How to approach an annuitization decision

[frugalecon]

I am wondering if others have confronted the decision on how much of a portfolio to annuitize at some point, either at the beginning of retirement or at some point in the middle. My employer (the Federal Government) offers the option of annuitizing all or a portion of our defined contribution plan (TSP). My understanding is that it offers terms that are pretty favorable, compared to the private sector. It seems that there is likely a risk-growth tradeoff here. I have thought that perhaps I will annuitize a portion, basically enough so that I have guaranteed income to cover my reasonable expenses, and then use income from the rest of the portfolio to fund the fun stuff, biomechanical enhancement (who knows how long I will live!), unexpected stuff.

I have some years to go before I will confront the decision, but I thought it made sense to start thinking about it.

[SnackDog]

I haven't done it but I would have a think about what your sources of secure income will be (SS, rent, dividends, etc) then do an annuity to cover the rest of your very most basic living costs taking into account inflation.

[foobar]

It is all about risk/reward. In most cases you are giving up money to eliminate the risk of running out of money when your 95. Splitting the difference (having social security, pension, + what ever annuity you want ) for basic needs and stocks and bonds for luxuries also works out well.  The tough part is always figuring out how much to pay for inflation protection (30 years is a long time) or if you will need a lot of money when your 90 (i.e. you are probably not going white water rafting).

I am wondering if others have confronted the decision on how much of a portfolio to annuitize at some point, either at the beginning of retirement or at some point in the middle. My employer (the Federal Government) offers the option of annuitizing all or a portion of our defined contribution plan (TSP). My understanding is that it offers terms that are pretty favorable, compared to the private sector. It seems that there is likely a risk-growth tradeoff here. I have thought that perhaps I will annuitize a portion, basically enough so that I have guaranteed income to cover my reasonable expenses, and then use income from the rest of the portfolio to fund the fun stuff, biomechanical enhancement (who knows how long I will live!), unexpected stuff.

I have some years to go before I will confront the decision, but I thought it made sense to start thinking about it.

[DoubleDown]

Will you be vested to get a pension (5 years minimum service IIRC)? If you will get any kind of substantial pension amount, then I'd consider that to be your "basic annuity" and leave your TSP funds alone to manage and withdraw in retirement as you see fit. The TSP annuities give somewhere around a 2% return -- pretty pathetic in my book, and it seems like even if you were ultra conservative and put your entire TSP into the absolutely safe G fund, you could match that. With a healthy but conservative asset allocation in your TSP (say, 50% G fund, 50% C/F/S/I funds), you could probably expect a 5-6% return over the long run. I'll get about an 18% pension plus Social Security. Those two things alone would provide at least a minimum enough amount to live on, so I'm not going to purchase a TSP annuity, but YMMV obviously.