TSP Annuity Vs Monthly Payments

flik eco finance personal tsp annuity vs monthly payments

Making the decision between TSP Annuity and monthly payments can be difficult. Both options have their own advantages and disadvantages, which can make it hard to decide what is best for you.

In this personal finance guide, we will compare and contrast TSP Annuity vs monthly payments, looking at the pros and cons of each option. We will help you to decide which option is best for your unique financial situation!

What is a TSP Annuity?

A TSP annuity is an investment product offered by the Thrift Savings Plan. It is a retirement savings plan for federal employees and members of the uniformed services.

What are Monthly Payments?

Monthly payments are annuity payments that are spread out over a set period of time, typically 12 months. This type of payment option is often used by people who want to receive their money in smaller increments, rather than one lump sum.

What is The Difference Between TSP Annuity and Monthly Payments?

There are two primary differences between TSP annuity and monthly payments. First, with an annuity, your payments are fixed and will not change over time. Monthly payments, on the other hand, can fluctuate based on changes in your account balance. Second, an annuity pays out over a set period of time, typically for life, while monthly payments can be stopped at any time.

What Are The Different Types of TSP Annuity?

There are two types of TSP annuity:


Immediate annuities provide income payments starting at a set date, usually within one year of purchase.


With a deferred annuity, you can choose to start receiving payments at any time between the date of purchase and when you reach age 70½. 

What Are The Different Types of Monthly Payments?

When you start receiving payments from your TSP, you have the option to choose between two different types of monthly payments:

Lump sum

This is a one-time payment that is made all at once.


This is a series of payments that are made over time.

What Are The Advantages of a TSP Annuity?

There are several advantages to opting for a TSP annuity over monthly payments.

Firstly, you are guaranteed a fixed income for life, no matter how long you live. This can be a big plus if you're worried about outliving your savings.

Another advantage is that your beneficiaries will receive a death benefit if you die before the annuity pays out in full. This can provide financial security for your loved ones after you're gone.

Finally, TSP annuities offer tax-deferred growth. This means that you won't have to pay taxes on any earnings until you start taking withdrawals. This can result in significant tax savings over time.

What Are The Advantages of Monthly Payments?

There are a couple of advantages to monthly payments. The first is that you're not locked into an annuity, so you can take your money out at any time without penalty. The second is that you have more control over how your money is invested, so you can make changes as needed.

What Are The Disadvantages of TSP Annuity?

The main disadvantage of a TSP annuity is that you are locked into your payment schedule. If you decide to retire early, or if your circumstances change and you need more or less income, you will be stuck with the payments you have agreed to.

Another potential downside is that TSP annuity does not offer any death benefits, so if you die before your annuity payments are complete, your beneficiaries will not receive anything.

What Are The Disadvantages of Monthly Payments?

The disadvantages of monthly payments are that:

  • You have to keep making them, even if you can't afford it
  • They're not as flexible as annuities, so you can't change your mind about how much you want to receive each month
  • If you die before the end of the term, your family won't receive anything

So, Which One Should You Use?

Now that we've looked at both options, let's compare them side-by-side. Here are the key differences between TSP annuity and monthly payments:

With a TSP annuity, your payments are fixed and guaranteed for life. With monthly payments, your payments can fluctuate depending on investment returns.

If you die before receiving all of your monthly payments, the remaining balance will go to your beneficiaries. With a TSP annuity, your beneficiaries will only receive payments if you die after start receiving them.

TSP annuity payments are not taxed, while monthly payments are subject to income tax.

So, which one is right for you? Ultimately, it depends on your personal circumstances and financial goals. If you're looking for guaranteed income in retirement, a TSP annuity may be the way to go. On the other hand, if you're aiming for flexibility and potential tax savings, monthly payments could be a better option.

What Are Some Alternatives to Using a TSP Annuity or Monthly Payments?

There are a few other options available if you're not interested in using a TSP annuity or monthly payments. You could choose to cash out your account balance and invest the money yourself, or you could leave the money in your TSP account and take withdrawals as needed.

If you're interested in cashing out your account balance, you'll need to pay taxes on the money you withdraw. The amount of tax you'll owe will depend on your tax bracket and the amount of money you withdraw.

If you leave the money in your TSP account, you can take withdrawals as needed. You'll only be taxed on the money you withdraw, and not on the entire account balance.

Which option is best for you will depend on your personal circumstances. You'll need to consider things like your age, tax bracket, and investment goals. Talk to a financial advisor if you're not sure which option is best for you.

What Are Some Tips For Using a TSP Annuity?

If you're thinking about using a TSP annuity, there are a few things to keep in mind.  First, you'll want to make sure that you understand how an annuity works. An annuity is basically an investment that pays out over time, typically after you retire.

With a TSP annuity, you'll have to decide how long you want the payments to last. You can choose to receive payments for a set number of years, or for as long as you live.

Keep in mind that if you choose to receive payments for a set number of years, and you happen to live longer than that, you may not receive any payments at all.

Another thing to keep in mind is that TSP annuities are not inflation-protected, so your payments may be worth less in the future than they are today.

Finally, you'll want to make sure that you have enough money saved up to cover your living expenses in retirement. TSP annuities can be a great way to supplement your income in retirement, but they should not be your only source of income.

What Are Some Tips For Using Monthly Payments?

To get the most out of your monthly payments, there are a few things you can do:

  • Make sure your mortgage is paid off: This will free up more money each month to put towards other debts or savings goals.
  • Have an emergency fund: This will help you avoid falling behind on your payments if you experience a financial setback.
  • Invest extra money: If you have money left over after making your monthly payments, you can invest it in a high-yield savings account or a longer-term investment like stocks and bonds.

About Jermaine Hagan (The Plantsman)

Jermaine Hagan, also known as The Plantsman is the Founder of Flik Eco. Jermaine is the perfect hybrid of personal finance expert and nemophilist. On a mission to make personal finance simple and accessible, Jermaine uses his inside knowledge to help the average Joe, Kwame or Sarah to improve their lives. Before founding Flik Eco, Jermaine managed teams across several large financial companies, including Equifax, Admiral Plc, New Wave Capital & HSBC. He has been featured in several large publications including BBC, The Guardian & The Times.

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