TRANSCRIPT:
Jim: I'm Jim Ragan with United Benefits. In this video we're gonna be talking about the TSP and what your options are gonna be at retirement.
The five primary goals of your TSP: number one is income replacement. Income replacement means that you're going to be using the TSP as a source to replace your income. Now, one thing we look at with income replacement is the 70% rule. The National Retirement Institute says that if you can get to 70% income replacement percentage, then you can afford to retire.
Next, protection of principal. We obviously want our funds protected. Next, growth potential. Accessibility to funds. And beneficiary protection.
Now, what options do you have inside the TSP after you retire? So what we're gonna do is go through the withdrawal options that you have available inside the TSP and we're gonna end up with an option that the union brings in for you. And then we'll do a little comparison.
So the first option you have in the TSP is a single payment. So you can actually get a single payment from the TSP and withdraw the full balance. Next is TSP monthly payments. So you can actually set up monthly payments with the TSP that you can change once a year. You can annuitize. The annuitization is done through MetLife and it does provide a lifetime income. You can actually leave your funds in the TSP, but at age 70 and a half, if you are no longer with the agency, you'll have to start making your RMD, that's your Required Minimum Distribution. And then your last option would be transfer or rollover.
Now this is an option that the union brings in for you through United Benefits. Now what we're gonna do now is look at a comparison of how the rollover option compares to the option inside the TSP. If you look at this chart, you'll notice a couple of things. To the left, you have a TSP level income option and you have a TSP increasing income option. These are the lifetime income options inside the TSP.
A couple of things that stand out here: one will be the account value. Did you know that if you did one of these options inside the TSP, that essentially you can no longer access your funds? So your balance is essentially zero. Now let's compare that to the option that the union brings in through United Benefits. The first thing here you'll notice is, as opposed to the other options to the left, you actually have an account value. So you have access to your funds at any time. So three years into it, if you want to reach and grab, you can access your funds.
The other thing I would note is that it is an increasing income option. So if you compare it to the level income option to the far left, which is a fixed income for the rest of your life, the IRA income is going to increase with the market. As the market goes up, your income's gonna go up as well.
Now another thing to look at, go down to year 13. If you'll notice to the right, your balance could potentially be zero but the income is guaranteed for life. So the income is going to continue with increases even though your balance is zero. Now why is this important? Well it goes back to the income replacement percentage. We have to account for longevity and this accounts for longevity. We also have to account for long-term investment risk. Since this is a protected account, this satisfies that requirement as well. It is not subject to market risk. And I'm gonna show you how that works.
If you look at this chart, this breaks it down. It covers both the fixed, which is say for example like the fixed annuity inside the TSP, or the increasing income inside the TSP. The red is the variable, so in other words, what that's gonna do is that's gonna grow with the market, but it does have risk. And then the green is the fixed index option, which is what we're talking about here. The IRA rollover option that the union brings in for you through United Benefits.
So let's compare what's gonna happen in a typical market environment going forward. In year one, if you notice, the red is going to be the highest return, because you're taking on the most risk. The green is the union option. And then the blue would be just the increasing income option through the TSP. And that is capped at three percent a year.
So as you can see, if you take the most risk, you're gonna get the most return. But we're just lagging behind just a little bit, but you're gonna see that here's where the benefits come into play. When the market corrects, like we saw in 2008, had you been in the risk position, then you'd have gone down. If you look at the rollover option, basically it will flat line in a down market. That's a good thing. And then the next year, when the market comes back, you get to capture those gains as well. So you can see, in this chart, that United Benefits can offer you some long-term options that can also outperform the TSP and limit your risk.
Who qualifies for this option? Anyone 59 and a half or older. Anyone retired. Anyone retiring in the next year. Or anyone or their spouse with an existing 401k, IRA, or lump sum over 20,000.
If you would like to get some more information about these rollover options, see our other videos or contact United Benefits.
United Benefits has assisted thousands of federal employees on several impactful topics. We can help you, too. Ask us anything!
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