Can TIAA Traditional be my whole "bond" allocation?

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fmpsk
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Can TIAA Traditional be my whole "bond" allocation?

Post by fmpsk » Fri Mar 17, 2017 9:28 pm

I have a combination of TIAA-CREF retirement accounts. Old 403B contracts that were frozen in 2008 and newer 401K since. I'm cleaning up/simplifying the mess I've created over the years with the plethora of options available, especially since finding this forum, and they just added a Vanguard S&P 500 index fund at 0.05% expense to the mix. I moved the 401K equities (60%) to the Vanguard account since it's waaaay lower cost than any other available funds, and I'm wondering if I should just use the TIAA traditional for the other 40% that would otherwise be "bonds". The current vintage is 4% for restricted (if eligible for distributions, must transfer to a payout annuity and receive in 10 annual payments), and 3.25% for unrestricted. That seems pretty good for a guarantee. Thoughts? FYI, we're 54/52 and plan to retire in 4 years.

For more information, if anyone cares to comment on the whole portfolio picture, it's in this thread: viewtopic.php?f=1&t=213274

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cheese_breath
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Re: Can TIAA Traditional be my whole "bond" allocation?

Post by cheese_breath » Fri Mar 17, 2017 9:41 pm

That's basically what I do. All my equities are with VG, and TIAA Traditional is my fixed income. The difference between us is I'm retired and have to take RMDs out of my TIAA TRaditional. That's been going into the best taxable savings accounts and CDs I can find.
The surest way to know the future is when it becomes the past.

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Re: Can TIAA Traditional be my whole "bond" allocation?

Post by dh » Fri Mar 17, 2017 10:00 pm

I am close to doing the same. The vast majority of fixed income allocation consists of only TIAA Traditional (1/2 in a SRA with the 9 year and 1 day TPA payout option, and 1/2 in a GSRA immediate liquidity option) and I-bonds in taxable accounts. I have a very small position in Vanguard Wellington in my Roth, hence I have some int-term bond exposure as well.

aristotelian
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Re: Can TIAA Traditional be my whole "bond" allocation?

Post by aristotelian » Sat Mar 18, 2017 8:54 am

I am very interested in this thread as Traditional is one of the few good choices in my TIAA-CREF employer plan. I have not vested in the employer-match plan yet because of the withdrawal restrictions but thinking about committing to Traditional to get the maximum interest rate.

One question I have, in addition to the interest rate going up, I am trying to learn about the benefit of contributing now (Age 42) as opposed to holding off until before retirement and then moving funds in. Based on this flyer, it appears to me they are saying that the earlier you start contributing, the higher your payout will be in retirement. But I don't see a transparent way of calculating it. Can someone explain this to me? If I start contributing now, what will my payout rate be if I retire at Age 65? Will it be in the 6% range? I have about $175K that I could move into it now and use as my bond allocation.

https://www.tiaa.org/public/pdf/TT_Inte ... s_High.pdf

Most of my funds in this plan are currently in Vanguard Wellesley Income. If I assume 8% annual return from Wellesley, how can I calculate whether I am better off investing in Traditional now vs staying in Wellesley in the accumulation phase and shifting to Traditional in the payout phase?

student
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Re: Can TIAA Traditional be my whole "bond" allocation?

Post by student » Sat Mar 18, 2017 8:58 am

I also use TIAA Traditional as my "bond" allocation.

livesoft
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Re: Can TIAA Traditional be my whole "bond" allocation?

Post by livesoft » Sat Mar 18, 2017 9:28 am

I own a chunk of TIAA traditional annuity and consider it part of my bond allocation. Over the years, it has done about as well as a total US bond index fund while hiding the volatility. So you could use it for all your bond allocation, but you must be prepared to rebalance into equities by selling some to buy equities. And you must be prepared to buy some by selling equities. If you think it will be a hassle rebalancing, then I suggest you have some other bond fund in your Vanguard accounts [in additional to your TIAA TA holdings].

