TSP Annuity Calculator

The Big Question at the End of Your Career

You’ve done it. For decades, you diligently contributed to your Thrift Savings Plan. You weathered market storms, celebrated the bull runs, and watched your balance grow from a modest seedling into a formidable financial oak tree. Now, standing at the threshold of retirement, you face the most important question of all: how do you make this money last for the rest of your life? The TSP offers a few paths, but none is more permanent—or more debated—than the life annuity.

The concept is simple: you hand over a lump sum of your TSP money to an insurance company (the TSP’s current provider is MetLife), and in return, they promise to send you a check every single month for as long as you live. You trade your mountain of cash for a guaranteed river of income. For those who fear outliving their savings, this sounds like the ultimate peace of mind. But this security comes at a cost, and the decision to annuitize is irreversible. Let’s walk through what that really means.

What Are You Really Buying? Predictability.

In a world of volatile markets and economic uncertainty, an annuity is a promise of stability. It removes guesswork from your retirement income planning. You know, to the penny, how much money will hit your bank account each month.

The Core Trade-Off: Liquidity and Growth vs. a Guaranteed Paycheck

When you buy an annuity, you give up two things:

1. Control and Liquidity: That lump sum is no longer yours. You can’t take it out for a new car, a medical emergency, or a dream vacation. It belongs to the insurance company.
2. Potential for Growth: The money is no longer invested in the C, S, or I funds. It’s gone. You will miss out on all future market gains that money could have generated.

Decoding the Options: A Tour of Your Choices

The TSP doesn’t offer a one-size-fits-all annuity. You have several dials you can turn to customize your income stream, but each choice involves a trade-off, typically between a higher initial payment and more features or protection.

Single vs. Joint Life: Protecting Your Spouse

This is the biggest decision. A single life annuity covers only you. It provides the highest possible monthly payment, but those payments stop the day you die. If you have a spouse who depends on your income, this can be a risky choice.

A joint life annuity provides a lower initial payment, but it continues to pay out as long as either you or your spouse is alive. You can further choose a survivor benefit of 100% (your spouse gets the same payment after you’re gone) or 50% (they get half). The 100% option provides more security for your spouse, but results in an even lower payment while you are both alive. Our calculator’s bar chart is designed to make this trade-off crystal clear.

Level vs. Increasing Payments: Fighting Inflation

A level payment is simple: the amount you get in your first month is the same amount you’ll get 20 years from now. The problem? Inflation. A $2,000 payment today won’t buy nearly as much in the future.

An increasing payment option starts you with a smaller check, but it grows each year by a percentage tied to inflation. This helps protect your purchasing power over the long haul, but means less income in the early, often more active, years of retirement.

Think of the annuity choice like this: every feature you add (survivor benefits, inflation protection) is a form of insurance. And like any insurance, it has a premium, which you pay in the form of a lower initial monthly payment.

The Big “What If”: What if I Die Early?

This is the classic fear about annuities. What if you hand over $500,000 and get hit by a bus a year later? In a basic single life annuity, the insurance company keeps the rest of the money. To mitigate this, the TSP offers a “cash refund” feature.

With a cash refund feature, if you (and your spouse, in a joint annuity) die before receiving payments that equal your initial lump sum, the difference is paid out to your beneficiary. This feature provides another layer of insurance, and you guessed it, it further reduces your starting monthly payment.

So, Who Should Consider a TSP Annuity?

An annuity isn’t for everyone, but it can be a powerful tool for the right person. It might be a good fit if:

• You prioritize a guaranteed income floor above all else. You want to know that your basic living expenses (mortgage, utilities, food) are covered, no matter what the stock market does.
• You are risk-averse and get stressed by market fluctuations. An annuity can remove that mental burden.
• You don’t have other sources of guaranteed income, like a strong pension.
• You are in good health and have a family history of longevity. The longer you live, the more valuable the annuity becomes.

Conclusion: A Permanent Decision Deserves Careful Thought

Choosing to annuitize part of your TSP is one of the few irreversible decisions you’ll make in your financial life. You can’t change your mind. That’s why it’s so important to understand exactly what you’re gaining and what you’re giving up.

Use this calculator not just to see a number, but to understand the relationships between the choices. See how adding a survivor benefit impacts your monthly check. Compare that to the peace of mind it provides. Model the difference between level and increasing payments over 30 years. This isn’t just about finding the biggest number; it’s about building a retirement income stream that aligns with your personal needs, your risk tolerance, and your goals for the future you’ve worked so hard to build.