Key Takeaways:

• The TSP annuity allows you to convert your TSP balance into a regular stream of payments based on federal retirement rules.
• Careful comparison of annuity features and withdrawal alternatives is essential before making an irreversible payout decision.

TSP Annuity Option Explained: Understanding Federal Retirement Payout Choices

What Is the TSP Annuity Option?

Definition per federal retirement rules

The Thrift Savings Plan (TSP) annuity option is a federally sponsored way for retiring federal employees or members of uniformed services to receive regular payments from their TSP account. Under federal retirement rules, this option involves using all or part of your TSP balance to purchase an annuity through the TSP’s official annuity provider, as outlined by the U.S. Office of Personnel Management (OPM) and TSP guidelines. The annuity provider, approved by TSP, then sends you periodic payments for life or for the duration of selected options.

Eligibility for annuity selection

Generally, you become eligible to choose a TSP annuity after separating from federal service and meeting TSP withdrawal requirements. Both FERS and CSRS participants, as well as members of the uniformed services who have a vested account, may elect this option. There is a minimum purchase amount required (as defined by the TSP each year), and your eligibility is based on TSP program rules rather than age alone. Importantly, annuity selection is voluntary and irreversible once processed.

How Does the TSP Annuity Work?

Annuity payment process overview

If you select the annuity option, the amount you designate from your TSP account is transferred to the annuity provider, who then sets up your payment plan. Payments typically start within one or two months after purchase, depending on processing times and your selected payment schedule. The provider manages all future distributions, with funds leaving your TSP account permanently at the time of annuity purchase.

How payments are calculated

TSP annuity payments depend on your account balance used for purchase, your age, the type of annuity selected (single life or joint life, for example), and any additional features chosen (like survivor benefits or annual increases). The calculations follow federal standards and life expectancy tables, ensuring payments reflect official rules and the specific options you choose. The TSP’s official guidance outlines these formulas, emphasizing that each selection can affect your regular payment amount.

What Happens to Your TSP After Annuity Purchase?

TSP account status post-purchase

Once you purchase a TSP annuity, the selected amount is removed from your TSP account and sent to the annuity provider. That portion of your account no longer remains within the TSP system or earns gains or losses from TSP funds. Any remaining funds in your TSP can still be subject to other withdrawal rules, such as required minimum distributions (RMDs) or additional withdrawal options.

Impact on other payout options

After an annuity purchase, you cannot reverse the transaction or reclaim funds used for the annuity. However, if you only use part of your TSP balance for the annuity, you may still choose other withdrawal methods—such as monthly installments or lump sum withdrawals—with your remaining balance. The decisions are independent for each portion of your account used.

Are TSP Annuity Payments Fixed or Variable?

Types of payment streams available

TSP annuities are available as fixed (level) or—with specific elections—as payments with periodic increases. The most common type is the fixed monthly payment, which does not change over time. Alternatively, you can elect an annuity with annual increases based on a specific formula.

Annual increases and adjustments

Federal rules allow an annual increase option known as “increasing payments,” where your monthly amount adjusts each year by a fixed percentage specified in TSP guidance. This option may result in lower starting payments than a fixed annuity but provides added protection against inflation. These adjustments and options are determined by TSP program rules and subject to change only under federal regulation.

What Survivor Benefit Options Exist?

Spousal rights and federal requirements

Federal law requires that, if you are married, your spouse has certain rights regarding TSP annuity selection. For married TSP participants, the default annuity is a joint life annuity with a 50% survivor benefit and no cash refund feature, unless your spouse waives this right in writing. These provisions are designed to protect spousal income and are strictly enforced by federal regulations.

Choosing survivor annuity benefits

You can select from several survivor options, such as single life (no survivor benefit), joint life with another person, or joint life with a spouse that continues payments to the surviving spouse at 50% or 100% of the original amount. Each selection influences your payment amount and is subject to federal guidelines regarding eligibility and documentation requirements.

TSP Annuity vs. Other Withdrawal Choices

Monthly withdrawals and lump sums

Besides the annuity, TSP allows for other withdrawal options: monthly withdrawals (where you receive a portion of your balance each month) and lump sum distributions (a one-time payment of your chosen amount). You can split your TSP withdrawals among these options if you do not use your entire balance for the annuity.

Key differences to consider

Unlike monthly withdrawals or lump sums—which are managed directly through TSP and allow some flexibility and ongoing account access—an annuity is a one-way transaction that provides set payments for life. Annuity payments do not fluctuate with market performance, while other withdrawal options allow continued exposure to TSP fund earnings or losses until funds are fully withdrawn.

What Are the Pros and Cons?

Potential advantages for federal retirees

The primary advantage of a TSP annuity is the assurance of predictable, regular payments for life (or as otherwise chosen), regardless of how long you live. This can reduce the risk of outliving retirement savings, a concern for some retirees. Survivor benefits can also provide financial continuity for a spouse or beneficiary, following strict federal rules.

Common limitations and trade-offs

TSP annuity selection is permanent—once made, you cannot access or change the transferred funds. Initial payments may be lower than some withdrawal alternatives, particularly if survivor benefits or increases are selected. Annuities may not address individual needs for flexibility or liquidity, so your remaining retirement objectives and risk tolerance should be considered within the parameters set by the TSP.

How to Select TSP Annuity Features?

Available annuity feature choices

When selecting a TSP annuity, you may be able to choose from features such as single- or joint-life coverage, survivor benefit percentages, annual payment increases, and refund features. Each feature has specific eligibility and may alter your regular payment amounts, as set by TSP rules.

Considerations under current rules

Current federal TSP rules require detailed consideration of your marital status, desired survivor protection, need for inflation protection, and willingness to trade off liquidity for income stability. All choices, from survivor options to payment increases, must be made in accordance with TSP’s program requirements at the time you initiate your withdrawal.

Frequently Asked Questions About TSP Annuities

Required minimum distributions

All TSP participants must comply with required minimum distribution (RMD) rules mandated by federal law, starting at age 73 as of 2026, whether or not an annuity option is selected. Annuity payments count toward satisfying your RMD for the portion of TSP used to purchase the annuity.

Changing or reversing an annuity decision

Once a TSP annuity is purchased, the decision is permanent and cannot be reversed or altered. It’s important to understand all features and federal rules before committing any part of your TSP balance to an annuity option.

Where to find official guidance

For the most up-to-date information and official instructions, refer directly to the Thrift Savings Plan website (tsp.gov), OPM publications, and current federal retirement statutes or regulations. These sources reflect the authoritative rules that determine annuity selection, payment calculations, and eligibility.