Better Ways to Turn Your TSP Into an Income for Life: Audio automatically transcribed by Sonix

Better Ways to Turn Your TSP Into an Income for Life: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.

Speaker1:
Welcome back once again to the Federal Retirement Show. I'm your host, Val Majewski, with American Benefits Exchange. And today we're talking about or adding on to our discussion about TSP. So if you saw our previous episode discussing about TSP, the do's and don'ts, we're going to focus on a particular area of TSP that we get asked a lot about. And it comes to how do I generate income from TSP? So as a FIRS employee, I'm going to assume that most listening are FERS employees because that's the bulk of those left in the government TSP. Your Thrift Savings Plan is one of the three main retirement income sources when it comes to your retirement, and most then want to rely on TSP to be that main income source. If we add up your pension and social security, they alone are not going to get you to your pre-retirement income and potentially not to the income you need to live on when you do retire. So utilizing TSP to the best of your ability and knowing all the options that are available is key so that you make the proper decision as you approach and when you are in retirement. So let's dive in. We're going to talk today about TSP rollovers for guaranteed income, guaranteed lifetime income. Now just to reference back to our previous discussion on TSP, you may be thinking what is a TSP rollover? What does that mean? Well, a rollover is the opportunity for you to separate your funds, your hard earned TSP funds from the control and management of TSP.

Speaker1:
You have the ability either while you're working or when you're separated from service, to take a portion or all of your TSP balance and move it into your own IRA or qualified account. Now, while you're working. In order to do so, you need to be at least 59 and one half or older, and you can do this at any point once separated from service. The idea of a TSP rollover and why a lot of federal employees choose this option is because they want to take ownership of their TSP funds. They want to make sure that, hey, this was a great opportunity for me to accumulate funds in my TSP. As I was working, I got the 5% match. If I'm a firs employee now, I want to take my money, put it into my own account, take ownership of it. There's also the ability now to take income for life from that new account without having to cash in your balance. And we're going to talk about this more today because that's the focus of our talk, is using your TSP rollover to generate a guaranteed lifetime income? What does that mean? Guaranteed lifetime income income that you cannot outlive just like your pension and Social Security, which should also be guaranteed lifetime payments. So this is now money again you can count on, you cannot outlive.

Speaker1:
It'll last for as long as you spend your time in retirement. Now, when we talk about TSP rollovers, there's usually two main reasons. It's not only these two, but it usually boils down to two main reasons why a federal employee would want to perform a TSP rollover or transfer. The first one is to guarantee protection of their principal, protection of their balance while still having the ability to grow their money. Now, let me back up on this just real quick. What does that mean? Well, by moving your money out, most folks are looking to take the risk out of their TSP as they're nearing retirement. They don't want to lose unnecessarily at the last minute if the market were to see a downturn. And they also still want to get growth. So they don't want to just take the money out and bury it in the backyard or hide it under their mattress. Federal employees want guaranteed protection, meaning they cannot lose any money, but still want the opportunity to earn an interest rate or a solid interest rate. That's a possibility. You can have that. With ATSB rollover or transfer now the second. The option that federal employees utilize when it comes to rollovers is saying, okay, well, I want to take my TSP funds and I want to turn them into another paycheck. I'm going to get my pension. I'm going to get my Social Security or the first supplement depending upon when you retire.

Speaker1:
And I want to turn those funds into another paycheck. I want to turn all of it or a portion of it into a lifetime income that will be there for the rest of my life. This is what we're going to focus on for today's discussion is utilizing a TSP rollover for guaranteed lifetime income and creating a third check for yourself. Now let me back up for a second, because in the absence of ATSB rollover, what if you kept your money in TSP and you wanted to get a lifetime income stream from TSP? There's only one way to do so. One option within TSP to get a guaranteed lifetime payment. And it's commonly referred to as the MetLife annuity. What is this? If you've never heard of it before, I'm going to describe it in as easy a terms as possible. Metlife is an insurance company, the same company that administers your program, and they're going to purchase for you what's known as a single premium immediate annuity, a spea spea. And in order to do that, you have to cash in your balance. So you make a deal with TSP, you give them your bag of money, they take that, and in return you will get a check or a payment for the rest of your life. Now, that may sound awesome, but you no longer have access or ownership or control or liquidity. To that bag of money that you gave him.

Speaker1:
You made a deal to back the money. You're going to get a check for the rest of your life once you make this decision. It is irrevocable. It is set in stone. You can't take it back. Now, there are various payout options that you can choose from, but most folks look at the maximum lifetime payment that's available from TSP. That's the one that is generally advertised or shown on your annual TSP statement. It will normally be on the right hand kind of blue column that you see in your annual statement. The biggest, boldest number on there. And that's what they will pay you for the rest of your life. And it looks very attractive. But all the details are not properly described. Now, once I describe this to federal employees, they're thinking, okay, well. What? Why? Is this a bad thing? Well, because. Number one, you lose ownership or control of your money. Number two, you no longer have any access to that money. And in the worst case scenario, let's say you gave them all of your money. You chose the maximum lifetime payment and something happened to you tomorrow. They keep the rest of the money. So may not be the best deal. And in my opinion, it's the second worst thing that you can do with your TSP funds other than taking them all out and putting your TSP funds directly into your checking your savings account.

