An annuity is just one of the available TSP withdrawal elections and in practice is the least-used. However, before you decide to pass on this option, consider how the ability to tailor one could benefit you.
The TSP offers three basic types of annuities:
• Single life—an annuity paid only to you only during your lifetime.
• Joint life with spouse—an annuity paid to you while you and your spouse are alive. When either of you dies, an annuity will be paid to the survivor for his or her life.
• Joint life with someone other than your spouse—an annuity paid to you while you and a person chosen by you (but other than your spouse) are alive. This person must have an insurable interest in you. When either of you dies, an annuity will be paid to the survivor for his or her life. The following persons are presumed to have an insurable interest in you: a former spouse, blood relatives or adopted relatives who are closer than first cousins, and a person with whom you are living in a relationship that would constitute a common-law marriage in those jurisdictions that recognize common-law marriages.
Joint life annuities may provide either a 100 percent or 50 percent survivor benefit. This means that monthly payments will continue in the same amount (100 percent) or be reduced by half (50 percent) to you or to your joint annuitant when either one of you dies.
Several annuity features can be combined with the basic annuity types. These are increasing payments, cash refund, and 10-year certain payout.
With increasing payments, the amount of the monthly payment may increase up to 3 percent each year, depending on the change in the consumer price index.
With a cash refund, if you (and your joint annuitant) die before receiving payments equal to the amount of the account balance used to purchase the annuity, your designated beneficiary will receive a cash refund of the difference between the sum of the payments and the annuity purchase balance.
With a 10-year certain payout, you receive annuity payments for as long as you live. However, if you die within 10 years of the start of your annuity, your beneficiary receives the payments for the remaining portion of the 10-year period.
The value of a TSP annuity depends on how much money you designate to it, your choice of options and, to a lesser extent, interest rates when you purchase it. There’s a helpful calculator at www.tsp.gov/calculators.