If you’re in Plan 3 with the Washington State Department of Retirement Systems (DRS), you’ve probably heard someone mention the TAP annuity. Maybe a coworker said it pays well. Maybe a salesperson told you to roll your money out of Plan 3 before you ever looked at it.
This post walks through the TAP annuity in plain language. We’ll cover what it is, who can buy it, when you can buy it, how the survivor options work, and the real pros and cons. We’ll also cover one mistake that can take the TAP annuity off the table for good.
By the end, you should know whether the TAP annuity deserves a spot in your retirement income plan, or whether you’d rather keep your Plan 3 money flexible.
What is the TAP annuity?
An annuity is a guaranteed income stream for the rest of your life. That’s really all it is. You hand over a pile of money, and in return you get a check every month for as long as you live.
The TAP annuity is Washington State’s version of this for Plan 3 members. You take money from your Plan 3 account and move it into the TAP annuity fund. From then on, you get a monthly payment for life. In a way, you’re building yourself a second pension.
Think of it like a water tank on a farm. Your Plan 3 account is the big tank. You can drain it however you want, fast or slow. The TAP annuity is like trading part of that tank for a pipe that drips the same amount of water to your house every month, forever, even if you live to 105.
It’s a single premium income annuity (SPIA)
The TAP annuity is what the industry calls a SPIA, or single premium income annuity. “Single premium” means you can only put money in one time.
So if you decide to put $100,000 into it, that’s it. You can’t add another dollar later. It’s a one-time funding vehicle. That makes the decision about how much to put in a big one, because you only get one shot at it.
Who can buy the TAP annuity, and with what money?
Here’s the first big rule: you can only buy the TAP annuity with money that’s in your Plan 3 account. That covers PERS 3, TRS 3, and SERS 3 members.
Money from other places doesn’t count. That includes:
- Your 403(b)
- A 401(k) from another job
- Your DCP (Deferred Compensation Program) account
- Money sitting in your savings account
The money has to come from the Plan 3 fund. It doesn’t matter how your Plan 3 money is invested, though. Whether it’s in WSIB (the state-managed option) or the self-directed side, DRS can pull it from either one. You don’t have to do any odd transfers first.
When you can buy it: separation of service
The second big rule is timing. You can buy the TAP annuity when you separate from service. Notice that I didn’t say “when you retire.” The state treats those as two different events.
- Separation of service means you no longer work for the state.
- Retirement, in DRS’s eyes, means you’ve started collecting your pension.
So say you stop working but you aren’t taking your pension yet. You’ve separated from service, and that makes you eligible to buy the TAP annuity. You don’t have to wait until your pension starts.
Survivor benefit options on the TAP annuity
On the TAP annuity application, you can pick from a couple of survivorship options. If you want the income to keep going to someone after you die, you can set that up. You just list them as the survivor on your application.
That person doesn’t have to be your spouse. They don’t even have to be related to you. You can list anybody.
Why the survivor’s age changes your check
Here’s the catch. The amount of income you get depends on who you put on the form. What moves the number is the age gap between you and your survivor. The bigger the age gap, the smaller your monthly check.
Why? Because the state has to plan on paying for two lifetimes instead of one. If you’re 62 and you list your 64-year-old spouse, the state expects to pay for roughly the same stretch of years. If you list your grandkid, that person may have another 60, 70, or 80 years left. The state has to stretch the same pile of money over a much longer time, so each check shrinks.
You’re allowed to name a grandchild. Just know your own income will drop a lot to pay for it.
The 3% COLA: the TAP annuity’s best feature
The biggest perk of the TAP annuity is a guaranteed 3% cost-of-living adjustment (COLA) every year. It doesn’t matter what inflation does. You get a 3% raise each year, period.
No other annuity Washington State offers has this built in. The other options may have optional COLAs that might pay or might not, depending on inflation, a lot like your pension. With the TAP annuity, the 3% is guaranteed, and it doesn’t cost you anything extra. It’s just part of the plan.
If you bought a private annuity and wanted a 3% COLA, the company would charge you for it. Usually that doesn’t show up as a fee. Instead, they make you put in more money to get the same starting income.
Worked example: how 3% a year adds up
Let’s say your TAP annuity starts out paying $1,000 a month. Here’s what a 3% raise every year does to that check over time. (This is just an example to show the math, not a quote of what your actual TAP payment would be.)
| Year of payments | Monthly check | Yearly income |
|---|---|---|
| Year 1 | $1,000 | $12,000 |
| Year 5 | $1,126 | $13,506 |
| Year 10 | $1,305 | $15,657 |
| Year 15 | $1,513 | $18,151 |
| Year 20 | $1,754 | $21,042 |
| Year 25 | $2,033 | $24,393 |
By year 25, your check has roughly doubled. That matters a lot, because groceries, gas, and insurance won’t cost the same at 85 as they did at 60. A flat annuity with no COLA would still be paying $1,000 in year 25, and that $1,000 would buy a lot less.
Why the TAP annuity pays so well
From all the research I’ve done, no one has really come close to beating the TAP annuity on gross payouts. A big reason is that it’s backed by the state, which can run a negative budget. A private annuity company that tried to operate on a negative budget wouldn’t be around for long. That’s one reason the TAP annuity can offer higher payouts.
