Best Annuity for Military Retirees (2026)
TL;DR: Military retirees usually have four income legs: military retired pay, TSP, VA disability (tax-free), and Social Security. Many also carry SBP. An annuity has three jobs in this stack: (1) replace the surviving-spouse income if you ever drop SBP, (2) generate predictable yield on the TSP rollover, (3) bridge income between retirement and SS claiming. MYGA usually wins for #2. Single-life SPIA or DIA for #1 and #3. Do not annuitize VA disability dollars. You can't anyway, but plan around them.
CD vs MYGA, after tax
What $100,000 earns in 5 years: CD vs MYGA, after tax
Rates used: CD 5.00%, the top nationally available 5-year CD (Bankrate, October 14, 2026); change it to the rate you are offered. MYGA 5.95%, the best A-rated rate we track as of October 13, 2026: Delaware Life Pinnacle Plus 5-year (AM Best A-, negative outlook, 7/31/2026), $100,000 and up, effective October 6, 2026 (Delaware Life rate sheet).
| CD, interest taxed every year | $121,081 |
|---|---|
| MYGA, tax-deferred, before tax | $133,507 |
| MYGA after paying tax on all the interest at withdrawal | $126,136 |
| Tax deferral alone adds about | $674 |
| MYGA ahead of the CD, after tax | $5,055 |
Assumes 22% federal and 0% state income tax, no withdrawals, rates held for the whole term. MYGA interest is taxed as ordinary income when you withdraw it, not as capital gains. Gains taken before age 59 1/2 can owe a 10% IRS penalty, and cashing out early can cost a surrender charge. In an IRA both grow tax-deferred, so the edge there is the rate alone. Bank and credit union deposits are FDIC or NCUA insured up to the limits; a MYGA is backed by the issuing insurer's claims-paying ability and your state's guaranty association up to its limits, not the FDIC. General education, not tax, legal or financial advice.
Why your situation is different
A military retiree at 42 with 20 years of service has decades of guaranteed pay ahead. That pension is COLA-adjusted, lifetime, and counts as the most secure cash flow you'll ever have. Layer on VA disability (tax-free, COLA-adjusted) and you have a hard floor that most civilians would kill for.
The TSP rollover is the part that's exposed. The SBP question is the part that's overlooked.
SBP at 55 percent of base pay costs roughly 6.5 percent of the covered amount. For a $50K pension that's about $3,250 per year, or $271 per month, for 30 years. Total cost: roughly $97,500 (nominal). In exchange, your spouse gets $27,500 per year, COLA-adjusted, for life if you predecease. A SPIA replacement on $97,500 of premium at female age 45 would generate roughly $5,000 to $5,500 per year for life, which is less than the SBP benefit. SBP is usually the better deal at retirement, but the math should be re-run as you age.
The four-leg income stack
| Leg | Source | Tax treatment | COLA |
|---|---|---|---|
| Military retired pay | DFAS | Taxable as ordinary income (some states exempt) | CPI-W annually |
| VA disability compensation | VA | Tax-free, federal and state | CPI-W annually |
| TSP (traditional + Roth) | Self-managed | Trad: ordinary income; Roth: tax-free | None: market-based |
| Social Security | SSA, starts 62-70 | Up to 85% taxable above thresholds | CPI-W annually |
Notice: three out of four legs already have built-in COLA. The TSP is the only leg without it. An annuity placed on the TSP rollover gives you yield certainty but typically no COLA (unless you buy an inflation-adjusted SPIA, which has a much lower initial payout). For most military retirees, the right move is: MYGA ladder for the TSP, leave the inflation-protection to the COLA-adjusted streams.
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TSP rollover: same logic as FERS, slightly different
Military TSP works mechanically the same as civilian FERS TSP: traditional bucket and Roth bucket, with the G Fund as a unique low-risk option. The difference: many military members contributed Roth heavily because they were in low tax brackets during deployment (sometimes tax-free combat zone contributions). Check your basis carefully before rolling.
