The TSP is an excellent savings vehicle while you are working and for FERS employees there is matching on up to 5% of your contributions. When you get closer to retirement however it is important to understand your options to ensure you and your family receive the full benefit of the TSP.
Most employees do not understand the role of the TSP in their retirement. The vast majority of employees go through the retirement process and ANNUITIZE their TSP because this is most common option you receive from Shared Services. Let’s look at some of the implications of a normal annuitization of your TSP through the Post Office.
What happens when you Annuitize?
First, when you annuitize you are giving up your cash in exchange for a monthly check. Once you make this decision you no longer have the cash. This can cause serious problems if a family emergency arises.
Second, your money no longer grows. When you annuitize your TSP an interest factor is added at the beginning and it never changes. Everyone knows we are in one of the lowest interest rate environments in 50 years. This means this is the worst possible time to sell your TSP balance to Met Life (the company that administers annuities for the government).
Lastly, the biggest problem with annuitizing your TSP is the most significant. When you annuitize your TSP you are disinheriting your heirs. Once you convert your TSP to monthly payments you are essentially turning your TSP into another pension. Think about your pension for a minute. The only two people that can be paid from your pension are the employee and spouse. When you annuitize your TSP you are guaranteeing your kids will never see a dollar. Shared Services does not explain these implications and as a result most employees make this catastrophic mistake.
What should you do?
Our goal in writing this article is to make sure you understand these implications. What should you do……. it depends. Each employee has specific situations and circumstances that must be evaluated before taking action with their TSP. Our belief is there is no “one size fits all” and each person should be counseled by an expert on their TSP options.
As soon as you turn 59.5 you need to understand your options with the TSP. We encourage all employees who have met or exceeded this age to contact us. There are a lot of factors that go into a decision such as this and you should understand EVERY option.
Postal Benefits Group has been serving thousands of Postal employees across the country through its retirement seminars, and their book THE POSTAL BOOK. If you have questions about your TSP and other options please feel free to contact us.
