Assistance with FI and question about TIAA traditional

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Topic Author
retireearly
Posts: 116
Joined: Tue Mar 14, 2017 1:51 pm

Assistance with FI and question about TIAA traditional

Post by retireearly »

Hi everyone,

I joined about the board about four months ago at my 44th bday with the goal of learning more building up my fixed income portion of the portfolio. About four months later I have gotten to the point where I went from 100% stocks (of which 7.5% is/was REIT) to now having 80 stock /20 bond.

My question now is that I wonder if I can make that 20% FI more productive by using Tiaa Traditional for some of the FI instead of some of the current bond funds I’m using. I used the search option on the board and read just about all there was on the topic on bogleheads, so I think I have an idea but want to hear more!

Currently, the 20% FI which is approx $267K is in:
NYS 457 US Debt Index (well, currently Van total bond but soon their new CIT total bond index) $168K (OE of .0198)
Van Total International Bond (vtabx) (.12 oe) $15K (note: I will be adding more to this and removing some from either the total, interm or short term)
Vang Total Bond (VBMPX) (oe .05) $5000.
Fidelity (401K) Interm Term Bond Index (.027 OE)$ 20K
Fidelity (401K) Short Term Bond Index (.067 OE) $58K
*If/when the market drops in 5% increments, I plan on dipping into the short term bonds and then interm to buy stocks on sale. I’ll have future questions on that at a later time!

So, my question for all you folks do you think it makes sense to take, say half of that FI amount, and move it into Tiaa’s Traditional fund with its guarantee of 3% (and currently paying 4% now)? Like many, I’m uncertain on the bond market so on the surface, I think it makes sense to get a guarantee of 3% - maybe even just to hedge bonds? Or maybe the 3% guarantee is better than the bond outlook so it's not even a hedge based on the "potential" of the bond bull being over (certainly no more returns like 7,8, 9%)...

The only downside I see is that it is illiquid and if I want to move out of the fund, it has to be done over a 9 year period, in 10 separate transfers. Or, if it is annuitized which I’m not looking to do for the foreseeable future.

Some background on our situation to help everyone with my question:

Age: Both wife and I are 44. Kids are 7 and 12.
Income: Right around 200K but keep MAGI low enough to still make both Roths.
Emergency funds: 33K Currently 3-4 months of emergency in CIT and Cap One yielding <1.1% (used the sign up bonus posted on this site!)
Mortgage/Debt: Home value 400K, owe 187K on mortgage at 2.6% (9 years left). No other debt
Tax Filing Status: Married Joint
Tax Rate: 28% Federal but effective rate near 15%
State of Residence:NY
Desired Asset allocation: 80% stocks / 20% bonds (if the market continues to move up, I might move our bond % up 2-4 points soon. If we see a big correction, I can see myself moving down to 15% and buying some low)
Desired International allocation: 50% of stocks

I would like to retire in about 11-14 years, my wife probably would go at least to 60 (another 14) but maybe longer.

No pensions.


Current retirement assets

We contribute (including matches) about 50K per year in savings plans and should be able to do that for the next six years but then maybe reduce a bit to partially cash flow some college.

Wife 401K $79K
My 403B $234K
My 457 219K ($7K of it is roth)
Wife Rollover IRA $248K
My Roth $124K
Wife Roth $2434K

Our Asset Allocation is pretty much where I want it at just about 50/50 Us//Int (actually 52 Int right now, 48 US but I’m good with that). I tilt SCV and have 16% of my overall portfolio in EM (20% of the stock portfolio).

Total overall Retirement: $1,339,000: Total Tax Def’d: $965K. Total Total Roth: $374K. Taxable: $0 (I’m not counting 33K emergency into this pool of funds)
Note: We have 41K combined in their 529s but are not actively adding more.

Any comments and help would be appreciated!

Thanks!
Age:45, about to be single for first time since 1995. Kids 8/13. Current AA 70/30, Desired stock AA 50/50, overweight EM, Int SC and US SCV.
student
Posts: 10720
Joined: Fri Apr 03, 2015 6:58 am

Re: Assistance with FI and question about TIAA traditional

Post by student »

I am not sure what do you mean by productive but I can tell you that almost all my fixed income investments are in various flavors of TIAA Traditional. You may want to look at

viewtopic.php?f=1&t=217366
viewtopic.php?f=1&t=218182
viewtopic.php?f=1&t=221239
whomever
Posts: 1198
Joined: Sat Apr 21, 2012 5:21 pm

Re: Assistance with FI and question about TIAA traditional

Post by whomever »

The 'no pension' makes me wonder what you think about annuities in retirement? If you think there might be a place for one in your retirement plan, TIAA is probably one of the better choices for annuities.