How to buy the TAP annuity and when payments start
If you decide to buy the TAP annuity, you fill out the application and tell DRS how much money from your Plan 3 account you want to move into it. That’s the main step.
Once the money goes in, it can take anywhere from 45 to 90 days for your first payment to show up. This isn’t a quick turnaround. Make sure you have cash on hand to get through at least a couple of months, in case something gets delayed and you don’t see your first check for three months.
After the payments start, they keep coming every single month until you die, or until both you and your survivor die if you picked a survivor option.
TAP annuity pros and cons
The pros
- Guaranteed income for life
- A guaranteed 3% cost-of-living adjustment every year, at no extra cost
- Strong payouts compared to private annuities, based on my research
- Survivor options so the income can keep going to someone else
The cons
Like anything guaranteed, the trade-off is control. Once you put the money in, that’s it. You can’t cancel it and you can’t get your money back. It’s locked up for the rest of your life.
You also lose control over how the money gets paid out. The TAP annuity pays monthly, and that’s the only choice. You can’t ask for an advance on next month. You can’t lower your payments. You can’t switch to twice a year or once a year. It’s a monthly check for life.
That means you’re still living paycheck to paycheck, just in retirement. There’s no way to pull out extra money when something big comes up, like a new roof or a car. So it’s important to keep money saved outside the TAP annuity. That way, if you need a big chunk of cash, you can get it, because that option doesn’t exist inside the annuity.
What happens to your TAP annuity money when you die?
I said you can’t cancel the TAP annuity or get your money out. There’s one exception, and that’s death.
If you die before you’ve gotten back all the money you put in through your monthly payments, the remaining balance goes to your beneficiaries. How it works depends on whether you chose a survivor option.
Worked example: $500,000 into the TAP annuity
Say you put $500,000 into the TAP annuity and start getting payments. Here are three ways it could play out.
| Scenario | Paid out before death | Left over | What happens next |
|---|---|---|---|
| Single life, you die a few years in | $350,000 | $150,000 | Your beneficiary gets the $150,000 |
| Survivor option, you die a few years in | $350,000 | $150,000 | Your survivor keeps getting the monthly income instead of the $150,000. If money is still left after both of you die, it goes to your beneficiary as a lump sum. |
| You live a long time | $600,000 | $0 | Nothing left for beneficiaries. If you picked a survivor option, your survivor still keeps getting income because that’s part of the guarantee. |
In that last case, you got all your money back and then some. That’s the annuity doing exactly what it was built to do.
One more thing: any lump sum your beneficiaries get is taxable. Make sure they know that, so they aren’t surprised when they owe taxes on it.
Warning: moving money out of Plan 3 ends your TAP option
This is the point people miss most often. Because TAP annuity money has to come from Plan 3, moving money out of Plan 3 means you give up the ability to buy the TAP annuity with it.
So before you move money out of Plan 3, or before someone else talks you into rolling it somewhere else, know this: once the money leaves Plan 3, your chance to buy the TAP annuity with it is gone. You can’t go back.
After that, depending on where the money went, you’d be stuck with a different state annuity or a private annuity. Neither one has the guaranteed 3% COLA. And depending on where interest rates are, they may not have the same guaranteed payout the TAP annuity offers.
Always check first. Make sure you’re 100% sure you don’t want the TAP annuity or that level of guaranteed income. If you’ve thought it through and moving the money still makes sense, then go ahead.
If you’d like help working through that decision with your own numbers, you can schedule a personal meeting with us here.
Is the TAP annuity right for you?
The TAP annuity can make a lot of sense if you want more guaranteed income for life. If you like the idea of knowing another steady paycheck is coming in every month in retirement, it’s worth a hard look.
Yes, you give up control of that money. That’s why it’s a good idea to have a plan before you buy it, and to keep money set aside for when you need a big chunk of cash. Like anything else, the TAP annuity can be a great option, and it should be part of the conversation when you build your full retirement income plan.
Frequently Asked Questions
Can I use my DCP or 403(b) to buy the TAP annuity?
No. The TAP annuity can only be bought with money in your Plan 3 account. DCP, 403(b), 401(k), and savings money can’t be used.
Do I have to be retired to buy the TAP annuity?
No. You have to be separated from service, which means you no longer work for the state. You don’t have to be collecting your pension yet.
Can I add more money to my TAP annuity later?
No. It’s a single premium income annuity, so you fund it one time. Whatever you put in on day one is the full amount.
Is the 3% COLA on the TAP annuity guaranteed?
Yes. You get a 3% raise every year no matter what inflation does, and it’s built in at no extra cost.
How long until my first TAP annuity payment arrives?
Plan on 45 to 90 days after the money goes in. Keep enough cash on hand to cover a few months just in case.
Can I cancel the TAP annuity and get my money back?
No. Once you buy it, the money is locked up for life. The only exception is at death, when any unpaid balance passes to your beneficiaries (after any survivor income ends) as a taxable lump sum.
If I roll my Plan 3 money out, can I still buy the TAP annuity?
No. Once money leaves Plan 3, you can’t use it to buy the TAP annuity. Be sure before you move it.
P.S. It’s free to join. Over 150 members are already in it, plus you’ll get free courses and resources to help you plan your retirement with confidence.
