Understanding TSP Annuities

Are you a U.S. federal employee with a Thrift Savings Plan (TSP)? 

As you approach retirement and consider how to sustain your lifestyle, using your TSP to purchase an annuity could make your retirement more secure for you and your loved ones. Today, we’ll guide you through the essentials of this option and help you determine whether it aligns with your retirement goals.

What is a TSP Annuity? 

TSP annuities are a retirement income option available to U.S. federal employees and military members with a Thrift Savings Plan (TSP). By using your accumulated TSP funds, you can purchase an annuity from a private insurance company. In return, the insurance company provides you with a consistent income stream for either a specific period or for the rest of your life, depending on the type of annuity selected. 

The key benefit of a TSP annuity is the potential for steady income during retirement, helping you navigate unpredictable market conditions. However, as with any financial decision, it’s essential to fully understand how a TSP annuity works before making a commitment. 

2 Types of TSP Annuities 

#1: Single Life Annuity

With a Single Life Annuity, you receive payments for the rest of your life. Once you pass away, payments stop, and no further benefits are provided to beneficiaries. 

#2: Joint Life Annuity 

A Joint Life Annuity allows you to designate a joint annuitant, such as a spouse, who will continue to receive payments after your death. Payments will continue for as long as the joint annuitant lives.

Add-On Options 

In addition to these two annuity types, you can choose from several add-on options to tailor your annuity to your needs: 

• Refund Option: Ensures that if you pass away before receiving payments equal to your total contributions, the remaining balance will go to your designated beneficiary. 

• 10-Year Certain Option: Guarantees payments for a minimum of 10 years. If you pass away within this period, the remaining payments will be made to your beneficiary until the 10-year term is complete. 

Keep in mind that add-on options often reduce the monthly payment amount, so it’s important to weigh the benefits carefully. 

Who Should Consider TSP Annuities? 

TSP annuities may be a good fit for federal employees or military members who want a steady income stream during retirement and are comfortable with locking in their TSP funds. They can be especially beneficial for individuals seeking lifetime financial security and who anticipate a long and healthy retirement. 

However, they may not be ideal for those who need immediate access to cash, are dealing with medical conditions that may shorten their retirement, or who prefer to invest their funds elsewhere for potentially higher growth. 

Next Steps 

Deciding whether a TSP annuity is right for you is an important step in your retirement planning. Working with a licensed Federal Retirement Consultant can help you navigate your options and determine the best path forward based on your unique needs and goals. 

Cathy DeWitt Dunn, a licensed Federal Retirement Consultant, specializes in helping federal employees and military members plan for retirement. Contact DeWitt & Dunn Financial Services today to explore your options and craft a retirement strategy that helps make your future more secure and rewarding.