(disclaimer: we have TIAA Trad and plan to annuitize it)
Topic Author
retireearly
Posts: 116
Joined: Tue Mar 14, 2017 1:51 pm

Re: Assistance with FI and question about TIAA traditional

Post by retireearly »

Thanks for the reply. I meant that will produce more via the guarantee of 3% and current 4% and "most likely' yield more than some interm or total bond fund indexes. Thank for links. I didn't original see all of those comments so there was so good/new info in there.


student wrote:I am not sure what do you mean by productive but I can tell you that almost all my fixed income investments are in various flavors of TIAA Traditional. You may want to look at

viewtopic.php?f=1&t=217366
viewtopic.php?f=1&t=218182
viewtopic.php?f=1&t=221239
Age:45, about to be single for first time since 1995. Kids 8/13. Current AA 70/30, Desired stock AA 50/50, overweight EM, Int SC and US SCV.
Topic Author
retireearly
Posts: 116
Joined: Tue Mar 14, 2017 1:51 pm

Re: Assistance with FI and question about TIAA traditional

Post by retireearly »

Thanks for the reply, too. Though I'm only 44, I have envisioned using an SPIA for a small sliver of the portfolio so I like that you pointed that out since I wasn't considering the Traditional fund in the role, mainly because I've never paid much attention to non-equities until the last 4-5 months.

I've yet to talk to anyone at Tiaa yet since I wanted to do my "research" here first. However, one of the comments on the other threads said that once one is out of the accumulation phase (with the 3+ yield) one can then annuitize just like a typical annuity by turning in the princiapal and then getting an even greater guarantee. Is that true and the reason you are using it as part of your portfolio?


whomever wrote:The 'no pension' makes me wonder what you think about annuities in retirement? If you think there might be a place for one in your retirement plan, TIAA is probably one of the better choices for annuities.

(disclaimer: we have TIAA Trad and plan to annuitize it)
Age:45, about to be single for first time since 1995. Kids 8/13. Current AA 70/30, Desired stock AA 50/50, overweight EM, Int SC and US SCV.
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House Blend
Posts: 4877
Joined: Fri May 04, 2007 1:02 pm

Re: Assistance with FI and question about TIAA traditional

Post by House Blend »

retireearly wrote:I've yet to talk to anyone at Tiaa yet since I wanted to do my "research" here first. However, one of the comments on the other threads said that once one is out of the accumulation phase (with the 3+ yield) one can then annuitize just like a typical annuity by turning in the princiapal and then getting an even greater guarantee. Is that true [...]?
Yes, that's what TIAA Traditional was designed for--producing stable income in retirement. There is a graded option at the time of annuitization which provides for rising income, but there's no promise that it will keep up with inflation. Likewise most SPIAs are not inflation-adjusted or else are very pricey.

And it is not *exactly* the same as a SPIA. Part of the annuitized income is guaranteed, but some of it varies from year to year (just as the earnings do during accumulation). In practice (and TIAA has many decades of practice), the income produced is fairly smooth, and competitive if not resoundingly better compared to what you can get from a conventional SPIA.

For example, if you are 65yo and choose a single-life annuity with 10 year guaranteed period, the current payout rates for annuitizing TIAA Traditional today are 6.2%, 6.0%, 6.3%, 7.0%, 8.4%, depending on the vintage. The 8.4% rate is for contributions prior to 2000.

I compared this with the payout rate for a SPIA with the same particulars over at immediateannuities.com and obtained 6.5% for male, and 6.2% for female.

(So yes, because qualified plans have to be unisex, there's a distinct advantage for a single female to annuitize her 403(b), rather than hand over a lump of cash for a SPIA.)

And if the notion of a stable retirement income is deeply offensive, you can instead set up a contract that simply takes out the RMDs from your accumulations of TIAA Traditional.
Topic Author
retireearly
Posts: 116
Joined: Tue Mar 14, 2017 1:51 pm

Re: Assistance with FI and question about TIAA traditional

Post by retireearly »

House Blend wrote:
retireearly wrote:I've yet to talk to anyone at Tiaa yet since I wanted to do my "research" here first. However, one of the comments on the other threads said that once one is out of the accumulation phase (with the 3+ yield) one can then annuitize just like a typical annuity by turning in the princiapal and then getting an even greater guarantee. Is that true [...]?
Yes, that's what TIAA Traditional was designed for--producing stable income in retirement. There is a graded option at the time of annuitization which provides for rising income, but there's no promise that it will keep up with inflation. Likewise most SPIAs are not inflation-adjusted or else are very pricey.

