By Mike Miles
April 29th, 2013 | Uncategorized
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.
November 13th, 2012 | Uncategorized
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.
November 7th, 2012 | Uncategorized
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.
September 24th, 2012 | Uncategorized
Q. I attended a seminar given by MetLife Financial people about Roth TSP, IRAs, etc., and was told that even if I am working at 70½ and not retired that I still have to make a withdrawal of my TSP percentage. However, in the booklet “Withdrawing Your TSP Account” on Page 3 under withdrawal deadlines, it states in the second sentence: “If you are still a Federal employee employed at 70½, your required withdrawal must be by April 1 of the year following the year you separate.”
I told the lady what our TSP booklet said, but she said it doesn’t matter what our book says; that it is the IRS that says we have to start withdrawal at 70½. I am 68 now and may work past 70½ if my health holds out, and I am asking so that I know who is correct: the TSP book, or the MetLife representative?
A. Hmmm. I wonder who’s more reliable — a financial industry salesperson or the TSP? The TSP booklet is correct.
August 20th, 2012 | Uncategorized
Q. On Oct. 10, 2009, you said that you could begin receiving fixed payments and switch to an annuity. On Nov. 8, 2010, you responded to a similar question with the opposite advice. I am trying to decide whether to take payments while hoping the providers’ rates improve or go to a fixed index annuity with another company.
Is the decision to take payments in the Thrift Savings Plan irreversible?
A. My Oct. 10, 2009, answer was incorrect. You may not end a series of automatic monthly payments with a TSP/MetLife annuity purchase. That option is only available when starting the monthly payments — that is, you may use part of your account to purchase an annuity and part for monthly payments.
If you want to end your monthly payments with an annuity purchase, you’ll have to roll the remaining TSP balance into an IRA and purchase an annuity from there.
Once you begin automatic monthly payments, they can only terminated with a final, full distribution of your TSP assets.
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 30th, 2012 | Uncategorized
Q. I have 25 years in civil service. I have a Thrift Savings Plan account and, once I retire, do I get an annuity automatically or do I have to use the money in the TSP account to get that? Should I buy an annuity or just take a monthly payment from the TSP account? Not sure if I will have enough to retire. I heard that in FERS, the government gives an annuity and then you get TSP. But when I go to the website to estimate how much I have in the TSP, I do not see the FERS annuity they talk about and see only one amount.
A. Reg Jones says: Assuming that you are eligible to retire, your FERS annuity would be calculated as follows: 0.01 x your highest three consecutive years of average salary (your high-3) x your years and full months of service. FERS employees can retire at their minimum retirement age with 30 years of service, 60 with 20 or 62 with five. They can also retire at their MRA with at least 10 but fewer than 30 years of service; however, if they do, their annuities will be reduced by 5 percent for every year they are under age 62.
Mike Miles says: You may use all or part of your TSP account funds to purchase an annuity from any source you choose. The TSP offers an annuity underwritten by MetLife, but you may also roll over TSP funds to an Individual Retirement Account and use those funds to buy an annuity from any insurer you choose.
August 23rd, 2011 | Uncategorized
Q. I have two questions on the Thrift Savings Plan MetLife annuity. On page 11, paragraph 1, under the heading, “How Your Annuity is Taxed,” in the TSP pamphlet, “Withdrawing your TSP Account After Leaving Federal Service” (June 2007), reads:
“… your TSP annuity payments will be taxed as ordinary income in the years when you receive them. However, these annuity payments are not subject to the IRS early withdrawal penalty, even if you are under age 55 when they begin.”
As both my wife and I are under 55 and are considering an early out/buyout that has just been offered, we want to understand all our options for our TSP accounts.
If there is no tax penalty, one option might include using some of the TSP to purchase a MetLife annuity to supplement our pension income stream. Can you confirm this is the case (the TSP representative on the hotline first said it would be subject to the Internal Revenue Service penalty, then when given the language from the pamphlet said “Maybe not, not sure, interesting question” (hardly reassuring). Or do you know what office at the IRS I could call to get an answer?
The other question is: Are the MetLife annuity payments considered income that would reduce either the TSP supplement (at age 56) or Social Security (whenever we choose to draw down)?
A. Payments from a TSP annuity are not subject to the early withdrawal penalty and are not considered earned income.
July 5th, 2011 | Uncategorized
Q: In a recent response, you recommended a reader not take out an annuity using Thrift Savings Plan funds. Do you consider these annuities unsafe? I am thinking of taking an annuity when I retire to guarantee an income (along with my regular annuity and Social Security). I’m not sure that I would get enough through taking a set amount each month, or that it would last for the rest of my life. What do you see as the problems with the MetLife annuity? Are there fees for administering the account?
A: Because it is an irreversible action, I generally recommend that you purchase an annuity only when it is clearly your best option. MetLife is a large and reputable company. My concern is that you might be locking in an income stream that will not keep pace with inflation and which provides no flexibility to accommodate changes in your needs. These are the risks you accept in exchange for the annuity’s guarantee.
May 24th, 2011 | Uncategorized
Q: Could you please explain the MetLife choice we have for our TSP after we retire? I am trying to decide what to do with my TSP. I am retiring July 1 from the U.s. Postal Service. I would like to know what is the benefit of keeping my money in the TSP until 70 1/2 (I am 55) and what is the benefit of the Met life? I know nothing about this MetLife. Is it an insurance policy? I was always told not to invest in whole life insurance. Where can I read about the met life. Please give any info about the benefits of both and any downside.
A: MetLife is an insurance company and they offer immediate, fixed annuity contracts to TSP participants. You can learn more about the TSP annuity program at www.tsp.gov. The advantage of an immediate, fixed annuity is that it guarantees a predetermined stream of income for life payments for life (or longer) in exchange for a premium payment. The disadvantage is that you give up control of the principal and commit to a fixed income stream for life (or longer) when you buy the annuity. If you’re not sure about what to do, you should consult someone trustworthy to advise you. Buying the annuity is an irreversible decision and should not be taken lightly. If in doubt, keep your money in the TSP.