I have left my TIAA assets in "set-and-forget" mode, so I have another bond fund for rebalancing in an account with all the major asset classes of my portfolio.


Also, this thread discusses taxes for family close to your demographic: viewtopic.php?t=79510 which may be helpful to reduce your income taxes if you haven't already done us.
Last edited by livesoft on Sat Mar 18, 2017 10:32 am, edited 1 time in total.
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Re: Can TIAA Traditional be my whole "bond" allocation?

Post by livesoft » Sat Mar 18, 2017 9:38 am

aristotelian wrote: Based on this flyer, it appears to me they are saying that the earlier you start contributing, the higher your payout will be in retirement.
I didn't get that from the flyer per Footnote 2. I did get that while accumulating they pay you a lower rate of return and hide it in a contingency fund. Then your hidden money buys more annuity even though they tell you it didn't. If you die while in the accumulating phase, well, what do your heirs get?

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aristotelian
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Re: Can TIAA Traditional be my whole "bond" allocation?

Post by aristotelian » Sat Mar 18, 2017 9:56 am

livesoft wrote:
aristotelian wrote: Based on this flyer, it appears to me they are saying that the earlier you start contributing, the higher your payout will be in retirement.
I didn't get that from the flyer per Footnote 2. I did get that while accumulating they pay you a lower rate of return and hide it in a contingency fund. Then your hidden money buys more annuity even though they tell you it didn't. If you die while in the accumulating phase, well, what do your heirs get?

There is no free lunch.
And what happens after the "10 year guarantee period"?

I found this post on Morningstar which seems to suggest 6% guaranteed payout for money contributed this year. But where are these numbers coming from?

http://discuss.morningstar.com/NewSocia ... px#3824999

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Re: Can TIAA Traditional be my whole "bond" allocation?

Post by livesoft » Sat Mar 18, 2017 10:15 am

^You have to realize that with these payout methods that it is an annuity. What happens is that anytime you die after 10 years [in the depicted case, other "term certain" years are available], then your heirs get nothing more.

With TIAA you do NOT have to annuitize all of it or even some of it. You can withdraw it and put it in an IRA or spend it. I think that if you do choose to annuitize some of it, then that's probably a good deal as far as annuities go, but it still means that you are benefiting from the deaths of other participants and they will benefit from your death.
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ByThePond
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Re: Can TIAA Traditional be my whole "bond" allocation?

Post by ByThePond » Sat Mar 18, 2017 10:28 am

I'm still in the accumulation phase, and have my TIAA funds in CREF Equity Index for now, so they don't count as bonds yet. However, when I finally retire, I plan to annuitize those funds, dual life, and count them as bonds, as well as SS (eventually). Within the past year I moved about 3/4 of the TIAA into VTSAX by way of an in-service rollover, thus dramatically their ER. 30% of annual income still goes to TIAA. I see no reason why you can't count your Traditional as bonds, especially if you leave some wiggle room for rebalancing as livesoft suggests.

Your post brings to mind a question: would one be better off using TIAA Traditional, or annuitizing out of CREF stock? Have I missed something?

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Re: Can TIAA Traditional be my whole "bond" allocation?

Post by Pistachioicecream » Sat Mar 18, 2017 10:31 am

Visit the TIAA Forum on Morningstar.com and post your questions there. The folks participating are extremely knowledgable regarding the ins & outs of the Traditional fund, including the restricted withdrawal and non-restricted Trad types, annuitizing (or not), etc.

http://socialize.morningstar.com/NewSoc ... 00044.aspx

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fmpsk
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Re: Can TIAA Traditional be my whole "bond" allocation?

