<p>I an a Civil Service retiree and also contributed to Thrift. I have reached the RMD stage and need to make some decisions about what to do. It seems that I can go with an annuity at 2% in March; take it all out and reinvest it elsewhere; or take it out on a monthly basis. It appears to be a forever decision. I’m kind of stuck on what to do. Advice would be appreciated</p>
<p>If you go with the annuity at 2%, I assume that lasts for your entire life but ceases when you die. If you anticipate your spouse outliving you, that might not be a good idea. This is a good choice if you are worried that the market might tank, because the 2% is guaranteed no matter what.</p>
<p>If you take it out on a monthly basis, you might outlive your money. Alternatively, if you die sooner than the money lasts, what happens to the remaining amount of funds? Does your spouse receive them, or are they gone forever?</p>
<p>If you take it out and reinvest it: What kind of return can you get? Are you a savvy enough investor to handle this and do better than the 2% annuity? One advantage of this approach is that if you die early, your family receives the funds. One disadvantage is that you might blow it all on a new boat, or you might not make it last long enough.</p>
<p>All that said, you should consult a certified financial advisor. There may be unique considerations for you and your family – e.g., a disabled child who might need assets for support after you’re gone. Random folks on the internet are not your best source of advice.</p>
<p>Thanks.</p>
<p>The Thrift is in addition to Civil Service. Both my wife and I have both. If I took the annuity I would have it set up so my wife would get 100% if I die before her. That of course would significantly reduce the monthly amount. Many of the insurance companies are offering higher fixed rates that TSP, but there is always the chance that they could go belly up. Our child is out and earning his own way.</p>
<p>It’s a hard decision.</p>
<p>I’m a federal retiree, too, although I’m FERS, not CSRS. I haven’t reached the RMD stage yet so I have some time to decide and maybe the interest rate on annuities will get better before that time. But I’m leaning towards rolling my TSP account into my IRA. That will allow me to have a lot more withdrawal options than what the TSP allows, as well as more investment options. On the other hand, I’d be exchanging the extremely low fees for Vanguard’s slightly higher ones.</p>
<p>You’re right, it is a hard decision.</p>
<p>2% is pretty low and doesn’t keep up with inflation over time. That is a huge concern actually. If you can find a better rate at one of the better insurance companies-Northwestern Mutual, Mass Mutual, NY Life, that will probably be a better option. Those companies are financially sound and while it’s not impossible they can go out of business, companies like Northwestern have been in business for over 150 years and have weathered much worse storms (we have our annuities, long term care and life insurance with NWM and have been very happy with them). If your health is good, getting some life insurance to cover the payment if you should die before your wife is a good way to max out both benefits–you get your 100% payment and if you die, your wife continues with the income off the life insurance proceeds. Is there a health insurance component? Often if you take a 75% payout you keep your health insurance coverage at employee rates for life. I know some federal plans are this way. If you have life insurance currently and your health is not good, you can probably convert that plan without medical questions when you retire.</p>
<p>It has been suggested to me that taking one time withdrawals in order to meet the RMD is the way to go. Doing the one-time doesn’t commit me to making any irrevocable decisions. Is that correct?</p>
<p>I would like to keep my money in TSP as long as possible because it is low cost, well-managed, and has the implied backing of the government.</p>
<p>It’s a hard question to answer without knowing your full financial picture-and obviously you don’t want to share that here :D. You have to weigh the pros and cons of moving it. Well managed and low cost are good, however, at a 2% return, that really isn’t great. If the costs are slightly higher elsewhere but a better rate of return nets you more money, why would you not move your funds? “Implied backing” really doesn’t mean much. I would rather have my funds backed up by a AAA company with enough cash reserves to pay my annuity for 100 years or more and has no corporate debt :D.</p>
<p>A lot of it comes down to taxes. If you have a RMD with your annuity and with your other investments, will that throw you into another tax bracket, effectively eliminating any funds you see from this annuity? If you roll it into your own annuity, you control the distribution. There are also some advantages with some annuities for paying for long term care and LTC insurance premiums that are worth considering as well. You can also get annuities that lock the value of your annuity so you don’t go backwards, ever. It also depends on what these funds are for. If this is your emergency fund and you don’t need the money month to month, you have some flexibility with ROR and investment options. If this is the fund that you will be using to pay your monthly expenses, you want something that is stable, keeps up or slightly exceeds inflation (which 2% does not) and is very safe.</p>
<p>Thank you Steve. TSP will be the gravy for us. We have very good CSRS pensions; state pensions beginning when we retire at the end of 2014; social security and other IRAs and savings bonds. No debt except mortgages and credit cards. The RMD is probably going to have tax consequences since it will be from TSP and another account. Putting it off until next year will make it even worse since I’ll have to take it twice times two. </p>
<p>Basically, I don’t want to have to make an irrevocable decision about TSP.</p>
<p>DH is also a Fed. We look at the pension and SS as the mainstays for cash flowing in, and intend to keep the TSP as liquid assets for things like property tax payments, major expenses, etc. It is our major asset and we are not inclined to let an insurance company profit off of it if something happens to us. </p>
<p>Personally, I’d do the RMD only if I can get away without taking more, and hold on to the rest for expenses down the road.</p>
<p>CountingDown–our annuity has a survivor benefit so our kids would get the balance so I’m not too worried about it and the 6% ROR we locked into is making me very happy…</p>
<p>I just talked TSP. The one-time withdrawal for RMD means one-time. After that I have to make a decision about withdrawing it all; the annuity; or monthly withdrawals. Monthly withdrawals seems like the best option to meet RMD and still maintain the TSP account.</p>
<p>The advice at the last retirement planning seminar I took about two years ago was not to bother with an annuity if you are CSRS - it was stated that the CSRS acts like an annuity itself. I agree that monthly withdrawals seems to be the smart strategy.</p>