TSP Annuity By Bill Hoff
Thrift saving plan annuity by Bill Hoff, which is also known as TSP Annuity, does not only serve federal and uniformed employees through its policy, but it also presents annuities for the policyholder. Two types of annuities lie under the thrift saving plan. These types are single-life annuity and joint-life annuity.
Introduction
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So, before going deeper into the details of the thrift saving plan annuity, it is necessary to make all your concepts clear about the annuity. An annuity is a deal that is brokered between the policyholder and the company. The policyholder deposits fixed premiums on the fixed date of every month, and this accumulated wealth is given back to the annuitant at the end of the annuity term and is given with the added money that they get from the interest on their money during the annuity period. Moreover, an annuity can also serve you during your service after your annuitization phase gets a start. In this article, we will discuss the working of thrift saving plan annuity, as well as all its types, advantages and disadvantages.
Types of the thrift saving plan Annuity
As we have already seen, there are two types of thrift saving plan annuity. Below each type of annuity is discussed one by one.
Single life Annuity:
An annuity provides you the best option to make your future secure after your retirement. However, if you are a federal employee or uniformed personnel, the best option for you appears to be in the form of a thrift saving plan, which is something extraordinary. An annuity can serve you all your life and in your service. In every annuity, there is an annuitant who is usually called a beneficiary. In a single life annuity, the annuitant is the beneficiary, and no other person can take their place without the proper procedure. The annuity remains active until the annuity holder dies.
Joint Life Annuity:
A joint-life annuity is an intricate concept that must be understood. As we know, an annuity is an agreement between the annuitant and the company. At the time of the signing of the deal, the annuitant has to choose the beneficiary, who can also be called the joint annuitant. As the annuity provides you with monthly benefits, the joint annuitant also benefits from the annuity. In this case, the joint annuitant must be your wife, ex-wife or a person who relies on you in their financial matters. In short, there should be a blood relation available to appoint a joint annuitant. A joint life annuity facilitates you by providing you the option of having a monthly amount even if the main annuity holder dies. The joint annuitant will keep on receiving the amount at the same pace.
The annuitant has to select the amount of the monthly payment and can choose either a 100 percent annuity or a 50 percent annuity.
In the case of the 100 percent survivor annuity:
If the annuitant decides that 100 percent of the amount should be paid to the savior, whether the main annuitant or the joint annuitant dies. As per Bill Hoff the monthly amount of the annuity remains the same, even with the death of any one of them.
In the case of the 50 percent survivor annuity:
Whether you want to have a 50 percent of the monthly payment in case one of the annuitants dies is pre-decided. For example, if an annuitant and joint annuitant collectively receive $1,000 per month with the 50 percent survivor annuity, this amount will be reduced by half when one of the annuitants dies. So, after the death, the company will only pay $500 to the annuity holder.
Point to note:
In case you are not buying the annuity in the name of your wife as a joint annuitant, or you want to buy the annuity for a person ten years younger than you as a joint annuitant, you must choose the option of a joint-life annuity with 50 percent survivor benefit. With this said, you might find the solution to the problem you are facing right now.
Available payment options for this annuity
This is again a crucial point that must be kept in mind while making a deal with the company. Once you have chosen the policy, the next step is to choose the payment. There are two options available for payment: level payment and increasing payment. Discuss these two terms thoroughly to understand them better.
Level Payments:
If you choose this type of payment, you lose the chances of growth in the monthly payments that you receive from the company. If you receive $500 in the first year of your policy in the remaining years of your life, you will keep on receiving the same amount. In short, it can be said that there is no growth rate at this level of payment.
Increasing payments:
Increasing payments are dynamic and can grow over time. In this type of payment, the amount keeps on changing, and this change comes on the date of every year you bought this annuity. The increase in the amount depends upon the rate of inflation, which is measured by the consumer price index (CPI). However, this increment in payment may not exceed 3% of the original amount in any case. Whatever the circumstances of the customer price index, the maximum increase can be 3%.