Post by fmpsk » Sat Mar 18, 2017 10:35 am

The flyer is talking about converting the Traditional to a lifetime annuity. I think the guarantee period is a period of guaranteed payments to your heirs if you die before the end of the period. If you die after the 10 years, then your heirs get nothing. That's only if you have converted the funds to a lifetime annuity. If you haven't converted, then your heirs can inherit the money. You have several distribution options for non-converted funds. RMD, interest only, 10 annual payments... Those options are for restricted funds. In supplemental accounts, the funds don't usually have the 10 installment restriction.

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Re: Can TIAA Traditional be my whole "bond" allocation?

Post by tibbitts » Sat Mar 18, 2017 10:41 am

If I assume 8% annual return from Wellesley, how can I calculate whether I am better off investing in Traditional now vs staying in Wellesley in the accumulation phase and shifting to Traditional in the payout phase?
You can't know what TIAA will give you at the time. It would be more helpful to discuss real return, though, and I'm guessing you'll find the consensus closer to 2% from Wellesley.

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fmpsk
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Re: Can TIAA Traditional be my whole "bond" allocation?

Post by fmpsk » Sat Mar 18, 2017 10:45 am

Oh, I like the idea of having a set it and forget it strategy for the Traditional after we retire. Then having another bond fund at Vanguard for adjusting asset allocation. A fine tuning knob, if you will.

Y'all are so helpful, and I'm learning so much! I had no idea how much I didn't know until I started doing more serious retirement planning a few weeks ago.

The research continues!!!
Thank you!!!!

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House Blend
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Re: Can TIAA Traditional be my whole "bond" allocation?

Post by House Blend » Sat Mar 18, 2017 12:49 pm

aristotelian wrote:One question I have, in addition to the interest rate going up, I am trying to learn about the benefit of contributing now (Age 42) as opposed to holding off until before retirement and then moving funds in. Based on this flyer, it appears to me they are saying that the earlier you start contributing, the higher your payout will be in retirement. But I don't see a transparent way of calculating it. Can someone explain this to me? If I start contributing now, what will my payout rate be if I retire at Age 65? Will it be in the 6% range? I have about $175K that I could move into it now and use as my bond allocation.
I see that no one has answered your question.

Yes, because of the vintage system, the oldest contributions tend to earn more per dollar during accumulation and pay out at a higher rate if/when annuitized.

Up until about a year ago, TIAA would publish monthly updates of the payout rates, by vintage, for newly annuitized contracts. Those rates did not include the portion that represents returning portions of your principal. (In other words, if your payout rate was R%, and your unisex life expectancy was 20 years at the time of annuitization, and TIAA charged $0 for their service, the monthly payout you would receive would be similar to the monthly payment on an R% fixed rate 20 year mortgage.)

Since these rates do not account for the entire income stream, that made them look bad in comparison to standard quotes one sees for SPIAs. Presumably that's why TIAA changed their practice and now posts monthly updates about the total payment for new annuities for two cases: (1) single life age 65 with 10 year guaranteed period, and
(2) joint life both age 65 (full benefit to survivor) 20 year guarantee.

Here's the current chart:

Code: Select all

Vintage		   (1)	  (2)
2017            6.2%    5.3%
2016            6.0%    5.1%
2012 - 2015     6.3%    5.4%
2000 - 2011     7.0%    6.1%
Pre-2000        8.4%    7.5%
See https://www.tiaa.org/public/investment- ... r=47933630

We can only speculate what the chart might look like 20 years from now.

aristotelian
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Re: Can TIAA Traditional be my whole "bond" allocation?

Post by aristotelian » Sat Mar 18, 2017 1:16 pm

House Blend wrote:
Yes, because of the vintage system, the oldest contributions tend to earn more per dollar during accumulation and pay out at a higher rate if/when annuitized.

Up until about a year ago, TIAA would publish monthly updates of the payout rates, by vintage, for newly annuitized contracts. Those rates did not include the portion that represents returning portions of your principal. (In other words, if your payout rate was R%, and your unisex life expectancy was 20 years at the time of annuitization, and TIAA charged $0 for their service, the monthly payout you would receive would be similar to the monthly payment on an R% fixed rate 20 year mortgage.)

