John Grobe, Federal Career Experts
The Federal Retirement Thrift Investment Board (FRTIB) recently awarded the contract to provide TSP Annuities to MetLife. This was no surprise, as MetLife has held the contract for as long as I can remember. What was surprising is that there were no major changes in the annuity offerings. The TSP Annuity remains much as it has been since its introduction.
The one change that was made makes the TSP Annuity an even less appetizing choice for retirees – and that was pretty hard to do. The change applies to the “increasing payment” option and changes the maximum annual payment increase from 3% down to 2%.
About a year ago, we asked FEDweek readers to send us their ideas for changes to the TSP annuity option; and we sent those suggestions to the FRTIB. Well, if anyone listened to the suggestions, they sure didn’t act on any of them. Those who want to annuitize all or part of their TSP will find more flexible options in outside annuities. Whether or not annuitizing your TSP is a good idea is another question altogether.
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 in the “loan and annuity rates” section of the TSP website.
Over the last several years, the interest rate has been as high as 3.125% (November 2018) and as low as 1.375% (September 2016). The current (February 2020) rate is 1.750%.
ask.FEDweek.com: Calculating a Federal Annuity – FERS and CSRS