TSP Life Annuity Option: Should You Buy a TSP Annuity?

When you separate from federal service, one of your TSP withdrawal options is to convert all or part of your balance into a guaranteed monthly income stream for life — a life annuity purchased through MetLife. The payment is guaranteed. The decision is permanent. This guide covers everything you need to make an informed choice.

What the TSP annuity is — and what it isn't

The TSP life annuity is a one-way transaction: you transfer funds from your TSP to MetLife, and MetLife begins paying you a fixed monthly amount for as long as you live. Once purchased, no portion of the payment or the original balance can be returned to you or your heirs (beyond whatever optional features you elected).

Common confusion points:

• It is not the L Income fund. The L Income fund is an investment fund inside your TSP. The annuity removes money from your TSP entirely and converts it into an insurance product.
• It is not your FERS pension. Your FERS annuity is separate — provided by OPM. The TSP annuity is an optional purchase at separation.
• It is not a SPIA you can shop around for. You can only buy the TSP annuity through MetLife (the TSP's contracted provider). You cannot compare rates across carriers or negotiate terms.

Annuity options available through the TSP

The TSP offers two core annuity structures, each with optional riders that affect both your monthly payment and what (if anything) your beneficiaries receive after you die.

Single life annuity

Pays monthly income only to you, for as long as you live. Payments stop completely at your death, unless you elected one of the following optional features:

• Cash refund: If you die before you've received total payments equal to the original purchase amount, the difference is paid to your beneficiary as a lump sum.
• 10-year certain: If you die within the first 10 years of receiving payments, your beneficiary continues to receive the same monthly amount through the end of the 10-year window. Payments to you continue as long as you live.

Joint life annuity

Pays monthly income to you and a joint annuitant (most commonly your spouse) for as long as either of you is alive. When one person dies, payments continue to the survivor. You choose whether the survivor receives 50% or 100% of your original monthly payment — a higher survivor benefit means a lower starting payment for you.

Joint life annuities can also include the 10-year certain feature. Joint annuitants can be someone other than a spouse, but non-spouse joint annuitants must have an insurable interest relationship, and the increasing payment option is not available with a non-spouse joint annuitant.

Level vs. increasing payments

Both single-life and joint-life annuities offer a choice between:

• Level payments: A fixed monthly amount that never changes. Inflation erodes real purchasing power over time.
• Increasing payments: Monthly payment rises by 2% each year on the anniversary of your first payment.¹ The starting payment is lower than a comparable level annuity, but it partially keeps pace with inflation — though 2% may not fully offset long retirements with 3–4% average inflation.

How your monthly payment is calculated

Your monthly TSP annuity payment depends on three variables:

1. Your annuity purchase amount — any amount from $3,500 up to your full TSP balance. The $3,500 minimum applies separately to traditional and Roth TSP money.²
2. Your age (and your joint annuitant's age) — older annuitants receive higher monthly payments because their expected payment period is shorter.
3. The annuity interest rate index — TSP updates this monthly based on Treasury bond yields. Higher rates produce higher monthly payments; lower rates produce lower ones. The rate in effect when you purchase is locked in permanently for your annuity.

Adding optional features (cash refund, 10-year certain, or survivor benefit) reduces your starting payment because MetLife's expected liability increases.

The G Fund trade-off: what you give up permanently

The most underappreciated cost of the TSP annuity is that the dollars you use to purchase it leave the TSP forever. Once converted to an annuity, those funds are gone from your TSP — you cannot access the G Fund, rebalance, or tap the principal in an emergency.

The G Fund earns intermediate Treasury rates with zero principal risk. It cannot be replicated in any IRA or brokerage account. For a federal retiree who values capital preservation, the G Fund is a uniquely valuable asset. Converting G Fund dollars to a MetLife annuity exchanges a principal-protected, liquid investment for a permanent income stream — with no ability to reclaim the principal if your circumstances change.

If you need $50,000 for a medical bill in year 7 of retirement, your TSP annuity cannot help. That monthly check cannot be accelerated or cashed out. The G Fund can.

The FERS pension context

Most FERS employees already receive guaranteed lifetime income from their pension — a monthly annuity from OPM. Adding a second fixed income stream through the TSP raises a legitimate question: do you need more guaranteed income, or do you need more flexibility?

The more FERS pension income you receive, the less incremental value a TSP annuity adds. A federal employee with a $4,000/month FERS pension plus Social Security already has substantial guaranteed income. Converting $400,000 in TSP to another fixed stream may reduce portfolio risk at the cost of eliminating the flexibility you need for large discretionary expenses, healthcare costs, or bequest goals.

