At retirement, you have four basic choices regarding the money in your TSP: 1) leave it alone and draw funds when you need them, 2) take a lump sum, probably to transfer them to an IRA or other qualified pension plan, 3) receive a series of fixed monthly payments, or 4) take a lifetime annuity. The pros and cons of each of these options is outlined below.

Only withdraw what you need when you need it

• Pros : This allows the value of the account to continue to grow, and it can be passed on to your heirs.
• Cons : Without discipline or sufficient income, this account could be withdrawn quickly, not only eliminating its value too early but also incurring significant income taxes.

Withdraw the entire TSP amount in a lump sum

• Pros: Presumably this allows for the transfer to an IRA so the retiree is in control of the money, and can select the funds they want.
• Cons: Without a transfer to an IRA, the retiree (unless older than 59 ½) would incur significant income taxes, and a 10% penalty, and would be tempted to spend all the money

Elect to receive a series of monthly payments, either over a designated period of years or for your lifetime. Usually, this option would be used to take out a portion of the TSP value, and use it to provide an income stream until Social Security begins. The account continues to grow, and the payment amounts are predefined, although subject to gains or losses in your account.

• Pros: Having fixed payments for a set period of time allows retirees to better plan their finances and ensure that they will receive a set of designated payments for a certain period of time. If you choose to receive your entire TSP over a fixed number of years (not lifetime option), you may begin withdrawing it at the age of 55 if you so choose. Monthly payments can be significantly higher than the lifetime annuity amount (next choice). Any remaining funds upon your death can be passed to your heirs.
• Cons: Monthly payments based on life expectancy are smaller than what you could reasonably withdraw yourself, and are designed to continue well past 100. If your investments do poorly, you could find your monthly payments significantly reduced.

Select a lifetime annuity which will convert your existing TSP balance to an annuity, and guarantee you a payment amount (which can increase with inflation) for the remainder of your lifetime.

• Pros : You are guaranteed a fixed income stream for the rest of your lifetime, even if you live in retirement well past 100.
• Cons : If you die too soon, the insurance company keeps all of the proceeds that were not paid out, or you must select a survivor benefit which significantly reduces your annuity amount. In either case, there is nothing to pass on to your heirs other than the named survivor if you choose that benefit.