Q. I recently received my “FERS Your Personal Benefits Statement Based on your Account as of January 01, 2012.” It states, “As of December 31, 2011, your TSP account balance was $130,841.13. It goes on to say, “Assuming you continue TSP contributions [$877 per pay period] at the same rate and earnings on your account average 7% [Wow. How unrealistic is this!], your estimated TSP balance when you are first eligible to retire would be $158,107.” My current TSP balance is $137,000. It gives estimated Thrift Savings Plan monthly annuities as follows:
If you retire at age 64, your single life annuity would be $868.06;
If you retire at age 65, your single life annuity would be $1,130.12.
The statement also mentions an interest rate index on the level payment annuity, with no cash refund, when purchased, will be 2.250 percent.
What does the interest rate index represent? Does this mean the yearly level payments would increase by 2.250 percent?
Given today’s low interest rates, what, realistically, would my annuities be at age 64 and age 65?
A. The annuity interest rate does not have anything to do with increasing payments. A level payment is just that: level. It doesn’t change over time. The index is used to determine the payment amount that your annuity purchase will produce. A higher index means a bigger payment. Annuity interest rates are currently hovering at or near historic lows. Buying an annuity today means locking in low interest rates for life. I’d say that the odds favor higher interest rates and higher annuity payout rates in the future.