When it's time to retire, you have some additional options—options that can change your finite savings into a monthly, lifetime income called an annuity.
An annuity is a guaranteed income plan you purchase. You choose the amount and immediately or later begin receiving money, which usually lasts your lifetime depending on the annuity you select.
Annuities can provide guaranteed income for your life. And they offer security through a set monthly income. However, flexibility is not a feature of annuities. Once you set it up, an annuity doesn't allow you to change the income amount.
With annuities, you take money out of market risk and use it to give yourself a monthly lifetime income. Annuities are the only withdrawal option that guarantee you will not outlive your account balance.
Each year you'll receive a statement that shows the taxable amount of your annuity. Complete a Form W-4P to choose the amount you'd like withheld from your payments for taxes. Without a Form W-4P, the tax withholding will follow IRS guidelines using a status of married with three allowances.
For more information about taxes, review IRS Publication 575. You might want to consult a tax advisor. DRS and the record keeper are not authorized to give tax advice.
Whether you qualify for these annuities depends on your retirement system and plan.
|Annuity type||Minimum purchase||Who provides it||How to purchase|
|Purchase Service Credit for all members||1 month of service||State of Washington||Contact DRS|
|Deferred Compensation Program for all DCP participants||Min: $2,000||MetLife||Contact DCP record keeper|
|Plan 3: TAP for PERS, SERS, TRS||Min: $25,000||State of Washington||Complete Plan 3 TAP annuity form|
|Plan 3: Self-Directed for PERS, SERS, TRS||Min: $5,000||MetLife||Contact Plan 3 record keeper|
|Teachers' Retirement System for TRS Plans 1, 2 and 3||No minimum||State of Washington||Contact DRS|
|LEOFF and WSPRS Plans 1 and 2||Min: $25,000||State of Washington||Contact DRS|
Dollar for dollar, Purchase Service Credit, Teachers' and LEOFF/WSPRS annuities offer you the same monthly amounts—in fact the calculator you use to estimate your monthly benefit is the same for these three annuities. What's the difference? Each annuity type has different allowances like funding sources, limits and more. For example, the service credit annuity might pause payments if you return to work for a DRS-covered employer. The LEOFF and Teachers' annuities will continue. Read on for more comparisons.
With Plan 3, you have the choice between two types of annuities based on the two investment programs available to you, WSIB and Self-Directed. Each annuity type has different features.
|TAP annuity (WSIB Investment Program)||Self-Directed Investment Program|
|Annuity provider||State of Washington||MetLife|
|Minimum purchase price||$25,000||$5,000|
|Payment frequency||Monthly||Monthly, Quarterly, Semi-Annually or Annually|
|Length of annuity||Payments for your lifetime (Single Life Annuity). You also have the option to cover a survivor's lifetime (Joint Life Annuity)||Payments for your lifetime (Single Life Annuity). You also have the option to cover a beneficiary's lifetime (Joint Life Annuity)|
|Cost-of-Living Adjustment (COLA)||Automatic annual 3% COLA (beginning on your first anniversary)||Optional COLA|
|Conversion option||Could be converted to a Joint Life Annuity||No conversion option|
|Joint annuitant option||Yes||Yes|
|Joint annuitant survivorship payment options||100%, 66.66% or 50%||100%, 75%, 66.66% or 50%|
|Multiple purchase option||No. Only one TAP Annuity can be purchased per Plan 3 member account.||Yes. Multiple Self-Directed annuities can be purchased per Plan 3 member account over a member’s lifetime.|
|Balance refund||Yes||Optional balance refund|
|Term Certain option||No||Yes. Provides regular payments for as long as you live. If you die before the specified period of time, payments will continue to your beneficiary for the balance of the period. Term Certain period options: 5, 10, 15 or 20 years.|
|Rescission period (length of time you can change or cancel the annuity)||15 days from the rescission start date sent to you in writing||Varies. Usually 7-15 days from date of purchase. Contact the record keeper for more details (888-327-5596).|
Purchasing additional service credit increases your monthly retirement benefit for the rest of your life. And if you choose a survivor option, we’ll continue paying the increase to your survivor after your death.
