser” is not an adviser but a salesperson. Don’t be foolish. Now is not the time to buy a fixed annuity if you can avoid it. The payout rates are the lowest they’ve been in generations and that living benefit rider is an expensive insurance policy that is unlikely to pay off. Keep your money in your TSP account until you find someone trustworthy to advise you.

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MetLife fees

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Q. What are the MetLife annual and/or one-time fees charged after annuity is purchased?

A. The only fee is the initial cost of the annuity, which depends upon your age, the annuity you purchase and the interest rate index at the time of the purchase.

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Life insurance

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Q. I am retiring in the near future and I want to take my Thrift Savings Plan balance which is approximately $175,000 to $180,000 and purchase an annuity from MetLife. My concern is if MetLife were to fold. I think my state (Massachusetts) will insure me up to $100,000 in that event. I believe that is per insurance company. So would it be wise to split that total ($175,000-$180,000) and purchase an annuity from two different companies, so as not to exceed the 100,000 limit?

A. I’m not confirming your statements about the limits of protection in a particular state, but in general, dividing the purchase up among two or more guarantors will reduce the risk of default posed by a single guarantor.

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Invest in TSP or buy an annuity?

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Q. I am retiring under FERS in a few months, and am looking for recommendations on how to best invest my Thrift Savings Plan dollars. I believe my options are to buy a MetLife annuity, leave the funds in my TSP account until I turn 71 years old (I am now 60), or roll the TSP dollars into an IRA or other type of investment account. I have approximately $350,000 and will receive my FERS retirement and eventually Social Security. Do you have any recommendations to roll the dollars into an investment account that I could occasionally draw from and that could draw interest, and could you identify pitfalls relative to rolling TSP to an investment account? I know that I will be required to pay taxes on my withdrawals.

A. I recommend that you leave your money in the TSP for as long as possible. It’s the best investment environment there is. Rolling your balance into an outside investment account will burden you with higher fees, greater risk, lower expected rates of return and the loss of access to the G Fund.

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Limits on MetLife annuities

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Q. How many annuities can I purchase from MetLife with my Thrift Savings Plan funds?

A. As far as I know: One through the TSP’s program and as many as you’d like through MetLife’s retail operation.

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TSP MetLife annuity protection

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Q. Is an annuity purchased with Thrift Savings Plan funds from MetLife federally insured/guaranteed the way bank accounts have FDIC? Or is a MetLife guaranteed annuity not really guaranteed at all, in case even a huge company like MetLife fails?

A. A TSP annuity is guaranteed by MetLife, not by the federal government.

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TSP annuity options for Postal Service early-out

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Q. I will be taking the early-out offered by the Postal Service. I am a 54-year-old CSRS employee of 35 years. I have a Thrift Savings Plan account. Please give your opinion on the best option such as taking the MetLife annuity, joint with spouse, level or increasing, cash refund compared with simply leaving the money in TSP and getting monthly payments either by specific amounts or increasing by life expectancy. I don’t quite understand the difference in the two options.

A. There is no “best” choice. Using your money buy an immediate annuity guarantees income for life. You give up control of the principal and risk losing buying power to inflation in exchange for the guarantee, however. Alternately, you may retain control of the principal, manage it for your benefit and withdraw money as you need it. One of the withdrawal options available is a series of monthly payments — either as a fixed dollar amount, or a varying dollar amount that is adjusted each year, automatically, based on your life expectancy. With this method, the previous year’s ending account balance is divided by your remaining life expectancy to determine the new year’s payment amount. If you want to know more, you should read the material available at www.tsp.gov.

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Merging TSP and MetLife

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Q. I have a Thrift Savings Plan account, and I have a retirement annuity with a company other than MetLife from previous employment. Can the two be merged into the MetLife program, or do I have to take my TSP account to the other annuity when I retire?

Am I correct in assuming that if I place my TSP either way, there will not be a tax penalty, since it will be put directly into an annuity?

A. Merging the two is probably not possible. You can either continue your TSP account, use the money to buy a TSP annuity from MetLife, or roll the money out and use it to buy an annuity from an outside insurance company. If you do it right, there should be no tax consequence from the rollover to an annuity purchase.

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