Since these rates do not account for the entire income stream, that made them look bad in comparison to standard quotes one sees for SPIAs. Presumably that's why TIAA changed their practice and now posts monthly updates about the total payment for new annuities for two cases: (1) single life age 65 with 10 year guaranteed period, and
(2) joint life both age 65 (full benefit to survivor) 20 year guarantee.

Here's the current chart:

Code: Select all

Vintage		   (1)	  (2)
2017            6.2%    5.3%
2016            6.0%    5.1%
2012 - 2015     6.3%    5.4%
2000 - 2011     7.0%    6.1%
Pre-2000        8.4%    7.5%
We can only speculate what the chart might look like 20 years from now.
Very helpful, thanks!

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Re: Can TIAA Traditional be my whole "bond" allocation?

Post by awdesign » Sun Apr 14, 2019 4:26 pm

I have a similar question. I was considering to invest 30% of my portfolio into Vanguard Bonds but after I looked at in more detail what TIAA Traditional offers, now I am thinking to invest into TIAA instead of bonds.

Here is my research about bonds vs TIAA Traditional;

1. Most Vanguard bonds 5 year average return between 1.49% and 2.56%
see attached comparison table https://www.screencast.com/t/tTdsLAVE

2. TIAA crediting rate is about 4%
screenshot https://www.screencast.com/t/IellCCyezwP

I think investing in bonds will be more riskier than TIAA and less profitable.
What do you guys think
Thanks

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Re: Can TIAA Traditional be my whole "bond" allocation?

Post by cheese_breath » Sun Apr 14, 2019 4:29 pm

My 'bonds' have always been TIAA Traditional.
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Re: Can TIAA Traditional be my whole "bond" allocation?

Post by anonenigma » Sun Apr 14, 2019 4:38 pm

awdesign wrote:
Sun Apr 14, 2019 4:26 pm
I have a similar question. I was considering to invest 30% of my portfolio into Vanguard Bonds but after I looked at in more detail what TIAA Traditional offers, now I am thinking to invest into TIAA instead of bonds.

Here is my research about bonds vs TIAA Traditional;

1. Most Vanguard bonds 5 year average return between 1.49% and 2.56%
see attached comparison table https://www.screencast.com/t/tTdsLAVE

2. TIAA crediting rate is about 4%
screenshot https://www.screencast.com/t/IellCCyezwP

I think investing in bonds will be more riskier than TIAA and less profitable.
What do you guys think
Thanks
There are different versions of TIAA Traditional. I had it in my governmental 457(b), my 403(b) and my Roth IRA - none of them had the liquidity restrictions mentioned above but they paid a lot less than 4%. I recently rolled the 457(b) funds into my 403(b) because that version of TIAA Trad paid 25 bp more (3.25% v. 3.0%) and I could avoid the 22 bp 457(b) plan charge. I completed the TIAA to TIAA part of the transaction just before TIAA lowered the rate on new funds from 3.25% to 3.0%. The smaller amount of 457(b) money that was with Voya didn't make it before the rate was lowered. TIAA Traditional is great but nearly impossible to understand - particularly how decisions are made re: interest rates on funds contributed in the past.

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Re: Can TIAA Traditional be my whole "bond" allocation?

Post by Tdubs » Sun Apr 14, 2019 4:51 pm

4% is a pretty nice return guaranteed, especially now that it seems like we have reached a plateau in interest rates that will stay below TIAA. A large chunk of my "bonds" sits in TIAA traditional. But as mine is the illiquid 9 years and a day version, I finally decided to put a limit on the number of eggs I put in its basket. TIAA is not the U.S. treasury.

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Re: Can TIAA Traditional be my whole "bond" allocation?

Post by Wemick » Sun Apr 14, 2019 5:52 pm

I am happy to run across this thread. My wife and I have nearly $200K in TIAA Traditional accounts. Would it be a good idea to go 100% index funds in our Roth and taxable accounts since we have little accumulated in the way of equities?

