Study shows that those who do not typically buy annuities actually stand to gain substantially from them. Image: Sergey Nivens/Shutterstock.com
By: FEDweek StaffWhile life expectancy figures largely in assessing “longevity risk” of retirees—the risk of outliving one’s money—a closer look at those figures underscores the value of having annuities, says a study by the Center for Retirement Research at Boston College.
The study notes that average life expectancy in the general population for someone age 50 has risen, to age 84.6 in 2019 from 80.7 in 1971 (although there have been indications that longevity fell somewhat due to the Coronavirus pandemic). However, it says, beyond those raw figures are “lifespan variations” around the average—in statistical terms, the “standard deviation.”
“The variation of lifespan is an essential component of mortality patterns and has important welfare and economic implications. Lifespan variation represents the uncertainty regarding age at death faced by individuals and is precisely why sources of lifetime income, such as annuities, are valuable,” it says.
Lifespan variation has increased only somewhat over the last five decades, it said, although even that minor increase boosts the value of annuities and could be a factor in an individual’s decision whether to purchase an annuity with some of their retirement savings.
“Overall, this study provides further evidence that those who do not typically buy annuities actually stand to gain substantially from them and these gains have been persistent over time,” it says.
What about the TSP annuity option?
When you decide to withdraw your account balance after separation, you can have the TSP provide it to you in lump-sum payments, as an annuity, as a series of installment payments based either on life expectancy or on a set dollar amount, or a combination.
Here are the annuity choices that the TSP makes available to you:
- a single life annuity;
- a joint life annuity with your spouse; or
- a joint life annuity with someone other than your spouse.
For someone other than your current spouse to be eligible for a joint life annuity, that person must have an “insurable interest” in you. The TSP assumes that the following kinds of people would meet that requirement:
- your former spouse;
- blood relatives or adopted relatives who are closer than first cousins; and
- a person who is living with you in a relationship that would constitute a common-law marriage in those jurisdictions that recognize common-law marriages.
Still, few choose the TSP annuity option. Many wind up rolling over their funds into a brokerage / IRA / 401k to have more investment options. Still, others simply leave it alone, enjoying low fees and content with taking required minimum distributions. (The RMD age is 73 for individuals who turned 72 in 2023 or later. The first RMD can be taken by December 31 of the year you turn 73, or by April 1 of the following year.)
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See also,
Legal: How to Challenge a Federal Reduction in Force (RIF) in 2025
The Best Ages for Federal Employees to Retire
Alternative Federal Retirement Options; With Chart
Primer: Early out, buyout, reduction in force (RIF)
Retention Standing, ‘Bump and Retreat’ and More: Report Outlines RIF Process
