Investing your TSP at retirement is one of the most important decisions you will ever make in your lifetime. You will have quite a few options available to you from selecting a “direct transfer” from the TSP to a “self-directed” qualified account such as an IRA. You can select the annuity option that is offered by the government that will provide a monthly benefit to you based upon the prevailing interest rates. This annuity is offered by MetLife. Others may choose to leave it in the TSP in one or more of the investment options within it. You might also consider taking a monthly withdrawal from the TSP to supplement your FERS or CSRS annuity.
Many of the FERS and CSRS employees I have worked with choose to do the direct transfer option into an IRA. Once the IRA is established they can then select from a wide variety of investments that were not available to them in their TSP program. Instead of being restricted to the 5 separate mutual funds and some target date funds in the TSP there are now thousands to choose from with premier money managers who have track records of superior investment performance relative to those found in the TSP. Exchange traded funds or (etf’s), which have characteristics similar to stocks in terms of liquidity, transparency and diversification have become very popular among retirees as well.
Annuities such as the fixed index annuity (FIA), has become a favorite option due to their design that enables the investor to participate in market gains as well as insulating them from market losses. The FIA market continues to evolve and insurance providers who manufacture these investments offer a wide variety of indices, participation rates, crediting methods and fee structures that require the investor to do their research. All FIA’s are not alike. In many cases its hard to compare them side by side unless you have a firm understanding of the insurance vernacular that is used to explain the various features and benefits. A “cap”, “spread” and “par rate” for instance, are just some of the terms used to detail what goes into the calculation that determines what the investor can expect from the performance of their chosen index. It can be very confusing to say the very least.
When I sit down with clients I will spend about two hours going through these investments and where they might fit into the portfolio of a government employee. They do have their place and when an advisor puts all of the pieces of their financial plan together they usually play a substantial part of the “safe money” portion of the plan.
Seeking the advice of an advisor that is a licensed “fiduciary” who is required by law to “act in the best interest” of their clients is a wise decision. Those advisors who carry the designation have the ability to offer their clients the widest variety of investment choices available in the financial industry. You should never limit the scope of your retirement investing options because your “agent” didn’t have the licenses to access the depth and breadth of the financial products and investment talent you deserve.
Your TSP, if invested prudently, should last a lifetime and provide you with the means to enjoy your retirement years spending time with family and doing all of the wonderful activities you had planned.