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Re: Can TIAA Traditional be my whole "bond" allocation?

Post by Tdubs » Sun Apr 14, 2019 6:21 pm

Wemick wrote:
Sun Apr 14, 2019 5:52 pm
I am happy to run across this thread. My wife and I have nearly $200K in TIAA Traditional accounts. Would it be a good idea to go 100% index funds in our Roth and taxable accounts since we have little accumulated in the way of equities?
Would need to know your asset allocation and goals, but you'd certainly want to fill your Roth with high potential growth equity funds. A good total stock market index fund would be a good choice for equities in your taxable account. There is a couple BH wikis about this.

https://www.bogleheads.org/wiki/Asset_a ... e_accounts

https://www.bogleheads.org/wiki/Tax-eff ... _placement

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Re: Can TIAA Traditional be my whole "bond" allocation?

Post by Wemick » Sun Apr 14, 2019 6:56 pm

Thank you, tdubs. What do you mean by "high potential growth equity funds"? Do you mean growth as opposed to value type stocks, dividend growth funds?

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Re: Can TIAA Traditional be my whole "bond" allocation?

Post by nisiprius » Sun Apr 14, 2019 8:43 pm

I just tracked TIAA Traditional as a separate category in my spreadsheet. Years after I started doing this, I found that this is basically what TIAA wealth advisors do, they recognize four categories: stocks, bonds, cash, and "insured."

I then used the spreadsheet to strike different totals, and mostly, yes, I added up bonds and TIAA traditional and lumped them together.

The problem is that a bond mutual fund is highly liquid, and TIAA Traditional isn't very liquid at all.

From the point of view of long-term savings and sequence-of-returns-risk and market fluctuations and such, yes, it is like bonds. It's a low-risk holding that is almost certain to be there at the time you need it.

If you are the kind of sophisticated investor who thinks rebalancing is important and holds long-term bonds because they are volatile and the volatility is uncorrelated with stocks, then, no, it's not like bonds at all, because it doesn't fluctuate that way, and because it can't be "rebalanced."
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Re: Can TIAA Traditional be my whole "bond" allocation?

Post by Tdubs » Sun Apr 14, 2019 8:56 pm

Wemick wrote:
Sun Apr 14, 2019 6:56 pm
Thank you, tdubs. What do you mean by "high potential growth equity funds"? Do you mean growth as opposed to value type stocks, dividend growth funds?
Sorry, I meant growth in the sense of a high annual return. Given the tax advantages of a Roth, you should hold them till late in your retirement years. So, given their long investment horizons, Roths typically hold the more volatile equity funds in your portfolio that yield higher returns.

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Re: Can TIAA Traditional be my whole "bond" allocation?

Post by BayouBoy » Mon Apr 15, 2019 12:48 am

I contributed to TIAA Traditional from 1977-1998. This was Traditional under a Retirement Annuity (RA) plan and then under a Guaranteed Retirement Annuity (GRA) plan. At present, the Traditional in the RA plan is earning 4.255% (of which 3.00% is guaranteed), and in the GRA plan 3.972% (of which 3.00% is guaranteed). If I opt to annuitize the Traditional in the RA and GRA plans (age 70, one-life annuity, no guaranteed period) the payout rate (based on TIAA's on line calculator) will be about 8.9%, a relatively high rate because my contributions represent older "vintages."

I also have Traditional under a group supplemental GSRA plan, which is earning 3.307% (of which 1.3% is guaranteed). A trade-off on the higher returns under the RA and GRA plans is the restriction on cash withdrawal (basically, you have to use the so-called Transfer Payout Annuity (TPA) method); funds in Traditional under the GSRA plan are totally liquid.

This document compares the plans:
https://www.tiaa.org/public/pdf/RC_Comp ... _8_fin.pdf

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