And it is not *exactly* the same as a SPIA. Part of the annuitized income is guaranteed, but some of it varies from year to year (just as the earnings do during accumulation). In practice (and TIAA has many decades of practice), the income produced is fairly smooth, and competitive if not resoundingly better compared to what you can get from a conventional SPIA.

For example, if you are 65yo and choose a single-life annuity with 10 year guaranteed period, the current payout rates for annuitizing TIAA Traditional today are 6.2%, 6.0%, 6.3%, 7.0%, 8.4%, depending on the vintage. The 8.4% rate is for contributions prior to 2000.

I compared this with the payout rate for a SPIA with the same particulars over at immediateannuities.com and obtained 6.5% for male, and 6.2% for female.

(So yes, because qualified plans have to be unisex, there's a distinct advantage for a single female to annuitize her 403(b), rather than hand over a lump of cash for a SPIA.)

And if the notion of a stable retirement income is deeply offensive, you can instead set up a contract that simply takes out the RMDs from your accumulations of TIAA Traditional.
Houseblend, I missed your response the first time around, thanks for adding that info. It was helpful, along with the other posts.


I ended up moving about 85-90K into the Traditional, which is a out 6% of my total port, and nearly a quarter of my FI. I'm 44, so I could see increasing that tiaa traditional % of my FI a bit. I'm now 73/27 for my overall portfolio. The rest of the FI is split with total bond markets (van, fid) and van total int bond.
Age:45, about to be single for first time since 1995. Kids 8/13. Current AA 70/30, Desired stock AA 50/50, overweight EM, Int SC and US SCV.
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Timoneer
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Re: Assistance with FI and question about TIAA traditional

Post by Timoneer »

House Blend wrote:For example, if you are 65yo and choose a single-life annuity with 10 year guaranteed period, the current payout rates for annuitizing TIAA Traditional today are 6.2%, 6.0%, 6.3%, 7.0%, 8.4%, depending on the vintage. The 8.4% rate is for contributions prior to 2000.

TIAA has its own vocabulary, with definitions that are sometimes misleading. The published 'payout rates' for Traditional are not the actual amounts that an annuity will pay. They are simply a factor that goes into determining the annuity payment by some secret formula that TIAA will not reveal.

That said, I agree with the other points. During the past low interest rate period Trad has paid far higher rates than other fixed income investments. With older 'vintages', TIAA annuities seem to be much more generous than other insurance companies. Other than annuitizing, the options for withdrawal include the 9 year payout, RMD's after 70, or simply withdrawing the annual interest earned.
User avatar
House Blend
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Re: Assistance with FI and question about TIAA traditional

Post by House Blend »

Timoneer wrote:
House Blend wrote:For example, if you are 65yo and choose a single-life annuity with 10 year guaranteed period, the current payout rates for annuitizing TIAA Traditional today are 6.2%, 6.0%, 6.3%, 7.0%, 8.4%, depending on the vintage. The 8.4% rate is for contributions prior to 2000.
TIAA has its own vocabulary, with definitions that are sometimes misleading. The published 'payout rates' for Traditional are not the actual amounts that an annuity will pay. They are simply a factor that goes into determining the annuity payment by some secret formula that TIAA will not reveal.
Not true anymore. I forget when TIAA changed their reporting format, but it was sometime within the past two years.

Yes, it used to be that the reported payout rates were just the internal earning rates and didn't account for the return of capital and mortality credits that vary with age and the parameters of your particular annuitization option.

Presumably too many of their customers didn't understand the distinction, so to make the Traditional Annuity more easily compared to SPIAs, the rates they report now are telling you exactly what the first paycheck will be, for two cases: (1) a 65 year old, single life annuity with 10 years guaranteed, and (2) a 65 year old choosing a two-life annuity (full benefit to survivor) with 20 years guaranteed. (Presumably the partner is also assumed to be 65.)

Do read the fine print about payout rates at the bottom of this page if you haven't looked at it recently:
https://www.tiaa.org/public/investment- ... r=47933630
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