Page 83 - The Informed Fed--Hearn (edited 10.29.20)

needed to receive the 5% match. Don’t miss out on free money, it’s
probably the only free money you will ever receive in your lifetime! When
taking the funds out you need to seek the highest return with little or no
risk.
During your separation and retirement process, Shared Services will
offer you two options for distributing funds out of your TSP account.
First, you can cash it out and pay the total amount owed in taxes in one
year. Depending upon the TSP value, this can put you into a higher tax
bracket and further reduce any gains. High taxes and lump sum can
negatively affect your retirement income.
The second option they can offer you is to sell your TSP. They don’t
call it that. They call it an annuity, but the reality of the second choice is
to sell your accumulated TSP funds in exchange for a monthly income.
The federal annuity will pay a lifetime income of approximately $600
each month for every $100,000 in your TSP. To a retiring employee faced
with a significant reduction in income, and compared to Option 1, the
extra dollars from the annuity may look attractive. However, read the
fine print because this can be a very costly decision. In effect, you lose
all rights to the principle; your payments are locked in with only cost-of-
living increases. There is no death benefit. You may choose a reduced
monthly payment and select a survivor option, however, there is no
guarantee the total payout will match or exceed your beginning balance,
and all payments stop with the death of the recipients. There is no
inheritance to pass on to family members, and no final expense fund.
There is no provision to access a larger portion of the money should
funds be needed for nursing home care, terminal illness or other life
events. The federal annuity essentially pays out interest in the form of
monthly payments and keeps all the principle. What’s my
recommendation? Do not choose this option!
There is a third option available. As with all employer sponsored
plans, the TSP funds can be rolled over to your own IRA. There are

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