The Difference Between a TSP and a Monthly Retirement Annuity

by Cindy Quarters

A thrift savings plan, known as a TSP, is a type of retirement account offered to military personnel and federal employees. A monthly retirement annuity is a guaranteed retirement income purchased from a private source, usually an insurance company. Both types of plans are intended to provide a retirement income, and both will give you a monthly check, but they have some important differences.

TSP Basics

A TSP is a work-based savings plan that allows members to put before-tax money into a savings account, ideally to be held until retirement. The money can be accessed once the employee is no longer working for the federal government or has left the military, or it can be left to grow until it is needed. When the money is taken from the TSP it is treated as regular income, unless it is rolled over into another type of retirement plan. There are some exceptions to the rule about regular income, as some TSP owners might have non-taxable income related to military duty.

Annuity Plan Basics

An annuity is purchased through an insurance company to provide the owner guaranteed income. Because an annuity is a specific product, the terms of the agreement are locked in place when it is purchased. The purchaser agrees to terms that usually are permanent, though they might change under certain circumstances. Typically, an annuity promises regular monthly payments of a fixed amount. The payments can be for a set period of time, such as until the funds are depleted, or they can be guaranteed to continue for the life of the annuity owner.


The control of an annuity is in the hands of the insurance company that sold it. The buyer might get to make some initial choices, such as rate of return and type of annuity, but most other choices are made by the company. With a TSP, the account owner can make many choices. Among the more important ones: She can choose how large or small the payments are, and how the money is invested. If the cost of living changes, the TSP owner can adjust investments to account for it, but the owner of a purchased annuity usually cannot.


A TSP is administered and backed by the federal government and is subjected to regular audits and administrative oversights. This is intended to help to keep the money in the TSP program safe. The money in a purchased annuity is only as safe as the insurance company from which it was purchased, though the company is required to belong to a guaranty association that would protect a certain amount of the purchase price. It the company fails it is likely that the annuity payments will disappear, so the company should be chosen carefully. Annuities also charge management fees and other costs that are either smaller or non-existent with a TSP.

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