Converting TSP Money Into Annuities

An annuity is one of several choices for withdrawals from a Thrift Savings Plan (TSP)—payments can be given in lump sums, monthly, or a combination of both. Only a tiny fraction of TSP withdrawals are annuity purchases.

But, before you discard it, learn about its features. For one reason, the TSP’s annuity benefits are more customizable than FERS or CSRS.

The TSP provides three primary forms of annuities:

• Single life annuity – an annuity paid solely to you during your lifetime.

• Joint life with spouse – an annuity given to you and your spouse while you’re both alive. When one spouse dies, the surviving spouse will get an annuity for the rest of their life.

• Joint life with someone that’s not your spouse – an annuity paid to you while you and a person of your choosing (but not your spouse) remain alive. This individual must have a vested interest in you. When one of you dies, the survivor will get an annuity for the rest of their life. Individuals deemed to have an insurable interest in you are the following: a previous spouse, blood relatives or adopted relatives who are closer than first cousins, and an individual with whom you’re living in a relationship that constitutes a common law marriage in countries that allow common-law marriages.

Joint life annuities can offer a 100% or a 50% survivor benefit. That implies that if one of you dies, your monthly payments will either continue in full (100%) or be reduced by half (50%) to you or your joint annuitant.

The basic annuity types can be paired with various annuity features, including growing payouts, cash refunds, and a 10-year guaranteed payout. The monthly payment amount increases by 2% every year with rising payments. Suppose you (or your partner annuitant) die before receiving payments equal to the account balance used to purchase the annuity. In that case, your designated beneficiary will get a cash return equal to the difference between the total of the payments and the annuity purchase value. If you die within ten years of the commencement of your annuity with a 10-year certain payout, your beneficiary receives payments for the remaining of the 10-year term.

Not all features can be coupled with every type of basic annuity. Also, once an annuity is purchased, the money is transferred to a private company. That company, rather than the TSP, provides the benefit.

The calculator at www.tsp.gov allows you to see how a certain amount might translate into income under various scenarios.

If you’re a married participant with an account balance greater than $3,500, the spouses’ rights criteria will apply to your withdrawal option. If you’re a married FERS participant, unless your spouse waives their right to that annuity, they have the right to a joint and survivor annuity with a 50% survivor benefit, level payments, and no cash return feature. If you’re a married CSRS participant, your withdrawal election must be communicated to your spouse by the TSP.

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After entering the financial services industry in 1994, it was a desire to guide people towards their financial independence that drove Aaron to start Steele Capital Management in 2013. Armed with an extensive background in financial planning and commercial banking coupled with a sincere passion for helping people, Aaron has the expertise and affinity for serving the unique needs of those in transition. Clients benefit from his objective financial solutions and education aligned solely with
helping them pursue the most comfortable financial life possible.

Born in Olympia, Washington, Aaron spent much of his childhood in Denver, Colorado. An area outside of Phoenix, Arizona, known as the East Valley, occupies a special place in Aaron’s heart. It is where he graduated from Arizona State University with a Bachelor of Science degree in Business Administration, started a family, and advanced his professional career.

Having now returned to his hometown of Olympia, and with the days of coaching his sons football and baseball teams behind him, he now has time to pursue his civic passions. Aaron is proud to serve on the Board of Regents Leadership for Thurston County as the Secretary and Treasurer for the Morningside area. His past affiliations include the West Olympia Rotary and has served on various committees for organizations throughout his community.

Aaron and his beautiful wife, Holly, a Registered Nurse, consider their greatest accomplishment having raised Thomas and Tate, their two intelligent and motivated sons. Their oldest son Tate is following in his father’s entrepreneurial footsteps and currently attends the Carson College of Business at Washington State University. Their beloved youngest son, Thomas, is a student at Olympia High School.

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With support from the American Academy of Benefit Planners – an organization with expertise and resources on the intricacies of government benefits – he helps clients close the gap between the cost of care and their income while protecting their assets from depletion.

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Disclosure:
Investment advisory services are offered through BWM Advisory, LLC (BWM). BWM is registered as an Investment Advisor located in Scottsdale, Arizona, and only conducts business in states where it is properly licensed, notice has been filed, or is excluded from notice filing requirements. This information is not a complete analysis of the topic(s) discussed, is general in nature, and is not personalized investment advice. Nothing in this article is intended to be investment advice. There are risks involved with investing which may include (but are not limited to) market fluctuations and possible loss of principal value. Carefully consider the risks and possible consequences involved prior to making any investment decision. You should consult a professional tax or investment advisor regarding tax and investment implications before taking any investment actions or implementing any investment strategies.