Buy annuity with TSP money?


Q. I retired (at age 72) from the Department of Labor on Jan. 31. I have $368,000 in my Thrift Savings Plan invested — 40 percent G fund; 20 percent C fund; 20 percent I Fund; and 20 percent S Fund. The combined interest yield for 2013 was $85,000 (a 12 percent gain). I was thinking about drawing out $5,000 a month for 10 years and depleting the fund.

If I take a monthly deductions, I computed the interest earned for a 10-year period at 10 percent. This will expand the fund each year until it is paid out in about 11 years. While looking at other options with Met-Life, I noticed that I could combine this with any annuity that would pay out for the rest of my life.

I was thinking of buying an annuity with part of the money — say $50,000 to $100,000 — and leaving the rest in the TSP at the current risk factors (40/20/20/20)
My questions are:
1) Is this possible?
2) Does the annuity also pay an interest dividend?
3) What would be left in the TSP to be paid out monthly?
4) Will my wife be able to draw on this plan after I die?
5) Will my children be able to inherit what is left in the find?
6) How would I set this plan up?

A. You may use part of your TSP account to purchase an immediate life annuity and retain and manage the rest for as long as you live. An immediate annuity does not pay interest. You pay a premium for an insurance policy that guarantees a specific stream of income payments for life. Your TSP account would be left with any money not used to purchase the annuity, which is a contract between you and the insurance company. The TSP will have nothing more to do with the money once it is used to buy an annuity. Your spouse will be entitled to any survivor benefit purchased with the annuity if she survives you, and she will be left with whatever is left in your TSP account when you die, if she is a named beneficiary for the account, of if not other beneficiary is named. You may designate anyone you like as a beneficiary of your TSP account. To set this up, you request a partial withdrawal of TSP funds to purchase the annuity (use Form TSP-77 or TSP-70) and make sure that your TSP beneficiary designation is up to date (Form TSP-3).

Using your money to purchase an immediate annuity is an irreversible decision that deserves careful analysis and consideration. Similarly, managing your money for reliable income is a complex and important exercise that should not be taken lightly. A single mistake can lead to failure. Your expectation that your TSP account will produce 10 percent interest over 10 years is completely unrealistic and could be such a mistake.


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Mike Miles is a Certified Financial Planner licensee and principal adviser for Variplan LLC, an independent fiduciary in Vienna, Virginia. Email your financial questions to and view his blog at

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