When you purchase a life annuity from the TSP, you are purchasing what is known as a “single premium immediate annuity” from MetLife. Image: FS11/Shutterstock.com
By: John GrobeThe minutes of the July 26, 2023, meeting of the Federal Retirement Thrift Investment Board mentioned that James Courtney, the Director of the Office of Participant Experience, “stated that the Agency is about to begin the process to re-compete its annuity provider contract, and the Agency will investigate ways to make annuities more attractive to participants.” That’s a tall order because annuities are the least popular withdrawal option offered by the Thrift Savings Plan.
The annuity contract was last competed about four years ago and, if anything, came out of the re-compete less attractive than it went into it. MetLife, who has held the annuity contract for as long as I can remember, was victorious in the re-compete.
Let’s take a look at how the TSP Life Annuity works.
When you purchase a life annuity from the TSP, you are purchasing what is known as a “single premium immediate annuity” from MetLife. You can use all or part of your account balance to purchase the annuity.
The amount of your monthly annuity payment is determined by a formula and payments will last exactly as long as you (or the joint annuitant) live, no longer. There might be an amount refunded to a beneficiary if you had elected a cash refund feature and died before you had received your purchase price back in annuity payments. Single life annuities also offer what is called a ten-year certain feature in which, if you haven’t received payments for ten years before your death, your beneficiary will receive payments for the remainder of that period.
Here are the things that determine the size of your monthly annuity payment:
– The amount from your TSP that you use to purchase the annuity. The more that you spend, the higher your monthly annuity payment will be.
– The annuity options that you select. Annuity options will be covered in a future article, but it’s fair to say that the more options you select, the lower the monthly annuity payment will be.
– Your age (and the age of any joint annuitant) at the time you purchase the annuity. While it’s true that neither you nor MetLife know exactly how long you will live, it is clear that if you purchase a TSP life annuity at age 62, rather than at age 58, no matter how long you live, you will have received payments for four fewer years.
– The interest rate index in effect at the time you purchase the annuity. The rate, which is based on a moving average of 10-year U. S. Treasury bonds, can change as frequently as monthly. You can find the current interest rate on the TSP website. The current (September 2023) rate is 4.450%, and it has been as low as 1.209% back in January of 2020.
It’ll likely be a while before we see what the results of the re-competing of the contract will be, but I’m inclined to bet that, when all is said and done, annuities will remain the least popular withdrawal option.
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.
Key Bills Advancing, but No Path to Avoid Shutdown Apparent
TSP Adds Detail to Upcoming Roth Conversion Feature
White House to Issue Rules on RIF, Disciplinary Policy Changes
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