The Roth TSP rollover with combat-zone tax-exempt contributions has special handling. The contributions themselves are after-tax (no tax at withdrawal), but the earnings on the Roth follow normal Roth rules (tax-free after 5 years + 59½). Roll Roth TSP to a Roth IRA. Don't annuitize unless you have a clear estate reason.
Traditional TSP → Traditional IRA → MYGA / SPIA / growth, in proportion to your needs. For a 42-year-old retiree the time horizon is long and you have decades for growth, so the annuity allocation is usually smaller than for a 62-year-old.
SBP and the survivor income question
SBP is the survivor benefit plan. At retirement you elect coverage (default is full base pay). If you drop SBP at the 2 year, 25 year, or other election window, your spouse loses the survivor income. Some retirees drop SBP and replace it with private term life insurance plus a SPIA bought from the proceeds. The math sometimes works, often doesn't.
When SBP-versus-private-replacement makes sense:
- You're in great health (term insurance is cheap)
- Your spouse is significantly older than you (SBP cost-benefit weakens)
- You have a large taxable estate and the term-plus-SPIA structure is part of broader estate planning
When SBP usually wins:
- You have any health concerns (term gets expensive fast)
- Your spouse is younger (longer SBP payout window)
- You want zero work after age 70 (private structures require management)
If you do drop SBP, the replacement structure is usually: 20 year term life policy + earmarked MYGA bucket + designated SPIA contract to be purchased at your death. Get a written replacement plan signed off by an independent reviewer.
Top 3 MYGA carriers writing for military retirees in 2026
- Athene: AM Best A+. MaxRate. Top-of-shelf 5 to 10 year rates.
- Corebridge: AM Best A. American General. Frequent 250K-bonus tiers that suit larger TSP rollovers.
- MassMutual Ascend (formerly Great American): AM Best A+. SecureGain series. Strong renewal rate integrity, which matters for a 30 year retiree planning across multiple contracts.
USAA does not currently issue competitive MYGAs. They exited that part of the market. USAA members sometimes assume USAA is the right channel for everything; on annuities, it's not. Shop the open market.
VA disability does not annuitize, but plan around it
VA disability is paid for life, tax-free, and COLA-adjusted. It cannot be assigned or annuitized. You can't sell the income stream. What you can do is build the rest of the plan around it.
Because VA disability is tax-free, it's the most efficient income dollar you have. Cover essentials with VA + pension first; let TSP and SS fill discretionary. That ordering minimizes the tax bracket impact of TSP withdrawals.
Common mistakes military retirees make
- Buying a variable annuity from the on-base "financial advisor." Many of the on-base sellers are insurance-licensed only and push variable products with 2-3 percent annual fees. Wrong product. Walk away.
- Dropping SBP without modeling it for 25 years. The 2 year window passes fast. Decisions made at retirement should be re-evaluated at 5 years out, not silently locked in.
- Rolling 100 percent of the TSP into an annuity. An annuity is part of the stack, not the whole thing. Most retirees still need growth exposure.
- Forgetting the state tax on military retired pay. Some states fully exempt military pension, some partially, some don't. Where you live matters for the after-tax annuity break-even calculation.
- Letting the TSP G Fund sit forever as the "safe" option. In June 2026 the G Fund paid ~4.25% and a 5 year MYGA paid 5.55-5.85%. 150 bps over 7 years on $300K is ~$36K of compounding.
Worked example: $500,000 traditional TSP rollover, age 45, O-5 retiree
Captain Mike, 45, 22 years service, $58K military pension, 60 percent VA rated for $1,395/month tax-free. SBP elected. Spouse age 41, two kids in school. TSP balance: $510K (trad) + $130K (Roth). He's likely working a civilian job for another 15-20 years.
| Bucket | Vehicle | Amount | Purpose |
|---|---|---|---|
| 1. Liquidity | HYSA | $60,000 | 6 months expenses |
| 2. Short MYGA | 5 yr MYGA, A-rated | $100,000 | Income bucket for any income gap |
| 3. Long MYGA | 10 yr MYGA, A-rated | $150,000 | Locked yield to age 55 |
| 4. Growth in IRA | Index funds | $200,000 | 20-year horizon, market exposure |
| 5. Roth IRA | Index funds | $130,000 | Untouched, late-life or heir use |
The MYGA bucket here is smaller as a percentage because of the long horizon. At 65, he'll re-allocate more aggressively into SPIA / MYGA based on then-current SS, pension, and lifestyle.
