TSP Annuity vs Installment Payments: Which Withdrawal Method Fits Your Retirement

Two Very Different Commitments

The TSP offers two primary ways to turn your account balance into retirement income: installment payments and a life annuity through MetLife. Both produce monthly checks, but the mechanics, flexibility, and long-term consequences are fundamentally different.

Installment payments draw from your TSP balance while it remains invested. You keep control of the account, and your remaining balance continues growing (or shrinking) with the markets. A MetLife annuity permanently transfers a portion of your balance to an insurance contract in exchange for guaranteed lifetime payments. Once purchased, the capital is gone — it no longer belongs to your TSP account.

Understanding this distinction before you enter the online withdrawal wizard is critical, because the annuity purchase is one of the few truly irreversible TSP decisions.

TSP Installment Payments: Flexibility With Market Risk

How they work: You choose a fixed dollar amount (minimum $25) or payments based on IRS life expectancy tables. Payments can be monthly, quarterly, or annual. The TSP draws from your traditional balance, Roth balance, or both, depending on your election.

Key advantages:

• You can stop, restart, or change the amount at any time through My Account
• Your remaining balance stays invested in your chosen TSP funds and continues growing tax-deferred
• At death, the remaining balance passes to your designated beneficiaries
• No minimum purchase — you can start with any amount above $25

Key risks:

• Your balance can decline if withdrawals outpace investment returns, especially in down markets early in retirement (sequence-of-returns risk)
• There is no guarantee you will not outlive your money
• You bear the full responsibility of managing your drawdown rate

Tax withholding: Installments scheduled for fewer than 10 years face mandatory 20% federal withholding. Installments scheduled for 10 years or more default to withholding based on married with three dependents, and you can adjust the rate.

TSP MetLife Annuity: Guaranteed Income With No Flexibility

How it works: You transfer at least $3,500 (calculated separately for traditional and Roth balances) to MetLife, the TSP's sole annuity provider. MetLife issues an insurance contract that pays you a fixed monthly amount for life. The payment amount depends on your age, interest rates at the time of purchase, and the annuity options you select.

Key advantages:

• Guaranteed income for life — you cannot outlive the payments
• Eliminates sequence-of-returns risk entirely
• Simple and predictable: the same payment arrives every month
• The 2026 contract includes a 3-year cancellation option with a premium refund minus payments already received

Key risks:

• Once the cancellation window closes, the decision is permanent and irreversible
• The capital is gone — it no longer appears in your TSP balance and is not available to beneficiaries (unless you selected specific survivor options)
• If you die early without a survivor or cash refund option, MetLife keeps the remaining premium
• Payments are fixed (unless you elect the increasing payment option, which starts lower)
• You lose the potential for market gains on the annuitized amount

Annuity options that affect your payment: Every option you add reduces your initial monthly payment:

• Single life: Highest monthly payment, payments stop at your death
• Joint life with 50% or 100% survivor: Payments continue to your spouse at the selected percentage after your death — lower initial payment
• 10-year certain: If you die within 10 years, payments continue to your beneficiary for the remainder of the period
• Cash refund: If you die before receiving payments equal to your premium, the difference goes to your beneficiary
• Increasing payments: Payments increase annually (based on a formula tied to CPI) but start significantly lower

The Financial Trade-Off

For a 62-year-old with a $200,000 traditional TSP balance, the choice might look roughly like this:

Installment payments at a 4% withdrawal rate: $8,000/year ($667/month), with the remaining balance continuing to grow. At a historical 6% average return after inflation, the balance could last 25-30 years. But a bear market in the early years could shorten that dramatically.

MetLife single life annuity: Approximately $900-$1,100/month (rates vary by quarter), guaranteed for life. Higher immediate income, but the $200,000 is permanently gone from your account.

The breakeven point — where the total annuity payments exceed what you would have received through installments — typically falls somewhere between 15 and 20 years, depending on market performance and the specific annuity rate.

When the Annuity Makes Sense

• You have longevity in your family and expect to live well past 85
• You want to eliminate all investment management decisions and market worry
• Your FERS pension and Social Security do not fully cover your fixed expenses, and you need a guaranteed floor
• You are willing to accept a lower total payout in exchange for certainty

When Installments Make More Sense

• You want to preserve flexibility to adjust your income as needs change
• You want to leave remaining TSP assets to heirs
• You have other guaranteed income sources (FERS pension, Social Security) that cover your baseline expenses, and the TSP is supplemental
• You are comfortable managing a simple drawdown strategy
• You are in poor health and may not live long enough to benefit from the annuity guarantee

You Do Not Have to Choose One

The TSP allows you to split your approach. You can purchase an annuity with a portion of your balance (meeting the $3,500 minimum) while keeping the remainder in the TSP for installment payments or future partial withdrawals. This hybrid approach gives you a guaranteed income floor plus flexible access to the remaining balance.

The TSP Withdrawal & Drawdown Strategy Guide includes a comparison worksheet that walks through the math for your specific balance, age, and income needs.

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