How Do I Judge the Financial Soundness of a TSA Company?

Ask for the company’s ratings. Five nationally recognized rating agencies publish ratings on life insurance companies. In alphabetical order, these are A.M. Best Company, Fitch, Moody’s Investor Services, Standard & Poor’s and Weiss Research.

What rating is acceptable to you is a personal decision. Most major TSA companies today are rated A– or better by A.M. Best Company, AA– or better by Fitch and/or Standard & Poor’s, A or better by Moody’s and C+ or better by Weiss Research. The Weiss rating system is much different than the other four rating agencies, and the differences usually result in much lower alphabetical scores.

LSW, as an example, is rated A (Excellent) by A.M. Best, effective May 6, 2005. Ask the agent for financial information on the company you are considering, and ask questions about the company’s financial health. Bigger is not necessarily better, as the experience of the early 1990s showed.

In closing, here’s some sensible advice based on many years of experience: First, choose a conventional annuity. Second, plan things so that when you retire, you have accumulated a retirement fund in your TSA that has no withdrawal penalty. Then, instead of electing a formal payout option, make withdrawals from your TSA as you need the funds to supplement your pension. Be sure to withdraw enough each year to avoid any IRS penalties for under distributions.

If you plan things in this way, should your circumstances change and you need access to your remaining funds, they will be available to draw upon. Above all, do take advantage of the opportunity to participate in a TSA. It will be one of the most important financial decisions you make in your working career, and it will have a major, beneficial impact on your standard of living after you retire.

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Updated: Monday, December 03, 2007 11:49:42 PM  Eastern