How or if to use TIAA annuity

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PDXBogle
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How or if to use TIAA annuity

Post by PDXBogle » Mon Aug 07, 2017 1:20 pm

Wife (43yo) and I (45yo) have ~$650k spread across variety of 401k, 403b and rIRAs. 69% US, 21% Intl and 10% Bond. Plus I have a "portable" pension account from a previous employer which is really a 4% annuity, which I consider a bond substitute worth ~$45k and a traditional pension that will pay $1028/month at 62. If you include the portable pension, my allocation shifts to 64%/20%/16%. I can figure an NPV for the traditional but not sure if I should include in my allocations or not. Generally, right now I'm rebalancing everything to take advantage of each account types various advantages.

I don't love my wife's various 403b TIAA offerings (R2 level), the ERs are mediocre, including her current one. I don't want to roll into an IRA because that would create a tax liability if I want to backdoor an rIRA. However, there is one move I might be able to make, her previous employer changed plans TIAA plans in 2011 so she has 2 accounts pre and post 2011. Pre has a traditional 4% annuity option and post has lower expense ratios.

So my question is, should I request the previous employer roll them together into the new post 2011 format and get lower ERs or keep the pre 2011 acct and take advantage of the annuity option. I could reduce bonds elsewhere to maintain allocation. 4% fixed annuity seems like a better deal than most bond returns, am I wrong? The pre 2011 account has $75k in it.

As you can tell by my allocations, I have a very long view of markets and I'm not risk averse. That said, even I'm getting a bit concerned about current prices.

daveydoo
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Re: How or if to use TIAA annuity

Post by daveydoo » Mon Aug 07, 2017 1:45 pm

PDXBogle wrote:4% fixed annuity seems like a better deal than most bond returns, am I wrong? The pre 2011 account has $75k in it.
4% is a great return on invested principal but not for an annuity, right? And you're 20+ years from retirement -- what will it be then? And the revenue stream from this will be ~ $3K/year (i.e., modest). The TIAA Traditional is the product I've heard discussed favorably on this forum; I think it pays ~ 3% and you get your principal back -- but whether you get it back over one year or ten years depends upon the particular flavor of TIAA Traditional that your plan has access to.

jalbert
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Re: How or if to use TIAA annuity

Post by jalbert » Mon Aug 07, 2017 1:49 pm

TIAA Traditional is an excellent fixed income option. You give up liquidity in return for principal stability. With a 4% crediting rate, it is likely to beat the total bond market index over the next 6 years. The TIAA portfolio that underpins TIAA's ability to make good on its obligations has a lower allocation to treasuries than the total bond market index (maybe 28% vs 43% for TBM) so there is a little higher credit risk with TIAA Traditional than with TBM.
Risk is not a guarantor of return.

livesoft
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Re: How or if to use TIAA annuity

Post by livesoft » Mon Aug 07, 2017 1:54 pm

The long-term returns of TIAA traditional are similar to Total US bond index. You pay for years that it does better than a bond fund by the years is does worse than a bond fund.

I have a little bit of the portfolio in TIAA traditional. I simply treat it as part of my fixed income asset allocation.
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jalbert
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Re: How or if to use TIAA annuity

Post by jalbert » Mon Aug 07, 2017 1:57 pm

4% is a great return on invested principal but not for an annuity, right?
It is an annuity contract to provide a fixed income investment paying 4% currently. Withdrawals can later be taken as an income annuity if desired (and at a different prevailing rate) but it can also be taken as a cash withdrawal spread over N years where N = 10 for many TIAA contracts.
Risk is not a guarantor of return.

PDXBogle
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Re: How or if to use TIAA annuity

Post by PDXBogle » Mon Aug 07, 2017 2:15 pm

daveydoo wrote: depends upon the particular flavor of TIAA Traditional that your plan has access to.
That hits at my next question, she has a variety of plans available. The differences aren't clear to me. This account in question has:
1) TIAA Traditional Annuity - Group Retirement Annuity 4%
2) TIAA Traditional Annuity - Retirement Annuity 4%

In another account the options are:
1) TIAA Traditional Annuity - Group Supplemental Retirement Annuity 3.25%
2) TIAA Traditional Annuity - Supplementtal Retirement Annuity 3.25%
3) TIAA Traditional Annuity - Retirement Annuity 4%

PDXBogle
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Re: How or if to use TIAA annuity

Post by PDXBogle » Mon Aug 07, 2017 2:42 pm

I'm combing through the docs and found this:
"all withdrawals and transfers from the account must be paid in ten annual installments". Which if I'm reading right means I can't move money around on a whim...not that I do normally.

aristotelian
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Re: How or if to use TIAA annuity

Post by aristotelian » Mon Aug 07, 2017 2:49 pm

I have it as about 1/3 of my fixed income holding. The only problem is the highest rate versions are not liquid so they can't be used for rebalancing. Otherwise it is like getting total bond market return at less risk.

