Why You Shouldn’t Purchase a Life Annuity Through TSP’s Outside Vendors
Losing Control Over Savings
When you purchase a life annuity through TSP’s outside vendors, you essentially give up control over your savings. This means you can’t make investment decisions or change the course of your savings based on your personal financial goals or market conditions.
Earning Little to No Interest
Such annuities often have lower interest rates compared to other financial products. This can result in your savings not keeping up with inflation, leading to a decrease in the purchasing power of your money over time.
No Death Benefit
Many of these annuities do not offer a death benefit. This means if you pass away, your beneficiaries may not receive any remaining funds from your annuity.
Lack of Liquidity
These annuities usually have little to no liquidity. This makes it difficult to access your money in case of an emergency without incurring substantial penalties.
Alternative: Deferred Annuity with Guaranteed Lifetime Withdrawal Benefit (GLWB)
Instead of a life annuity through TSP’s outside vendors, consider a deferred annuity with a GLWB. Here’s why:
- Guaranteed Income for Life: It offers a steady income stream for the rest of your life.
- Control Over Your Money: You maintain control over your savings and can make changes based on your financial needs.
- Earning Interest: These annuities can earn interest, potentially increasing your savings over time.
- Some Liquidity: They often provide some level of liquidity, allowing you to access a portion of your funds if needed.
- Lump-Sum Death Benefit: In the event of your passing, a lump sum may be paid to your beneficiaries, ensuring your savings are passed on.
Choosing the right annuity is crucial for your financial security. While life annuities through TSP’s outside vendors have limitations, a deferred annuity with a GLWB offers a balance of lifetime income, control, interest earnings, liquidity, and a death benefit. By understanding these differences, you can make a more informed decision that aligns with your retirement goals.
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