Speaker1:
Why is that horrible? Because there's a huge tax liability that comes with that. But in my opinion, the MetLife annuity, taking that lifetime income from TSP is the second worst thing that you can do when it comes to your TSP distributions. Now, what if there were a better option? What if there are a better way? Get lifetime income from your hard earned TSP funds. There is. And again, this is, in my opinion, you can ask me as many questions or ask anybody on our team as many questions as you have regarding any of the options or things or suggestions or opinions that we provide on this show. But in my opinion, there is a better option. Now, how do we do that? Well, utilizing your TSP transfer or rollover and putting it into your own qualified IRA and the vehicle behind that is a fixed indexed annuity which is designed for lifetime income. Now, you may have heard the word annuity before, and there are various types of annuities that are out there. The favorite ones that I tend to go towards are fixed indexed annuities, and there are several different types. There are some that are designed for guaranteed protection with growth potential. But for this scenario, we'd be looking at one that is designed for guaranteed lifetime income. Now, how would this work? You would transfer a portion or all of your TSP funds into that type of account, and it would be designed again for income, for life without.

Speaker1:
It's a big point without having to cash in your balance. So as I mentioned with the TSP option, you have to cash in your balance for that lifetime check. You no longer have access, ownership or control. With these plans, you can get an income for life, an income that you cannot outlive while still remaining in control of your funds. You do not have to cash in your balance. I'll say that again. You can get an income for life without having to cash in your balance. So in that example, I said earlier, you had 100,000 and maybe you got only 20,000 of income so far and you couldn't go back to TSP and get access to the remaining 80,000. In this case, you could you can go back and get access to whatever funds are remaining because they are still your funds. You did not cash them in. Now understand that if you took additional funds out that it may reduce your payouts, but you have that option now it says guaranteed amounts. On the bullet points, let me explain what that is, because this is a really awesome feature when it comes to these plans. Let's say you are 59 and a half or older. You're working for the federal government and you're not planning on retiring until 65. And you say, Well, I'm eligible to move my money from TSP. I want to do a rollover or transfer.

Speaker1:
I know I want to use it for lifetime income once I retire, but I don't need the income right now. So why should I move that out? Well, the awesome thing about these plans is that there are guaranteed payouts that you will know from day one and you'll know what they will be at different points in time in the future. So let me describe an example. Let's say you you're 60 years old. You're eligible to move a portion or all of your money. And again, you're going to retire at age 65. And you said you have X amount of dollars that you want to put aside into this plan. And, you know you're not going to take income for five years until age 65. Well, the plan will tell you exactly, exactly guaranteed what your income payouts will be at different points in time. So if you retire at 62 instead of 65, you know what your income is going to be from day one. You know what your income is going to be at age 65. You know what your income is going to be at age 67. If you decide to wait longer, you can count on that guaranteed from day one. No matter what the market does, no matter what interest rates are given to the plan, the income amounts on these plan designs are guaranteed from day one. It gives you peace of mind and you can count on that and utilize that when calculating your retirement income and deciding when is most appropriate for you to retire.

Speaker1:
If you'd like to see kind of what a personal scenario would look like, then we'd be happy to run it and show you what all those amounts look like, and you'd have a schedule from day one again to know what those payouts would be so you can count on them. Pretty awesome stuff. Now, the last bullet point says remaining moneys passed, the beneficiaries. So if I go back to that MetLife annuity, the lifetime income within TSP, if you took the maximum payment option, the maximum payment option, which is what most people look at and that's what they see advertised on their annual TSP statement. If you take the maximum payment and again you died at any point. There is nothing passed on to anybody else. It is a single lifetime payment. That's it. Now, if you took a single maximum lifetime payment within your new plan after doing a rollover or transfer, any money that's remaining in your account at the time of your passing will pass on to your named beneficiary or beneficiaries. Obviously, if you were to live too long in retirement, let's say you had $100,000 in there and you lived 30, 40 years in retirement and you exhausted all of the money that you had in there because you lived really long in retirement and you collected a lot more money and income than you put into it.

Speaker1:
When you pass away, your account balance is technically zero and nothing would be passed on to anybody. But if you die too soon, whatever money is remaining in there would be passed on to your loved ones. This better option for your TSP rollover. If you decide to get a guaranteed lifetime income, or if you're in need of another guaranteed lifetime income on top of your pension. And Social Security is completely up to you to decide. But what we can do is take a look at your situation, analyze all the numbers, run a retirement income report, estimate your Social Security or the first supplement, and see what you can turn your TSP into when it comes to a guaranteed lifetime income. And you will know based on when you want to retire what that income is going to be, and you can count on it from day one. So the options are awesome. The plans are phenomenal when it comes to the guarantees that they provide, gives you that peace of mind so you can retire on your terms when you know that your retirement income is going to be right where you want it to be. So again, my name is Val Majewski. You've been watching the Federal Retirement Show. Appreciate you taking the time to sit with us and learn a little bit more about TSP rollovers for guaranteed lifetime income. And we look forward to seeing you on a future episode.

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