The service credit annuity is available to all members with DRS pension plans. The increments for this annuity are not dollars, but months. You can purchase between one and 60 months of service credit in whole months. The cost is based on your age and plan. The monthly increase to your benefit is based on the same formula used to calculate your retirement benefit.
This additional service credit is available at the time of your retirement only. Also, you cannot use the additional credit to qualify for retirement (it won’t increase your years of service).
Minimum: One month
Maximum: 60 months
Complete the Request for Purchasing Service Credit form included with your packet when you apply for retirement. DRS will issue a bill during the month of your retirement, and then you'll have 90 days to pay. You can cancel or change the bill before payment.
You can use your DCP savings to purchase any annuity, with the exception of the Plan 3 TAP Annuity. Two options available for all members include: MetLife or Purchase Service Credit. For more about service credit, see the previous section. The section below covers information about purchasing MetLife annuities with your DCP savings.
This annuity option is commercially available and is offered through MetLife. This annuity gives you options. Use your DCP savings to purchase as many annuities as you want, for as long as you want. Do you want an annuity for 10 years? A lifetime? $2,000? $200,000? You can choose different terms and amounts for the annuity. (This convenience can sometimes include higher fees.)
Call the DCP record keeper at 888-327-5596.
Plan 3 members can use their plan contributions to purchase the Total Allocation Portfolio (TAP) Annuity. This annuity is guaranteed to pay you for your lifetime.
Sometimes when members first hear about the TAP Annuity, they say it sounds too good to be true. After all, it has low fees and it comes with a built in 3% annual Cost-of-Living Adjustment. But here's the deal. This annuity is managed by Washington state, not a for profit company. So the savings are passed to you.
If your contributions are in the Self-Directed Investment Program, you can still get a TAP Annuity. Just transfer the funds to the WSIB program when you apply for the annuity.
With the TAP Annuity, you are not limited to the survivor options you chose for your pension retirement. You can choose another survivor. You can also purchase the TAP Annuity any time after you separate from DRS-covered employment.
For example, a 65-year-old member who purchases a single-life annuity for $100,000 would have an initial benefit of over $600 per month, and that benefit would increase by 3% every year.
Use the Plan 3 Annuity Payment Request form.
The Plan 3 Self-Directed Investment Program is available to all PERS, SERS and TRS members in Plan 3.
This annuity option is commercially available and is offered through MetLife. The Self-Directed Program annuity gives you options. Unlike the TAP annuity, which limits you to a single lifetime annuity purchase, you can purchase multiple Self-Directed program annuities. And you can choose the length you want. Do you want an annuity for 10 years? A lifetime? $5,000? $200,000? You can choose different terms and amounts for the annuity. (This convenience can sometimes include higher fees.)
Call the Plan 3 record keeper at 888-327-5596.
This annuity is available to all Teachers' Retirement System (TRS) members. With this annuity, the retirement benefit increase you receive is based on the dollar amount you choose to purchase.
If you are eligible for an annual Cost-of-Living Adjustment (COLA) on the defined benefit part of your monthly benefit, you will receive the same COLA percentage on your purchased annuity.
This annuity is available to all Teachers' retirement plan members. Unlike purchasing service credit or the Plan 3 TAP annuity, the Teachers' annuity can be purchased using any funds other than your Plan 3 contributions. With the Teachers' annuity, your survivor will be the same as the one you selected for your pension payment. You'll continue to receive the annuity portion of your monthly benefit even if you return to work or return to membership.
Contact DRS for a bill. You can pay before retirement or up to 90 days after retirement. You have the option to cancel or change the amount of a bill before payment.
This annuity is available to:
The retirement benefit increase you receive is based on the dollar amount you choose to purchase. You can purchase an annuity through the state by using your DCP contributions.
If you're eligible for an annual Cost-of-Living Adjustment (COLA) on your monthly benefit, you will receive the same COLA percentage on your purchased annuity.
Contact DRS for a bill at 800-547-6657. You can pay before retirement or up to 90 days after retirement. You have the option to cancel or change the amount of a bill before payment.
This page is a summary. It is not a complete description for purchasing an annuity. State retirement laws govern your benefit. If a conflict exists between the information shown in this document and what is contained in current law, the law governs.