Concurrent receipt (CRDP) and combat-related special compensation (CRSC)
If your pension was offset by VA disability before 2004, recent rule changes (CRDP for 50%+ ratings; CRSC for combat-related) often restored offsets. Confirm your DFAS pay statement reflects the current concurrent receipt rules; some retirees are still paid under the old offset and don't realize it. This isn't an annuity issue per se, but it changes the income floor that determines how much annuity you need.
Related reading
- Best annuity for federal employees rolling TSP
- Best annuity for postal workers (USPS)
- How much does a $100K annuity pay per month?
- What happens to an annuity when the spouse dies?
- Best annuity for a widow over 70
Frequently Asked Questions
Can I roll the military TSP into an annuity at 42?
Yes, but distributions before 59½ trigger the 10 percent IRS penalty unless you use a 72(t) SEPP structure. Most 42-year-old retirees roll into an IRA and hold MYGAs without taking distributions until later.
Is military retired pay considered earned income for IRA contribution purposes?
No. Military pension is not earned income. You need wages or self-employment income to contribute to an IRA in retirement. The pension itself doesn't qualify.
Will a SPIA replace SBP if I drop it?
Sometimes, with the right structure. A SPIA bought at your death (funded by term life insurance proceeds) can provide a substitute income stream. The math depends on your age, your spouse's age, and current SPIA payout rates. Get a written comparison before dropping SBP.
Are MYGAs from USAA still competitive?
USAA exited the competitive MYGA market and currently does not issue rates that compete with the top of the shelf. USAA members should shop A-rated carriers in the open market for annuities specifically.
How is VA disability treated for IRMAA purposes?
VA disability is excluded from MAGI for IRMAA. It's also excluded from federal and state income tax. This is the most efficient income dollar in the entire stack.
Can I use a TSP loan to buy an annuity?
No, and you wouldn't want to. TSP loans must be repaid; if you separate without repaying, the unpaid balance is a taxable distribution plus penalty. Don't take a loan to fund an annuity purchase.
What happens to my SBP if my spouse predeceases me?
SBP coverage terminates with no refund of premiums paid. You can elect to cover a subsequent spouse within 1 year of remarriage, with restart of coverage and pricing based on new ages.
Should I do Roth conversions on the traditional TSP rollover?
Often yes, in moderation, during the years between military retirement and Social Security claim. Your bracket is usually low in that window because you're transitioning to civilian work. Convert enough each year to top off the 22 or 24 percent bracket without spilling into the next.
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Disclosure
This article reflects publicly available product materials and approximate rates as of the date stated above. Annuity rates, caps, participation rates, payout factors, crediting methods, and tax rules change frequently. Confirm current figures in the latest carrier disclosure and the contract before you buy. This article is general information for educational purposes; it is not a personalized recommendation, solicitation, or offer of any specific product, nor is it tax or legal advice. Hans Goldstein is an independent licensed insurance producer (NPN 20602398) appointed with multiple A-rated carriers across the annuity and long-term care insurance market; specific appointment status with any carrier discussed may vary, and discussion of a carrier is not an endorsement or representation of carrier appointment. No compensation has been received from any carrier in connection with the publication of this article. Always read the actual contract and consult a licensed advisor and a CPA or tax attorney before purchasing any annuity or making rollover decisions. Annuities are long-term contracts with surrender charges; they are not suitable for funds you may need before the end of the surrender period. AM Best ratings, payout factors, and tax treatment are subject to change. References to the TSP, FERS, CSRS, OPM, USPS, Social Security, IRMAA, WEP/GPO, IRC §72, §453, and §1035 reflect rules as of 2026 and are subject to change.