To Annuity or Not

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    TSP Paul,


    First of all, thanks for the great insights and information you provide! I’m following your allocation recommendation with a slight twist that is! 90/10% in Funds S/C.

    My question – assuming retiring at 62 y/o, with a TSP balance of ~$500K, receiving military retired pension of $40K/year, assuming excellent health, I’m a FERS employee and will also have another $1800-2400/monthly on SS benefits — what should I do with my TSP? go with an Annuity? or keep my $$ in the TSP and manage myself? The more I read about annuities the more I want to stay away from these products.

    TS Paul

    I am still far enough away from retirement that I have not really spent any time studying the pros and cons of annuities as compared to remaining in the Thrift Savings Plan.

    That said, my strong sense is that I will stay in the TSP. Annuities are convenient and predictable, but the companies offering them aren’t doing it for free. Unless something goes horribly wrong, I’m not going to be in a position where I need to be worried about exactly how much money is coming in each month or be content to leave nothing behind when I am gone. My focus will be on maximizing a trust to ensure the security of the family I leave behind.

    The TSP Allocation Guide


    Thanks, I’m inclined in following the non-annuity route myself. I still have at least another five years before retirement and at this very moment I can’t justify the cost for the convenience and predictibility provided by an annuity. Yeah, I know there’s no free lunch in investing but having more control of my nest egg is more important to me. Thanks again!



    I recommend steering clear of annuities. In my research, there are better investment options in nearly all situations compared to every type of annuity platform. When used as vehicles for retirement income, fixed annuities will often be outpaced by inflation and variable annuities will come at high expenses. In the former situation, all you’ve really done is hindered your chances to grow your principle. In the latter, you’ve squandered all your growth away to the broker. There are really only two situations where I would even consider an annuity.

    The first is if you’re very young, have an income which places you in the top earnings bracket, and have come into a large some of money (e.g. inheritence). Assuming you’re maxing out you’re other retirement options (IRA, 401k, etc.), an annuity may be a reasonable option to consider stashing that money, allowing it to grow tax-deferred, then use it as retirement income assuming you’ve fallen several tax-brackets once you’ve retired. This situation is not common, and it still cane be served just as good (or better) using other investments.

    The second, is if you’re older, “semi-retired” and extremely wealthy with substantial assets and are looking for the last bit of space under a tax-shelter to cram some money. Again, this situation is not too common and like above, still may not be the best option.

    An annuity is meant to be an insurance policy, not an investment. Even at that, it’s sorta like the reverse mortgage of life insurance policies. Definitely not an ideal option for most, especially if you want your nest egg to some day be passed on to your beneficiary.

    My advice is to keep your money in the TSP for as long as possible, given it essentially costs nothing to operate. When you do make the decision to liquidate and rollover, put it into a Roth IRA. You can even do this in small annual allotments as to keep your income tax bracket low in retirement. If current laws remain, then all of the money (both principle and growth) in the Roth IRA will be passed on to your beneficiaries tax free who are likely younger and in a higher tax bracket.

    As it stands now, even in retirement, the best place for your money to end up is in a Roth account.


    A financial advisor recently offered me an option of “equity annuity” for my mother who is in low 80’s and is about to cash out her business with a couple of millions. The annuity payment is more than sufficient if she has to check into an assisted living situation. (Her health is at 5 out of 10) One of my friends who has an ailing father suggested that I consult with an “Elderly Care” lawyer for health insurance implications. Any of you geniuses (or experience) out there have any advice on this matter? Thank you in advance.




    Your friend who recommended consulting an attorney is providing good advice. An option to that is a financial advisor who specializes in late term retirement planning or assisted care situations. there are a number of contract variations and financial issues that can arise and these are further affected by State regulations. your situation may be vastly different than many experiences you may be inundated with under the guise of good advice.


    Does she have nursing home insurance? It is expensive, especially the older you get, but it may give you a little pease of mind. It sounds like she has the means to cover any medical issues.

    I recommend that you talk to several financial advisors at different companies and ask them what services they provide, how they would invest the money or if there are other options available that would be beneficial for her specific situation. Your friends advice is good but I would check out several if possible and get references before selecting one. Good luck!

    Steve M

    As a government employee with a FERS retirement and SS, you essentially have your annuity. With interest rates historically low, even if you were inclined to purchase an annuity, now would be about the worst possible time to do so in decades. On a related note, be careful with taking advise from financial advisors that do not understand the FERS retirement system. They may recommend higher investments in bonds or purchases of annuities which you may not need. Your FERS retirement annuity is essentially equivalent to or even better than a diversified bond portfolio. A government employee over the course of a career can lean much more towards equities and take on greater risk for greater rewards because you have a steady stream in retirement that is almost guaranteed unlike many non feds. I am not suggesting there is not a time, purpose and place for annuities or bonds for that matter, but you have a “backloaded” retirement as a fed and your retirement annuity over the course of an average 20 year retirement is worth more than $1M considering the future value of money! Best, Steve M.


    I just joined site so this may be late. I just went through most of what your talking about with my own mother who had worked hard along with my Father to obtain substantial assists. My Father died and when about two years ago I saw my Mother was showing signs of Dementia/Alzheimer, confirmed by a specialist in New York City, I had her sign power of attorney over to me and a sister. We hired a elderly care attorney who put all her assists into a “corporation” to protect them. Through the corporation we pay for her care a nursing home now. My mom was smart, she had LT coverage for nursing home, as well as a good pension and delayed SS, so between the 3 incomes she has most of the cost of nursing home is paid. The elderly care attorney explained how it all works and I highly recommend at least sitting down with one.

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