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Carolyn M. Tobin, M.A.
Vincent J. Bono, JD
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Vincent J. Bono, J.D.

Video: The Little Known Truth About Your TSP Funds

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We created this web page and our Federal Retirement Online Calculator so that federal employees can better protect themselves, by learning about a risk free, IRS Approved Tax Qualified alternative to their TSP Funds.

What Is Your Federal Retirement Destiny

By Vincent J. Bono, J.D. Founder – Federal Employee Advocates

If you have ever attended one of our complimentary “TSP Allocation Guidance” Webinars, one of the topics we cover is alternatives to your TSP Funds. Basically, you have three TSP options when you leave federal service:

  1. Leave your money in the TSP and take withdrawals. This is risky because unless it is all in the G Fund you can lose money. At the time I wrote this article, the G Fund was yielding 1%, which means it would take over 72 years to double your money. It should also be noted that while the G Fund cannot lose money due to market conditions, you are losing a great deal of money because it does not come even close to keeping up with inflation. You are also losing the “time-value” of your money as you could be earning five times more than that G Fund 1% elsewhere.

2.  Swap out your TSP money for a guaranteed income. This is a MetLife “Single Premium Immediate Annuity” purchased by TSP  on your behalf. You heard it right, an annuity, nothing more and nothing less, for those of you who think it is something else or heard inaccurate information on annuities. This is risky because if you need money for an emergency (or any other reason), you have no access to it as now MetLife owns your money.

3. Transfer your TSP money to the company of your choosing on a tax-qualified basis or take it directly and pay the tax, unless of course you have a Roth TSP, where the tax has already been paid. This too is risky because unless there are iron-clad guarantees that you can’t lose money due to market conditions, at some point in time you will lose money; it’s only a matter of when.

Before we go any further, let’s first explore why so many federal employees who were set to retire in 2009, delayed their retirement for 5 to 10 years, due to the fact that between October 2007 and March 2009 the C, S & I Fund lost on average 57% of their value.  I wrote this article to help you avoid their fate!

If those federal employees put their money in the MetLife Guaranteed Income Annuity, they were facing the prospect of getting up to 57% less every month than what they expected, because the income from that annuity is based on the amount in your TSP at the time of conversion, and the reduction is permanent. Imagine planning on retiring with a MetLife monthly income of $2000 only to find out that in reality that $2000 a month is actually going to be $860 a month; would you have retired were it you? And worse yet once you elect the MetLife annuity, you lose all right to that money and it stops participating in the upside of the stock market. Also, if you need to access that money for an emergency (or any other reason for that matter) you are plain out of luck, because remember you don’t own the money any more.

Looking at their second option, those federal employees who were planning on leaving their money in the TSP when they retired, and wanted to start taking withdrawals, became fearful of retiring with almost 57% less in their TSP account because of the market declines. Imagine if you had $300,000 in your TSP and on the day you were set to retire that $300,000 amount was in reality $129,000; Would you have retired were it you?

Now let’s look at an alternative to those options that is really worth exploring; an alternative that offers you the opportunity to participate in the upside of the stock market, without any risk to your principal due to market conditions; an alternative very much like the MetLife annuity, offers you a lifetime guaranteed income, but unlike that MetLife annuity, YOU OWN THE MONEY, and best yet, is an alternative that is available to you before you retire, if you are 59 ½ or older.

Enhanced Fixed Indexed Annuities, as I call them, are that alternative. They earn money for you by being attached to Managed Indexes, as opposed to your C, S and I funds (and indirectly the L Funds) which primarily attach themselves to the performance of Un-managed Bundles of Stocks, like the S&P 500.

But unlike the C, S, I and L Funds, Enhanced Fixed Indexed Annuities cannot lose money due market conditions, regardless of how steep the market decline might be. More importantly, unlike the C, S, I and L Funds, Enhanced Fixed Indexed Annuities cannot have prior market gains erased, or “Clawed Back”, once they are locked in. Exactly what does that mean and how does that impact you?

Say your TSP is in the C, S, I and L Funds, earns 10% a year for 4 years & in year 5 suffers a 40% decline. All of those prior 4-year gains will be erased from your TSP or “Clawed-Back”. That can’t happen with an Enhanced Fixed Indexed Annuity, because once your crediting period is completed, (usually 1 or 2 years) your gains are locked in and can never be “Clawed-Back” due to stock market declines.

Federal Employee Advocates has a network of over 400 highly skilled Independent Advisors who are well-versed on federal retirement benefits and experts on showing federal employees how to better plan for their retirement. They do not charge federal employees for any of their services, no matter how extensive those services might be. They will answer any questions you may have about your federal retirement and if you want, will explain how Enhanced Fixed Indexed Annuities might be a good alternative for you.

I should add that all of this is always done on the phone and through our internet portals, so there really is no need for you to meet with your assigned Approved Advisor in person.

I would encourage you to reach out to your Approved Advisor when they contact you and spend 15 minutes on the phone with them discussing any questions you might have about your federal retirement, and also allow them to show you how to use our proprietary online federal retirement planning calculator. It will be 15 minutes well spent!

We specialize in helping federal employees (and only federal employees) plan for a safe, secure, prosperous and long-lasting federal retirement. Vince Bono, the Founder of Federal Employee Advocates, has been helping federal employees strengthen their finances for 45 years and Val has been helping federal employees plan for a better retirement for the past 10 years.

We created this web page and our Federal Retirement Online Calculator so that federal employees can better protect themselves, by learning about a risk free, IRS Approved Tax Qualified alternative to their TSP Funds.

If you have an interest in learning more about “Enhanced Fixed Indexed Annuities”, we will be glad to spend as much time with you as you need, without any cost or obligation on your part. Best yet, all of this help can all be accomplished by phone, email & the internet.