ResearchMed
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Re: How or if to use TIAA annuity

Post by ResearchMed » Mon Aug 07, 2017 2:54 pm

PDXBogle wrote:I'm combing through the docs and found this:
"all withdrawals and transfers from the account must be paid in ten annual installments". Which if I'm reading right means I can't move money around on a whim...not that I do normally.
Correct.
But there are other ways to "use" the money, if desired, other than "withdrawals and transfers".

One relative favorite is later to annuitize it; that is, to turn it into a lifetime stream of income, for as long as one (or two) lives.
There are a few choices about how to arrange this (percentage to survivor, etc.).

But it's complicated, because although apparently (hearsay warning!) the returns are good vs. commercial SPIA's, some/much of the extra is really (as in REALLY) opaque about how TIAA calculates that figure each year.

But TIAA has been around with these annuities for a long time, and many of us here have parents who had successful/comfortable retirements because of these annuities. (Both of us are in that camp.)

BTW, are you sure the 4% is *guaranteed* or is it a guaranteed 3% with the extra 1% for current money invested?
The "extra" is what will fluctuate, and this is only PRIOR to actual annuitizing. Afterwards, it's all figured differently.

RM
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PDXBogle
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Re: How or if to use TIAA annuity

Post by PDXBogle » Mon Aug 07, 2017 3:04 pm

ResearchMed wrote:
BTW, are you sure the 4% is *guaranteed* or is it a guaranteed 3% with the extra 1% for current money invested?

RM


I believe you are correct, looks like 3% guaranteed. Current it 4%.

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House Blend
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Re: How or if to use TIAA annuity

Post by House Blend » Mon Aug 07, 2017 3:45 pm

PDXBogle wrote:That hits at my next question, she has a variety of plans available. The differences aren't clear to me. This account in question has:
1) TIAA Traditional Annuity - Group Retirement Annuity 4%
2) TIAA Traditional Annuity - Retirement Annuity 4%

In another account the options are:
1) TIAA Traditional Annuity - Group Supplemental Retirement Annuity 3.25%
2) TIAA Traditional Annuity - Supplementtal Retirement Annuity 3.25%
3) TIAA Traditional Annuity - Retirement Annuity 4%
The ones paying 4% you can transfer into easily, but cannot transfer out except over multiyear periods.

The ones paying 3.25% you can transfer in/out.

It may be that the pre-2011 403(b) from the old employer only has the 4% non-liquid version, although it is a common setup for the employer and employee contributions go into separate accounts, with the account containing the employer match offering non-liquid Traditional and the account containing employee contributions offering liquid Traditional.

If this account has $75K, wouldn't it exceed your current allocation to fixed income if you moved it all into 4% Traditional? If you expect to be able to rebalance in/out of fixed income using other accounts, it looks to me like you might not want to go all-in on 4% Traditional right now. Aside from that, if you're ok with the lock-up, I don't have a problem with it.

livesoft
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Re: How or if to use TIAA annuity

Post by livesoft » Mon Aug 07, 2017 3:47 pm

The TIAA.org web site has a page / PDF that explains all the versions of TIAA traditional that you have in less that 2 pages of tables. Can you find it?
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PDXBogle
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Re: How or if to use TIAA annuity

Post by PDXBogle » Mon Aug 07, 2017 4:46 pm

House Blend wrote:If this account has $75K, wouldn't it exceed your current allocation to fixed income if you moved it all into 4% Traditional?
My intent was not to move it all. Don't think I stated I would.

I explained the higher ERs of this account because the non-annuity funds would have to be in those. What I'm hearing is: the annuity is good, but not knock it outa the park good in comparison to bond funds. So penalty I'll pay in ERs on remaining funds probably aren't worth it and I should roll this money into something else.

PDXBogle
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Re: How or if to use TIAA annuity

Post by PDXBogle » Mon Aug 07, 2017 4:48 pm

livesoft wrote:The TIAA.org web site has a page / PDF that explains all the versions of TIAA traditional that you have in less that 2 pages of tables. Can you find it?
No I didn't find this. I found a wordy 15 page doc, that seemed to break it down but very confusing.

PDXBogle
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Re: How or if to use TIAA annuity

Post by PDXBogle » Mon Aug 07, 2017 4:49 pm

House Blend wrote: The ones paying 3.25% you can transfer in/out.
Thanks, that was what I was beginning to suspect.

livesoft
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Re: How or if to use TIAA annuity

Post by livesoft » Mon Aug 07, 2017 4:54 pm

PDXBogle wrote:
livesoft wrote:The TIAA.org web site has a page / PDF that explains all the versions of TIAA traditional that you have in less that 2 pages of tables. Can you find it?
No I didn't find this. I found a wordy 15 page doc, that seemed to break it down but very confusing.
https://www.tiaa.org/public/pdf/RC_Comp ... _8_fin.pdf
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PDXBogle
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Re: How or if to use TIAA annuity

