Note: An immediate annuity is one of the options in the TSP program. Image: Photon photo/Shutterstock.com
With people living longer and, in many cases, retiring earlier, a retirement fund might have to last for many decades. There’s a chance that you might run out of money, or at least run dangerously low, during an extended retirement.
If that’s a concern, one possible answer is to buy an immediate annuity, which can pay you a lifetime income, no matter how long you live. For a married couple, an immediate annuity can last as long as either spouse is still alive.
Many people think an “annuity” is a deferred annuity. In this type of annuity, you pay premiums and let any earnings build up, untaxed. Eventually, you can tap a deferred annuity and pay the tax.
Instead of a deferred annuity, you can buy an immediate annuity. With an immediate annuity, there is no investment buildup. You give a sizable lump-sum to a financial institution and you get a stream of cash flow, starting right away. This is one of the options in the TSP program.
When you buy an immediate annuity outside of a tax-deferred retirement account, your payments will be partly taxable and partly untaxed. The financial firm will calculate how much of each payment is a tax-free return of your investment and issue a report you can use to pay the tax.
askFW: Types of TSP Withdrawals
Backers of WEP, GPO Repeal Bill Hope to Force Vote in House
CSRS and FERS – Why They Exist, Why They Differ
Contractor for New TSP System Owns Up to Missteps
Exceptions to the 10 Percent Early Withdrawal Penalty
What Happens to Your Retirement Application
What Your Retirement Statement Tells You
Your FERS Annuity is Worth More Than You Think
Thanks to a Pension, Feds Are Doing Better than Most in Retirement Preparedness
Retiring from a Federal Job – Getting Started
askFW: Calculating a Federal Annuity – FERS and CSRS
askFW: Federal Annuity Calculation for LEOs and Firefighters