I was just cleaning out some files, and I came across my husband’s 2013 Thrift Savings Plan (TSP) statement. This year’s statement has a box that I’d never noticed before: an estimate of your monthly income if you turn your current TSP balance into a lifetime annuity. I think this new information is very helpful, but it was also a little disappointing.
My husband has been contributing to TSP for nearly 20 years. At the beginning, his contributions were pretty small. However, we’ve kicked it up a notch as retirement comes closer and closer. His account balance at the end of 2013 was just under $150,000, which feel pretty impressive.
Despite what looks like a reasonably large account balance, that only equals $787 per month if converted into a lifetime annuity. $787 per month is a lot of money as a supplement to other sources of retirement income, but it isn’t going to pay for your whole retirement. This annuity estimate assumes that you start taking payments at age 62 and you select your annuity based upon one life (not a joint annuity, providing income to both your spouse and you.)
I find that looking at retirement savings a source of monthly income provides more helpful information than just looking at the account balance. There are, of course, other choices for withdrawing TSP contributions once you’ve hit retirement age: you can take a full withdrawal, you can take monthly payments, you can take a partial withdrawal and leave the remaining balance to grow, and you can make a personal mix of the available options.
I still believe that TSP is a fabulous tool for retirement savings. There are just 10 simple funds from which to choose, but they meet the needs of nearly every investor. The costs are well below any other retirement plan available. And contributions are made directly from your pay, meaning that you never see that money in your bank account, and you can contribute tax-exempt income earned in combat zone tax exemption areas. Taking advantage of TSP is one of the smartest financial moves you can make while serving in the military, but the opportunity to contribute ends when you are no longer employed by the federal government. Don’t let this great chance slip by, and keep those contributions up to build the largest possible income stream.