A million-dollar annuity: Can you afford it?

Would retiring with a government backed inflation-indexed CD of $500,000 to $1.5 million make the prospect of your golden years even brighter?

While few people have enough money to purchase a decent guaranteed-for-life annuity, federal workers who contribute to their Federal Employees Retirement System and Civil Service Retirement System plans get guaranteed lifetime income and can also provide a survivor annuity.

According to the National Association of Retired Federal Employees, the median annuity for current retirees is $3,171 less than the CSRS program and $1,121 monthly for those who retired under FERS. Retirement benefits are considerably higher for many Washington, D.C.-area retirees, according to Thomas O’Rourke, a local tax lawyer and estate planner.

Many people who retired here, or who worked in the D.C. area before retiring, get annuities of around $40,000. The majority of retirees who are under the CSRS program get full cost-of-living adjustments. The majority of working feds who will retire under the less generous FERS plan got diet COLAs when the inflation rate goes over 2 percent per year.

In order to purchase a $40,000 annuity for life, O’Rourke said an individual would have to pay about $1.3 million. For lower income feds he said it would cost someone retiring at age 55 under CSRS $1.6 million to buoy an annuity of $3,171 per month.

“If a survivor annuity were elected the up front cost of the annuity would be more,” he said.

If someone under FERS wanted to buy a self-only annuity beginning at age 62 paying $1,121 per month, O’Rourke estimates it would cost $430,000 up front. And that would be self-only. It would not provide a survivor annuity, which would cost more.

O’Rourke will be my guest today on Your Turn.  He will talk about how to prep for retirement, whether you are just starting out in government, are close to retiring or are using your government job as a launch pad to a better-paying position in the private sector. Whatever your age, length of service and career game plan, maxing out in the Thrift Savings Plan is a no-brainer. There are tax-savings, that maximum 5 percent government match and tax-deferred earnings.

He’ll also talk about the advantages of both the traditional TSP and a Roth TSP. Which is best? The correct answer, he says, is “it depends!” It depends on your current tax bracket, your anticipated tax bracket when you start withdrawing money from the TSP how long you can live comfortably without tapping the account.

What’s your best strategy for maximizing the amount of money you have in retirement? He says to contribute as much as you can afford and that the law allows — $18,500 or $24,500 — to the TSP.

• Allow your contributions to remain tax-deferred as long as the law allows.
• Withdraw money from the TSP as slowly as possible.

Listen to Your Turn at 10 a.m. EDT at www.fedralnewsnetwork.com or on 1500 AM in the D.C. area. Questions or comments can be sent to me before showtime at mcausey@federalnewsnetwork.com Episodes are archived on our show page.

Nearly Useless Factoid

By Amelia Brust

In golf, the word “caddy” comes from the French word “cadet,” meaning the youngest child.

Source: Keiser University College of Golf

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