TSP Annuity vs. Commercial Annuity 2026: Which Pays More?

TSP annuities and commercial (SPIA) annuities differ in one critical way: commercial annuities typically pay 8–20% more per month for the same investment. A federal employee converting $500,000 at age 62 receives approximately $2,650/month from the TSP's MetLife contract versus $3,000–$3,200/month from top commercial providers — a difference of $350–$550/month, or up to $132,000 over 20 years. The TSP annuity is underwritten by MetLife, the sole provider authorized by OPM, and uses a 3.5% annuity interest rate index (April 2026). Commercial single premium immediate annuities (SPIAs) can be purchased after rolling TSP funds to a traditional IRA. Neither purchase is reversible once made.

TSP Annuity vs. Commercial SPIA: Side-by-Side Comparison

Decision Framework: When TSP Wins vs. When Commercial Wins

Choose the TSP annuity when:

1. Simplicity is the priority. The TSP annuity involves one decision. No broker, no carrier comparisons, no rollover process. If you want to convert and be done, the TSP is frictionless.
2. You want a government-administered process. Some federal retirees value keeping everything within the TSP ecosystem rather than moving funds to an IRA and engaging a commercial insurer.
3. The rate gap is narrow. If commercial SPIA rates are only marginally better — particularly for older ages or with survivor riders — the TSP's simplicity may outweigh the difference.
4. You have a short life expectancy. With the cash refund option, TSP funds can be returned to beneficiaries if you die early. If longevity isn't a factor, the payout gap matters less.
5. You need the 10-year certain guarantee. The TSP offers this feature natively; commercial providers do too, but comparison-shopping takes effort.

Choose a commercial SPIA when:

1. Maximizing monthly income is the goal. The 8–20% payout premium from top commercial carriers is real money. Over 20 years at the figures above, that's up to $132,000.
2. You want to shop multiple carriers. The TSP locks you into MetLife's contract. Commercial SPIAs let you quote Nationwide, MassMutual, New York Life, Pacific Life, and others on the same day.
3. You're comfortable with the IRA rollover process. Rolling TSP funds to a traditional IRA first takes 2–4 weeks and one 1099-R. It is not complicated — just a step the TSP annuity doesn't require.
4. You want more customization. Commercial SPIAs have more survivor percentage options, return-of-premium structures, and inflation riders than the TSP contract.
5. Interest rates are favorable. Commercial SPIA rates track the broader insurance market. When rates are high, the gap between TSP and commercial widens further in favor of commercial.

The MetLife Monopoly: Why the TSP Only Uses One Provider

The TSP is administered by the Federal Retirement Thrift Investment Board (FRTIB), an independent government agency. Under FRTIB rules and the Federal Employees' Retirement System Act of 1986, the TSP's annuity provider is selected through a government contracting process — not an open market.

MetLife has held the TSP annuity contract for decades. The result is a single-source product with no competitive pricing pressure. MetLife's contract uses what TSP calls the "annuity interest rate index" — currently 3.5% as of April 2026. That index determines your payout alongside your age and chosen features.

What this means practically:

• You cannot shop the TSP annuity. MetLife's rate is MetLife's rate.
• The annuity interest rate index updates monthly and can move up or down. The April 2026 rate of 3.5% is below the 2024–2025 peak of ~4.5–4.8%.
• Commercial SPIA rates, by contrast, reflect the current 10-year Treasury and corporate bond market. In today's environment, top commercial carriers are quoting materially higher implied rates.
• MetLife carries an A+ AM Best rating, so credit risk is low — but it's not the only A+ rated insurer. You can get equal or better credit quality elsewhere at better rates.

None of this makes the TSP annuity a bad product. It's a guaranteed, life-long income stream backed by a highly rated insurer. The issue is that it's the only option within the TSP — and the broader SPIA market consistently delivers more income for the same dollar.

How to Shop Commercial SPIA Rates

Step 1: Roll over TSP funds to a traditional IRA

You cannot purchase a commercial SPIA directly from a TSP account. The funds must move to a traditional IRA first. This is a direct rollover — no tax event if done correctly, no 20% withholding. The process:

1. Open a traditional IRA at Fidelity, Schwab, or Vanguard (or directly with the commercial insurer).
2. Request a direct rollover from TSP to your IRA. TSP processes this in 2–4 weeks.
3. Once funds arrive in the IRA, you can immediately purchase a SPIA with all or part of the balance.