Moreover, if you are confused about your choice, you should choose the increasing payment. It might be the case that you receive a smaller amount than level payment at the initial stages, but later on you keep on receiving a handsome amount. So, your focus must be to have long-term benefits rather than a timely advantage.
If you choose your spouse to be your joint annuitant, only then you can choose the option of increasing payment. If you choose someone else other than your spouse, you cannot choose increasing payment.
Available options for beneficiaries in the thrift saving plan annuity
According to Bill Hoff, These two features do not exist in any other financial support plan. Here you have two additional options to serve the beneficiary (or beneficiaries) to whom you selected in the thrift saving plan. However, taking these options will reduce your monthly payment. So, there are the following benefits that can be inflicted on the beneficiaries.
Cash Refund option beneficiaries:
This is a highly laudable feature of the TSP annuity plan. If the annuitant dies after completing the amount that they had to pay for the annuity they bought, the remaining amount of the annuitant will be paid to the beneficiary (beneficiaries) in the form of the total money. This fantastic feature can be adopted if you buy a joint life or single life annuity with the increasing or level payments.
Ten-Year Certain option for beneficiaries:
This is an incredible option and facility that is provided by the thrift saving plan annuity. In this facility, if the policyholder dies earlier than ten years after having done with the premium amounts of the annuity, the interest added value will be given to the beneficiary (beneficiaries) of the annuity holder. However, if the annuity holder enjoys the term of ten years after the completion of premiums of annuity, the remaining amount will not be given to the beneficiary (beneficiaries) of the annuity holder.
You can have this option if you choose a single-life annuity with level or increasing payments. If you select the joint annuity, you will not be able to take the benefit of this option.
Taxes in Thrift Saving Plan Annuities
Taxes remain one of the biggest problems for people, but this problem can be tackled if we consider the provisions of the TSP annuities. Your investment will be tax-deferred if you choose the conventional option, which is referred to as non-Roth. In this case, the investment remains tax-deferred unless you withdraw your money. On the other hand, in the case of Roth balance, you keep on paying your tax as you make an investment, and at the end of the term, you need not pay extra tax.
Most of the people go with the non-Roth option and pay their tax at the end of the term.
Calculation of Thrift Saving Plan Annuity
When it comes to choosing the annuity, the first question that comes to mind is about the money that you get at the end of the annuity. Therefore, for this purpose, most people would like to know the exact criterion that is applied to calculate the annuity. So, the criterion has been briefly explained below:
- The prime factor is the amount that you spend on buying the annuity. In short, the worth of your annuity.
- The age of the policyholder and their life expectancy play a vital role in determining the annuity.
- The factors like a single, joint annuity and increasing payments affect the value of the annuity significantly.
- The most crucial factor is the annuity rate, which is fixed to the figure of 2.625%. This rate applies to all the annuities bought after October 2014.
Advantage of Thrift Saving Plan Annuity
The real cause behind the popularity of this plan is its advantages. Keeping in view these advantages, some people prefer adopting TSP annuity. Here are some of the primary benefits of TSP:
- Lifetime incomes are assured.
- In case of a high-interest rate, you can gain a handsome amount from what you invested.
- You may easily abide by your principles by allowing the increase in payments.
Disadvantages of Thrift Saving Plan Annuity
Here are some disadvantages associated with the TSP annuity:
- There is no way back, and once you buy the annuity and finalize the deal, there will be no option of stepping back and avoiding annuity payments.
- Your beneficiaries may remain empty-handed, or the money they possess may be meager.
- The money that has been placed under the annuity cannot be used. This is a binding clause of the agreement, which is signed between the annuitant and the annuity provider. So, there is no way of stepping in the shoe of the company in this regard.
- If the interest rate index becomes low, this will be the rate that you receive for your life annuity.
Final Words
Most people find expert opinion when it comes to buying an annuity. But these opinions are not written, keeping in view the problems of all people. It might be that one person perceives something good for their financial carrier, but another person rejects that scheme as it does not encompass its issues. So, before buying the annuity, you must analyze the situation you are facing at that time and try to consult a professional financial consultant to help you make a better choice.
