If you’re thinking of getting monthly income from your TSP, you need to ask yourself if you want to have payments that increase as you age, or that stay at the same level. Image: Seregam/Shutterstock.com
By: John GrobeRecent statements mailed to Thrift Savings Plan participants included what was billed as a “lifetime income illustration”. This illustration had eight footnotes after it, most of which would lead one to believe that the example was overly optimistic. The most damning footnote stated that “…the estimated monthly payments in this statement do not increase each year with inflation with a cost-of-living adjustment. Therefore, as prices increase over time, the fixed monthly payments will buy fewer goods and services.”
In an example for a 74-year-old with a 12/31/2023 TSP balance of $269,972.73, a single life annuity would pay $2,193.34 per month, and a joint annuity that offered a 100% survivor benefit would pay $1,794.58 per month. However, over a fifteen-to-twenty-year retirement, the purchasing power would diminish quite a bit.
If one wants to have their TSP payment increase each year, there are a couple of ways to calculate a benefit that will keep pace with inflation (or at least try to do so). Electing installment payments based on the IRS life expectancy table, would begin payments at $823 a month and increase them based on increasing age and the varying year-end balance of the TSP account.
Using the 4% rule monthly payments would begin at $900 a month and increase based on inflation each year. The “4% rule” suggests that you withdraw 4% of your account in the first year of taking distributions and increase that amount by the rate of inflation each year.
Another thing to consider is that either of the above two options holds out the possibility that there will be money left for your heirs in your TSP account while, if you opt for the annuity (the option described in the “income illustration”) and live to your life expectancy, there will be no money left for beneficiaries.
If you’re thinking of getting monthly income from your TSP, you need to ask yourself if you want to have payments that increase as you age, or that stay at the same level. This requires assessing your spending levels as you progress through retirement, as well as anticipating the rate of inflation during that time. Choose wisely.
Did you know that, once you are the age where you must be taking required minimum distributions (RMDs), you must take your RMD before you can roll any money out of your TSP (or IRA for that matter)? You cannot roll over an RMD.
John Grobe, President of Federal Career Experts, is an expert in the area of federal employee retirement and benefits. This expertise comes from his 26 year federal career in which he managed the retirement program in a 3,500-employee office of a large federal agency.
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