TSP Annuity Calculator: Why It’s Off the Table for Retiring Feds

As more federal employees near retirement, many wonder if converting their Thrift Savings Plan (TSP) into a lifetime annuity is the right path. Truth is, fewer than 1% of TSP participants actually choose this route. Despite the label “guaranteed income,” TSP annuities lock up your savings, limit flexibility, and often underperform other withdrawal methods. For those approaching retirement under FERS, CSRS, or within the military system, the far more popular course is to keep your TSP funds liquid and adaptable. Here’s why PlanWell, with over three decades advising federal employees, views TSP annuities unfavorably—and what we suggest considering instead.

What the TSP Annuity Really Entails

Under a federal contract, MetLife offers TSP participants an option to convert part or all of their balance into an annuity. On paper, it promises lifetime monthly payments. In practice, however, this approach is irrevocable—you hand over your entire lump sum and receive a locked-in payout that rarely adjusts sufficiently for inflation. TSP annuities also limit your capacity to leave a legacy or access your principal for emergencies. These strict conditions leave most federal workers wanting better ways to protect and grow their retirement savings.

Why PlanWell Advises Against a TSP Annuity

Our team of ChFEBC, CFP, and AIF professionals has seen firsthand how severely annuity holders are constrained. While pensions and Social Security deliver steady income that many retirees count on, funneling TSP dollars into a rigid product can create more problems than it solves:

Lack of Liquidity. If you need a sudden cash infusion—say, for a home repair or a loved one’s medical expenses—an annuity won’t let you tap into your principal. That money is tied up.

Minimal Inflation Adjustments. TSP annuities carry a cost-of-living adjustment capped at 2%. In higher-inflation environments, your income’s spending power erodes more quickly than you might expect.

Irrevocability and Rate Risk. You can’t terminate the annuity or reassign the lump sum if your circumstances change. If interest rates spike after you’ve locked in your payout, there’s no way to capture that upside, which can lead to frustration down the road.

Limited Legacy Potential. Standard TSP annuities typically don’t leave much for heirs, unless you opt for survivor benefits that come with significantly lower monthly payments.

Comparing TSP Annuities to Flexible Alternatives

Rather than forfeiting control with a TSP annuity, consider these alternatives. They preserve your assets for unexpected costs, maintain growth potential, and can be tailored to your unique situation.

Since pensions and Social Security already form a reliable paycheck for many federal retirees, there’s often little need to lock up TSP funds for yet another “guaranteed” stream. Instead, systematic withdrawals and IRAs let your money remain nimble. Even a bucket strategy—segmenting your retirement accounts into short-term, medium-term, and long-term vehicles—can supply liquidity for today’s needs alongside growth for tomorrow.

Build Your Plan with the Fed-Expert Financial Blueprint

Over our 30+ years in business, we’ve seen time and again how federal and military retirees thrive with solutions that keep their financial options open. At PlanWell, our proprietary Fed-Expert Financial Blueprint examines every facet of your retirement universe—from pension benefits and Social Security timing to TSP allocation decisions—and designs a roadmap where you call the shots.

We encourage you to explore these flexible strategies during one of our free Federal Retirement Planning Workshops. In these workshops, we dig into questions like:

• How can you maximize TSP withdrawals without sacrificing long-term stability?

• Is a rollover beneficial for your goals, and what investments make sense inside an IRA?

• How does your pension fit into a robust withdrawal plan?

Our mission is to help you retire with confidence, knowing you have a solid plan that’s flexible enough to handle life’s curveballs. And we do it using our team’s expertise—anchored by the rigorous ChFEBC credential, the CFP designation, and a thorough AIF perspective on fiduciary standards.

Final Thoughts

Don’t let the phrase “guaranteed income for life” steer you toward a TSP annuity that offers little flexibility or growth. While it’s natural to seek security in retirement, you likely have better ways to strike a balance between stability and control. Fewer than 1% of TSP participants even consider an annuity, and for good reason. Look instead to systematic withdrawals, rollovers, or a carefully designed bucket plan—the routes that let your wealth adapt to market shifts, handle unexpected costs, and benefit the loved ones you care about. If you want to ensure you’re not falling for hidden pitfalls, be sure to read our guide on avoiding common TSP misconceptions.

If you’d like a clear-eyed strategy for making the most of your TSP, we invite you to connect with our financial advisors for federal employees at PlanWell. When it comes to retirement income, we believe in preserving your options rather than locking them away. Our Fed-Expert Financial Blueprint was built with federal employees in mind. We look forward to helping you plan the retirement you deserve—without tying your hard-earned savings to a restrictive annuity.