This is the third article on the topic of TSP life annuities. The first article described what the TSP life annuity was and the second article discussed the options available to those who chose the life annuity as a form of withdrawal. This article will give some examples of how much one would receive from the TSP life annuity. In coming up with the figures below, I used the Retirement Income Calculator, which is available on the TSP website.
Now, this calculator isn’t the sharpest knife in the drawer, and doesn’t allow you to adjust the “annuity interest rate index” upon which the calculations are based. The calculator always uses the interest rate index that is in effect during the month you use it. Therefore, if you want to get a good estimate of how much you might be entitled to in a TSP life annuity, you’ll have to go to the calculator and enter your own numbers. I was able to come up with a few comparisons, because I have utilized the calculator in the past in preparing the coursebooks that are used in pre-retirement seminars used by my firm, Federal Career Experts.
The examples that are given below are for a 57 year old who spent $150,000 on a TSP annuity. They will use two separate interest rate indices. One is 2.375%, the rate that was in effect in February of 2017, while the other is 1.5%, the rate that was in effect in October of 2016.
We’ll first look at a single life annuity with the 2.375% interest rate index. If you chose level payments, you would receive $660 per month. If you chose increasing payments, your payments would begin at $414 per month, but would have reached $1,005 per month thirty years later.
What if you purchased a single life annuity back when the interest rate index was 1.5%? Level payments would have given you $566 per month. Increasing payments would have begun at $334 per month and would grow to $811 per month thirty years later.
Next are joint life annuities. In a joint life annuity with a spouse, you can choose a 100% or a 50% survivor annuity. In a joint life annuity with someone who has an insurable interest in your life, you cannot only elect a 100% survivor annuity if the joint annuitant is more than ten years younger than you. The examples that follow are for joint life with a spouse of the same age as you (57 in the example).
At the 2.375% interest rate index, the 100% survivor annuity would result in a monthly payment of $563 both before and after the death of one of the joint annuitants. A 50% survivor annuity would give you $661 per month while both you and your joint annuitant were alive, but that would drop to $331 per month after the death of the first joint annuitant.
If the interest rate index was 1.5%, the 100% survivor annuity would give a monthly payment of $470 both before and after the death of one of the joint annuitants. The 50% option would result in $568 per month while both you and your joint annuitant were alive, but that would drop to $284 per month after the death of the first joint annuitant.
For the example of a money back guarantee, I will use the largest of the initial calculations (i.e., at age 57) from above. That would be $661 per month at 2.375% and $568 at 1.5%. A cash refund feature would reduce the $661 to $649 and the $568 to $557.
I could only calculate the ten-year certain feature at the 2.375% rate; and it reduced a $660 monthly payment to $657.
A future article will compare potential annuity payouts with what you might receive taking monthly payments and managing them yourself.