When we talk about guaranteed money, what are we really talking about? Generally speaking, when you think about it as an employee, when you're a federal employee and you're offered guaranteed money for your retirement, the commitment they are asking of you is your time. We think about it as time. If you stay here for a certain length of time, you'll get rewarded with a certain amount of guaranteed money. I think that is an accurate way to think about it, but it's also very narrow, and I'd like to broaden your point of view as to what guaranteed money is, and what guaranteed money costs.
First of all, from a financial standpoint, what if you weren't going to get guaranteed money after 20 or 30 years of a career (let's just say it's $2000/month). If you weren't going to get that $2000/month, then you have to ask yourself, "What does it take to produce $2000/month, money that's guaranteed for my lifetime, that's protected against inflation for my lifetime, that's able to be passed on in some part to my spouse for his or her lifetime?" I've got to think 'well, if I'm not going to have that offered to me by my employer, and I like guaranteed money, and I want to produce it myself, how do I produce it?'
In this society, what we do is we go to a life insurance company and we buy what's called an "immediate annuity", or what should be called an "immediate income annuity", where we're just giving them a pile of money and they're immediately giving us income every month for the rest of our lives. Whether it protects us against inflation or not is your option. Whether you want it to be able to be passed on to a spouse or not is your option, and of course if you add those options, then you're lowering the amount of money you get every month. So what does that really cost you right now?
If you're going to give that to a spouse, it would be about $300/month for every dollar that you get from the insurance company. They want $300 up front from you. If it's $2000/month, well then, it is $2000 x $300 = $600,000. So you know that the cost of guaranteed income from a financial perspective is substantial. If you're not going to get it from your employer and you care about producing it yourself, then you've got to find a way to get $600,000 in your 401K, or in some other investment vehicle on top of what you already would've had in your 401K anyway, or in your TSP account anyway.
"Guaranteed income is extremely hard to produce as an individual. It's best produced by a group of individuals, and it's only it's almost always best produced by a group of employees..."
That's the real point, financially speaking. Guaranteed income is extremely hard to produce as an individual. It's best produced by a group of individuals, and it's almost always best produced by a group of employees, whether they are employed by the same employer or whether they're the same employee type within an association, like a union. So what we're talking about is, "What are we willing to pay for guaranteed money?" If it's, "I'm not willing to pay the time, I'd rather pay the cash," then know what it costs and be willing to have the money available when you need it.