Retirement savings. Which plan to go with

[RDB]

I’m now are 70 and my Thrift Savings Plan (TSP) requires that I start making withdrawals.

I’m trying to decide which of these two ways to go for drawing down our account. Afraid it will run out too soon, at a time when we will need it most. Cost of living is not kind.

1) Keep our TSP account balance of $37,000 in the G fund and draw monthly payments till we both die. TSP keeps any remainder. I may draw as little as $228 monthly to stretch it out for years. The TSP has never been below 4% interest rate and is as secure as our government.

2) Roll it into a joint annuity with 100% Survivor benefit and Cash Refund to beneficiary. By this, we draw monthly payments till we both die and any remainder is paid to our children. Might also draw $228 monthly. The annuity interest rate runs the gamete as our economy. Sounds great in theory, but no security that I can see. Could lose it all in a few years at the rate we’re seeing now.


Our life expectancy is another 20 years. I’ll be 71 and spouse 67 this Spring.


Any advice?

Robert

 

[mecllap]

My understanding has been that if you buy an annuity, you lose control over it (and I thought it prevented any "remainder" going to a beneficiary -- but maybe there's a new option now since last I checked). The NARFE magazine generally reports that most fed retirees take monthly payments, and you can pretty much set the amount you want that to be and figure out how long it will last at that amount (and if there's any remaining at death, it goes to your beneficiary). I think I'm going to do a partial withdrawal and then do the rest in monthly payments (which I think is just a one-time option). If you don't currently belong to NARFE, you might want to join for a year or two to follow their discussions about the TSP (I'm assuming you're ex-fed, since you are asking about TSP and the G fund).

 

[ricoba]

I am no expert, but in today's market one needs to proceed with caution, whatever you choose to do.

Here is a good article about the pros and cons of annuities.

 

[gary01]

Robert, if you keep your funds in the TSP and you die, the remaining funds do not go to TSP; they go to your beneficiary per your instructions. Those are your funds. If you haven't named a beneficiary, the funds would go to your estate to be distributed.

On the other hand, if you elect a joint annuity with 100% survivorship and you both die, any remaining funds will go to the annuity provider. Those are their funds. I'd also be very surprised if any annuity provider would let you name your children as beneficiaries. I would also be very surprised if you would be able to draw $228 per month for life with a survivor annuity. It would probably be much less than $228 per month. Check this out thoroughly before investing in an annuity.

Good luck.

 

[RDB]

...
On the other hand, if you elect a joint annuity with 100% survivorship and you both die, any remaining funds will go to the annuity provider. Those are their funds. I'd also be very surprised if any annuity provider would let you name your children as beneficiaries. I would also be very surprised if you would be able to draw $228 per month for life with a survivor annuity. It would probably be much less than $228 per month. Check this out thoroughly before investing in an annuity.

Good luck.

Gary, I appreciate you hanging in there.

These are exerps from what I read:
----------------------------------------------------

YOUR ANNUITY ESTIMATE is based on the following information:

You chose: Annuity Option 3c (Joint Life Annuity With Spouse, Level Payments, Cash Refund, 100% to Survivor)

You estimated your TSP account balance at: $37,000 When you are age: 70 Your spouse or joint annuitant will be age: 67

Your estimated monthly annuity payments are: $224 based on an annuity interest rate index of: 4.250%

Based on your election of a 100% survivor annuity, when either you or your joint annuitant dies, the monthly payments to the survivor would be the same as payments you are receiving at the time of death.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
There are two additional annuity features: the cash refund feature and the 10 - year certain feature.
If you choose one of these features, certain amounts will be paid to the beneficiary that you name if you (and your joint annuitant, if applicable) die
before the amounts have been paid out.

When you choose one of these features, your monthly payments will be less than they would have been if you had not chosen one of them.

Cash Refund. If you (and your joint annuitant, if applicable) die before an amount equal to the balance used to purchase your annuity has been paid
out, the difference between the balance used to purchase your annuity and the sum of the monthly payments already made will be paid to your beneficiary in a lump sum.
-------------------------------------------------

I figure by the 14th year we will have drawn down the $37000 that was used to buy the annuity. If we die sooner, there should be some for the benefaciary.

