First, let’s look at the Employee Retirement Income Security Act of 1974 (ERISA)
It was created to provide employees with a retirement boost in federally sponsored retirement benefits. To the federal employee as well as local government and private industry. The account are the TSP, but to include IRA, 401(k), 403(b) and other ‘Defined Contribution’ Qualified Retirement Account, you may have. The sole purpose was an income in retirement. Since, although you may look to the TSP as income, it is viewed as an investment and legacy to the children. So, it is, but let’s get back to the basic purpose, that is income.
- Section 105 of ERISA requires administrators to provide participants with periodic pension benefit statements. Which must indicate a participant’s “total benefits accrued” and a lifetime income strategy in defined contribution plans.
Here is what I see as the problem
Your TSP, at least annually, provides a lifetime income statement, based on your TSP balance. An income for a lifetime is uber attractive, how can anyone say no? Here is the reality behind the TSP presentation. What if accepted, and your life ends in a month? Gone. Many employees translate this to mean all annuities. But within the annuity industry, there are 1000 configurations that would satisfy your lifetime income needs, and your spouse or children would be named beneficiary. Some income, if you need it, comes with Long-term Care benefits, which by the way, are ‘Tax Free Distributions’.
As far as income
Conventional wisdom says more income comes from more in the account, from which to draw. Not necessarily. In a recent illustration, an early retiree, who does not need income for many years, would deposit $550,000.00. This would reap income from an income value exceeding $1,320,000.00 in 10 years, with a lifetime income of $71,280.00, Guaranteed!
When this plan is offered as an option, brand X may offer promise of growth and provide withdrawal of income, maybe?
By concentrating on growth only, you may or may not produce the desired results. Planning, by using tools available to you, for guaranteed income, your plans can be solid, so you can concentrate on your fishing or golf games.