Conversely, a federal employee with a small FERS pension (few years of service, low High-3 salary) and limited Social Security may find that a TSP annuity creates a meaningful guaranteed income floor — particularly if longevity risk is a concern and they have no other guaranteed income source.

Break-even: how long do you need to live?

The break-even question is the right lens for evaluating a life annuity. Compare:

• Scenario A: Buy the TSP annuity. Receive $1,700/month for life.
• Scenario B: Keep the same $300,000 in TSP (or roll to IRA). Withdraw $1,700/month until the account runs out, then have nothing.

In Scenario A, you "win" if you live long enough that the cumulative annuity payments exceed the original $300,000. At $1,700/month, that's ~14.7 years — reaching break-even at age 76–77 if you retire at 62. If you live to 85 or 90, the annuity pays out $170,000–$340,000 more than the original balance.

In Scenario B, a well-invested $300,000 at 5% real return may never run out — it keeps growing and generating income. The break-even calculation ignores investment returns on the alternative.

The annuity is most valuable if: (1) you're concerned about outliving your money, (2) you don't have heirs who need the principal, and (3) you're in good health and expect to live well past the break-even age. Poor health generally argues against a life annuity.

The partial annuity option

You don't have to choose all-or-nothing. You can purchase an annuity with a portion of your TSP balance and keep the remainder in the TSP for flexible withdrawals, G Fund access, or installment payments. The minimum purchase is $3,500 (per balance type), so any amount above that floor can fund the annuity while the rest stays in TSP.

A partial annuity can create an income floor from TSP without sacrificing all the liquidity and G Fund access you'd otherwise give up. For example, converting $100,000 to a lifetime monthly payment while keeping $400,000 in TSP for flexible withdrawals gives you guaranteed income on a portion while preserving options on the majority.

Survivor benefit coordination: avoid double coverage

If you elected the maximum FERS Survivor Benefit (SBP) at retirement, your spouse is already entitled to 50% of your FERS annuity for life after you die.³ Adding a joint-life TSP annuity on top of this means you're paying twice for survivor coverage — through the SBP reduction in your FERS pension (10% for full SBP) and through the reduced starting payment on the joint-life TSP annuity.

This duplication is worth analyzing explicitly before purchasing a joint-life TSP annuity. In some cases, a single-life TSP annuity with a cash refund rider provides better value for the annuitant when SBP already covers the survivor.

Comparing alternatives

Decision framework

What a TSP specialist models before this decision

The TSP annuity decision rarely has a simple yes/no answer. A fee-only advisor who specializes in federal benefits builds a model that shows:

• Your guaranteed income from FERS pension + Social Security at different claiming ages — does the TSP annuity actually fill a meaningful gap?
• Annuity payment at the current month's interest rate vs. what installment payments would generate from the same balance, modeled to age 85, 90, and 95
• The interaction between a TSP annuity purchase and your IRMAA exposure — annuity income is ordinary income, and large single-year TSP rollover distributions can spike your MAGI and trigger IRMAA surcharges for two years
• SBP election vs. joint-life annuity survivor benefit — which option costs less and covers more
• Whether a partial annuity structure (TSP annuity for income floor + TSP installments for flexible spending) beats either extreme

The rate environment at your exact retirement date matters significantly. If you're retiring in the next 6–18 months, get the current annuity factor from the TSP annuity calculator and model your specific scenario before making a permanent decision.

1. TSP annuity increasing payment rate (2% per year, reduced from prior 3% maximum): TSP FactSheet FS-24 — Annuities; FedWeek — Little Change to TSP Annuity Option.
2. TSP annuity minimum purchase amount $3,500 (applies separately to traditional and Roth balances): TSP Publication TSPBK25 — Installments, Total and Partial Distributions, Life Annuities.
3. FERS Survivor Benefit election: full (50% of annuity to survivor, 10% reduction to your pension), partial (25%, 5% reduction), or none. Elected irrevocably at retirement. OPM — FERS Retirement Types.
4. TSP life annuity provided through MetLife under contract with the Federal Retirement Thrift Investment Board (FRTIB): TSP Annuity Calculator — tsp.gov. Annuity interest rate index updated monthly; check tsp.gov for the current rate in effect at your planned purchase date.

Annuity interest rates, monthly payment factors, and MetLife contract terms are subject to change. Verify current rates at tsp.gov before making a purchase decision. Values verified as of May 2026.