Robert

 

[Aussiedog]

Robert, if you keep your funds in the TSP and you die, the remaining funds do not go to TSP; they go to your beneficiary per your instructions. Those are your funds. If you haven't named a beneficiary, the funds would go to your estate to be distributed.

On the other hand, if you elect a joint annuity with 100% survivorship and you both die, any remaining funds will go to the annuity provider. Those are their funds. I'd also be very surprised if any annuity provider would let you name your children as beneficiaries. I would also be very surprised if you would be able to draw $228 per month for life with a survivor annuity. It would probably be much less than $228 per month. Check this out thoroughly before investing in an annuity.

Good luck.

Folks in the financial planning world expect that annuities will experience a resurgence in popularity after this stock market debacle and recession/depression, as people try and create retirement income streams that mimic the convenience and simplicity of the old-fashioned pension.

While you do have to be very careful with any investment like this, guaranteed immediate annuities such as what you are being offered tend to be a better value in terms of fees. Also, some of the newer features such as the cash refund provide some comfort for folks who are concerned that they will die before they receive payments equal to their contribution.

AARP may also be a good source of information for you. And if you want to compare the quote from the annuity you are being offered to others in the market you can check with AARP or a very popular website - www.immediateannuities.com

Good luck!

Ann (No I do not sell annuities or insurance! I am a fee-only Certified Financial Planner)

 

[mecllap]

One thing I have forgotten is whether there is any difference is how the two payments options are taxed -- is there any benefit for you in having the annuity for taxes, vs the monthly payments direct from TSP (which I believe are taxed -- perhaps by both Federal and State?). That might also affect your decision.

And there could be reasons you would want to have larger monthly payments for a shorter amount of time, which you could do with the non-annuity option (like while you're healthy and able enough to enjoy fun vacations -- my plan!).

The annuity option seems to favor people who really expect to live a really long time.

 

[RDB]

Whether we stay with a TSP account or have the TSP buy an annuity for us, we are at the mercy of manipulations by ‘experts’ messing with our money.
The present annuity vendor is Metropolitan Life Insurance Company (MetLife).
For some reason, from reading all sorts of paperwork, I get the gut feeling “I don’t trust the Annuity choice.” … just another hand in the cookie jar.

Either way our money will be taxed as we take our monthly withdrawal. I do not see an advantage one way or the other.

Our TSP is all G funds now, but I can change it around somewhat if I want to gamble in other funds. Once I elect an annuity, it is a locked deal.

I realize the feds can dip into the G funds, as they are up to doing now. But then both of my retirements are government controlled. If our government goes broke, God help us all.

I agree with your thinking on taking more than required while we are able to spend it. Should long-term nursing care be needed, I’m sure our funds would get taken for that.

Anyone see good reason to not go with keeping the TSP and drawing $300 out monthly? Is it not safer?

 

[Charlie D.]

Robert,

I think your best move for savings is the TSP. I will finish withdrawing the last of my TSP nest egg next year. The big advantage is the ability to change the monthly withdrawal on an annual basis. $300 a month may be fine for next year but if you end up needing more per month in a subsequent year you can do that. If you have any monthly bills with an interest rate much over the 4-5% TSP will pay you on the G fund, consider withdrawing the TSP and paying the principal down on them. The interest saved would be a much bigger bang for the buck than the interest earned.

Charlie D.

 

[bogey21]

This may not apply to OP but when I retired a special early retirement window was set up so that 12 employees loyal to me would leave when I did. 11 of them took decent sized lump sums. Because of a divorce issue I had to take a joint and survivor annuity. Only one of those who took lump sums still has most of it left. The other 10 have lost between 50% and 75% of theirs due to investments going South. Having had to take the annuity has been a God send for me.

George

 

[RDB]

Thanks all.

Today I filed to start monthly withdawals from TSP... no annuity. I too like the idea of changing the amount as our needs require.

Deterants for pulling too much; I realize we will pay taxes on the draw. I want some left to draw interest for a few years. At least I can adjust the amount to try keeping us just within the 10% bracket.

I hope the feds keep their mits off the assets in the G Funds.