TIAA Traditional Annuity - New 401a/403b option

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blueman457
Posts: 270
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TIAA Traditional Annuity - New 401a/403b option

Post by blueman457 » Fri Jun 16, 2017 11:28 am

I discovered today that my new employer has a TIAA Traditional Annuity - Retirement Choice Plus Annuity as an option in my 401a/403b.

Question: can it replace a bond fund?

I have searched and read previous posts on this and called TIAA today.

It is illiquid in my 401a (7 year payout should I leave), but liquid in the 403b.
It pays a minimum of 1% interest annually. However it can pay out higher dependent on insurance claims, but I'm still unclear how the interest rate works.

"Interest on accumulations credited to TIAA Traditional Annuities in the accumulating stage includes a guaranteed amount (1.00% through February 28, 2017 for current premiums in RCP), plus additional amounts that may be declared on a year-by-year basis and are not guaranteed for future years. For information about current rates on additional amounts, visit our website at TIAA.org. Guarantees under the TIAA Traditional Annuity are backed by TIAA's claims-paying ability."


Accumulating Stage Interest Crediting Rates
Contributions Applied
01/01/17 - 06/30/17 3.50%
05/01/16 - 12/31/16 3.25%
07/01/15 - 04/30/16 3.50%
01/01/13 - 06/30/15 3.00%
01/01/12 - 12/31/12 2.75%
01/01/10 - 12/31/11 3.25%
06/01/06 - 12/31/09 3.50%

Does this mean that if I make a contribution today to my 403b, it will get 3.5% for one year and then determined annually by TIAA? Can I find out the history of interest rates or is the above table tell me what what changes are made annually/semi-annually? I intend to use this as a stable fund in my 403b to balance out the equities.

Thanks,

Blue Man

The Wizard
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Re: TIAA Traditional Annuity - New 401a/403b option

Post by The Wizard » Fri Jun 16, 2017 11:41 am

Yes to replacing a bond fund. You'll need the liquid version to rebalance into stocks when the next crash comes.

Yes also to the 3.5% question for today's contribution. As time goes on, TIAA tends to bunch vintages into multi-year spans as you see with 06 to 09. But the rates on older vintages tend to be stable; they don't decline to 1% just because the rules allow it...
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blueman457
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Re: TIAA Traditional Annuity - New 401a/403b option

Post by blueman457 » Sun Jun 18, 2017 10:28 am

The Wizard wrote:Yes to replacing a bond fund. You'll need the liquid version to rebalance into stocks when the next crash comes.

Yes also to the 3.5% question for today's contribution. As time goes on, TIAA tends to bunch vintages into multi-year spans as you see with 06 to 09. But the rates on older vintages tend to be stable; they don't decline to 1% just because the rules allow it...
Thanks. Is there an advantage to using this over Total Bond Fund (which I can get via setting up a brokerage account in my 403b).

Blue Man

aristotelian
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Re: TIAA Traditional Annuity - New 401a/403b option

Post by aristotelian » Sun Jun 18, 2017 10:35 am

I use it for a portion of my fixed income allocation. The problem is that the liquid versions that you could use for rebalancing have lower return. While stability is more important than return for my purposes, at only 3% (which is my guaranteed liquid rate), you are really giving up a lot of return. The illiquid version interest rate is closer to bond market historical returns, but then you cannot use it to rebalance. I use the illiquid in combination with Vanguard Wellesley Income which happens to be the best (mostly) bond fund in my employer plan. (But I would use Total Bond Market if it was available to me).

livesoft
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Re: TIAA Traditional Annuity - New 401a/403b option

Post by livesoft » Sun Jun 18, 2017 10:36 am

blueman457 wrote:Thanks. Is there an advantage to using this over Total Bond Fund (which I can get via setting up a brokerage account in my 403b).
Maybe. The TIAA TA hides the volatility of a total bond index fund while providing the return of the total bond index fund over the long term. If you don't like to see your bond fund go up and down and sometimes lose money, then TIAA TA is the way to go. If you like to rebalance into bond funds when they drop and sell out of them when they go up, then the total bond index fund is a better choice.

If neither of those things matter to you, then have some of both.
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need403bhelp
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Re: TIAA Traditional Annuity - New 401a/403b option

Post by need403bhelp » Sun Jun 18, 2017 2:58 pm

A fairly recently thread on TIAA Traditional: viewtopic.php?t=211688

Blog post regarding how it is similar to and different from a total US bond fund: http://collegeretirement.blogspot.com/2 ... -deal.html

Pertinent chart from above blog post: Image

With that said, for my institution's plan, the TIAA Traditional GSRA has had the following yields (reference is https://www.tiaa.org/public/tcm/utexas/ ... r=47933633):

1 Year: 3.33%
3 Year: 3.31%
5 Year: 3.35%
10 Year: 3.58%

VBTIX, on the other hand, has had the following yields (reference is https://nb.fidelity.com/public/workplac ... anId=82501):

1 Year: 1.48%
3 Year: 2.48%
5 Year: 2.15%
10 Year: 4.43%

So, it looks like the TIAA Traditional has been a "better" bet for the past 5 years, but not for the past 10 years.

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