TSP

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Have you received a message from the Thrift Savings Plan with a “Lifetime Income Illustration”?  Some participants have, including my wife who still has a TSP account.  I moved out of the TSP in the days prior to the TSP Modernization Act because of the thrift Plan’s extremely restrictive withdrawal choices.  I would still be in the TSP if they hadn’t dragged their feet in coming into the 21st century.

How do you illustrate lifetime income from a plan like the TSP where, unless you withdraw your contributions to purchase a life annuity from MetLife, there are no guarantees?  The answer is that you provide an example where the participant does indeed withdraw all their contributions and purchase a specific type of life annuity from MetLife.

The example that was provided in the income illustration assumed that the entire 2022 year-end balance was withdrawn and used to purchase an annuity on 12/31/2022 based on the situation (i.e., age of participant, interest rate index, etc.) in effect on that date.  Oddly enough, this illustration was not transmitted to my wife until February 7, 2023, so the assumptions made in the projection were no longer true.  The assumptions were for a single life annuity and a joint-life annuity with a 100% survivor benefit.  The survivor benefit assumes that the “hypothetical spouse” (that’s me) was the same age.

The dollar amounts in the illustration are greater than the payments she is receiving now for several reasons.  What she is currently receiving are monthly installment payments based on the IRS life expectancy table.  Among the reasons for the difference are:

· The annuities are stagnant and do not increase with the cost of living, while payments based on the IRS life expectancy table will increase based on (hopefully) higher account balances and decreasing life expectancy.

· The annuities given as examples do not have any type of cash refund feature.  If the annuity purchaser were to die early in the term of the annuity, MetLife would keep the money.  On the other hand, if the person was receiving installment payments and died early, the balance in their account would go to their designated beneficiary.

· The TSP Life Annuity is an irrevocable choice.  Even if your situation were to change drastically, you would be unable to change the terms of the annuity.

What is the least popular TSP withdrawal choice?  Annuities – that’s what!  Why is the Thrift Board tacitly endorsing annuities by sending out these lifetime income illustrations?  Your guess is as good as mine.

Did you know that 20% of the retirement applications received by the Office of Personnel Management require additional development?  This is per a late 2022 report from OPM.  Make sure that your retirement paperwork is fully completed before it is submitted.  Take advantage of the knowledge of the retirement specialists in your agency.

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