My father is retiring now from many years of civil service in his mid 60's, and deciding whether to take the sum in his TSP as an annuity. TSP is Thrift Savings Plan, a government only retirement savings account. He will have a pension and social security as income, but the TSP money will be a necessary supplement to his income. The TSP plan allows him to take withdrawals as a lump sum into an IRA or as an annuity underwritten by Metlife. He's thinking of going with the annuity for a couple of reasons:
- He's used to spending a monthly income and likes the discipline of that enforced spending limit
- He is healthier than most folks his age and projects a longer than average lifespan
- The TSP annuities may be a better deal than what can be obtained on the open market (they are only available to government employees in the TSP plan).
As an early retiree myself, annuities are anathema, but maybe they could make some sense for conventional retirees like him. I took a look at the TSP annuity calculator at:
TSP Annuity Calculator, Introduction 08-05-2004
and it does seem to return some decent numbers... it looks like a COLA'd annuity would pay him about 6.5% of the original balance each year, and a non-COLA'd annuity would pay about 8.5% per year.
My initial advice was to wait a few years to make the decision... I think he has until age 70.5 to make the decision, so I suggested waiting until he's settled into his retirement situation to pull the trigger, but I must say it does look somewhat attractive.
Anyone else looked into TSP annuities?
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