Important: You can also annuitize only a portion of your IRA and keep the rest invested. The TSP annuity requires you to commit the entire elected amount at once.

Step 2: Require AM Best A or better

Commercial SPIAs are backed by the issuing insurance company, not the federal government. Always require A (Excellent) or higher from AM Best before purchasing. Top SPIA carriers include:

• New York Life — A++ AM Best (highest possible)
• MassMutual — A++ AM Best
• Northwestern Mutual — A++ AM Best
• Pacific Life — A+ AM Best
• Nationwide — A+ AM Best

State guaranty associations also provide backstop coverage (typically $250,000 per insurer per state), but these limits vary. Don't rely on them — stick with A-rated carriers.

Step 3: Get multiple quotes simultaneously

SPIA rates vary by 5–10% across carriers for the same purchase. Use an independent quote tool or broker that covers 10+ carriers. Quotes are free and non-binding. The highest quote on the day you're ready to purchase is your best price — rates are locked at application, not quote.

Step 4: Match features to needs

Decide before shopping:

• Single vs. joint life — joint life reduces payments by 10–20%
• Period certain — guarantees payments for a minimum period (5, 10, 20 years) regardless of when you die
• Cash refund vs. installment refund — returns unpaid principal to beneficiaries
• Inflation rider — increases payment by 1–3%/year; reduces starting payment by 20–35%

Use the RetireStack TSP vs. Commercial Annuity Calculator → to see exact numbers for your age, balance, and feature choices.

Frequently Asked Questions

TSP annuity vs. commercial annuity — which pays more? Commercial SPIAs (single premium immediate annuities) typically pay 8–20% more per month than the TSP's MetLife annuity for the same balance and age. A $500,000 purchase at age 62 yields approximately $2,650/month from the TSP versus $3,000–$3,200/month from top commercial carriers — a difference of $350–$550/month. Over 20 years, that gap totals $84,000–$132,000. The TSP's lower payout reflects its single government-contracted provider (MetLife) with a 3.5% annuity interest rate index (April 2026), while commercial carriers compete in an open market.

Should I take the TSP annuity or roll over to a commercial annuity? For most federal employees whose top priority is maximum lifetime income, rolling TSP funds to a traditional IRA and purchasing a commercial SPIA will generate more income — typically 8–20% more per month. The TSP annuity wins if you want zero process complexity or if the rate gap in your specific scenario is small. Neither is reversible once purchased. Use a comparison calculator with your specific age and balance before deciding.

How much does a TSP annuity pay per month? A TSP annuity payout depends on your balance, age, and the current annuity interest rate index. Using the April 2026 rate of 3.5%: a $500,000 single-life annuity at age 62 pays approximately $2,650/month; at age 65 approximately $2,850/month; at age 70 approximately $3,200/month. Adding a survivor benefit or COLA rider reduces the starting payment by 10–30%.

Can I roll over my TSP to a commercial annuity? Yes. You can roll over all or part of your TSP balance to a traditional IRA via a direct rollover — no tax event, no penalties. Once in the IRA, you can purchase a single premium immediate annuity (SPIA) from any licensed commercial insurer. The rollover typically takes 2–4 weeks. You can also annuitize only a portion and keep the remainder invested, which the TSP annuity option does not allow.

Who underwrites the TSP annuity? MetLife underwrites all TSP annuities as the sole provider authorized by OPM under a government contract administered by the FRTIB. MetLife carries an A+ rating from AM Best. Unlike commercial SPIAs — where you can shop Nationwide, MassMutual, New York Life, Pacific Life, and others — the TSP offers no choice of insurer.

Get Your Personalized Numbers

The figures above are illustrative. Your actual payout depends on your age at annuity start, your specific balance, the features you choose, and the interest rate index on your purchase date.

Use the RetireStack TSP vs. Commercial Annuity Calculator → to see side-by-side numbers for your situation in under two minutes. No signup required.