Post by PDXBogle » Mon Aug 07, 2017 4:58 pm

livesoft wrote:
PDXBogle wrote:
livesoft wrote:The TIAA.org web site has a page / PDF that explains all the versions of TIAA traditional that you have in less that 2 pages of tables. Can you find it?
No I didn't find this. I found a wordy 15 page doc, that seemed to break it down but very confusing.
https://www.tiaa.org/public/pdf/RC_Comp ... _8_fin.pdf
Perfect, just what I needed. Thanks!

livesoft
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Re: How or if to use TIAA annuity

Post by livesoft » Mon Aug 07, 2017 5:00 pm

See also the FAQ:
https://www.tiaa.org/public/offer/produ ... al-annuity

Or send message to TIAA.
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22twain
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Re: How or if to use TIAA annuity

Post by 22twain » Mon Aug 07, 2017 5:53 pm

Beware the footnote:
1. Income and withdrawal options are subject to the terms of the employer plan.
To be sure about your options for getting money out, you need to read the terms of your employer's plan.

jalbert
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Re: How or if to use TIAA annuity

Post by jalbert » Mon Aug 07, 2017 7:11 pm

I highly recommend talking to TIAA-CREF directly to learn about the different nuances associated with all the different versions of this product available to you.
Risk is not a guarantor of return.

daveydoo
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Re: How or if to use TIAA annuity

Post by daveydoo » Mon Aug 07, 2017 7:31 pm

jalbert wrote:I highly recommend talking to TIAA-CREF directly to learn about the different nuances associated with all the different versions of this product available to you.
Be careful. I was aggressively misled when I did this in the past. They are primarily an annuity company. YMMV.

rebellovw
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Re: How or if to use TIAA annuity

Post by rebellovw » Mon Aug 07, 2017 8:01 pm

Hmm don't talk with them as they will push something and the 15 page doc is confusing... can't folks simply post the product they bought so there are no mistakes? I'm definitely interested but afraid of making a mistake. Thanks.

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willthrill81
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Re: How or if to use TIAA annuity

Post by willthrill81 » Mon Aug 07, 2017 8:46 pm

22twain wrote:
Beware the footnote:
1. Income and withdrawal options are subject to the terms of the employer plan.
To be sure about your options for getting money out, you need to read the terms of your employer's plan.
When you read the 'not so fine' print, it's very clear that TIAA Traditional (currently paying 4%) limits your withdrawals to 10% of your portfolio beginning immediately and then followed by 10% withdrawals over the next nine years. With the TIAA Supplemental (currently paying 3.25%) annuity plans, they specifically state that they allow free movement in and out (at least when I view them in my account; check for yourself with your employer's plan).

When the time comes for me to start moving out of my all stock position, I'll very likely do it with one of these TIAA annuities. Yes, the long-term returns they have provided have been similar to that of a TBM fund (better I think right now since TBM only has a 2.36% yield and we're in a rising rate environment), but the key difference is that there is virtually no volatility. This limits your upside potential, but more importantly with fixed income investments, it limits your downside risk as well. If you're holding fixed income for safety, these products are about as safe as you can get and still offer very respectable rates.
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Sadaf
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Re: How or if to use TIAA annuity

Post by Sadaf » Tue Aug 08, 2017 10:28 am

PDXBogle wrote:I don't want to roll into an IRA because that would create a tax liability if I want to backdoor an rIRA.
I missed somethings, why would a rollover from a 403b cause a tax liability? If you did a ROTH conversion it would, but a trustee to trustee rollover would incur no tax.

blgaarder
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Re: How or if to use TIAA annuity

Post by blgaarder » Fri Aug 11, 2017 1:42 pm

Check on something new called a recurring required minimum distribution (RRMD).

I spoke with my TIAA advisor about this in June.

This is different than the old minimum distribution option (MDO) or the transfer payout annuity (TPA).

The MDO created a new contract and could not be changed.

The TPA is, as discussed, ten roughly equal payments.

The RRMD amount can be changed.

Both MDO and RRMD are meant to satisfy the IRS.

I plan to do RRMDs until I decide to annuitize, or maybe forever.

Beth*
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Re: How or if to use TIAA annuity

Post by Beth* » Sat Aug 12, 2017 11:12 am

Does anyone know where to find the TIAA document that shows the interest credited by vintage for TIAA traditional during the payout phase for annuity created this year? I downloaded one about a year ago and I am sure there has been an update but I can't find it on their site. I can currently find a chart that shows the percentage of the total amount converted that is paid out in an annuity, but that is not the same thing as the interest credited during the payout stage since the total paid out includes principle.

student
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Re: How or if to use TIAA annuity

Post by student » Sat Aug 12, 2017 12:30 pm

Beth* wrote:
Sat Aug 12, 2017 11:12 am
Does anyone know where to find the TIAA document that shows the interest credited by vintage for TIAA traditional during the payout phase for annuity created this year? I downloaded one about a year ago and I am sure there has been an update but I can't find it on their site. I can currently find a chart that shows the percentage of the total amount converted that is paid out in an annuity, but that is not the same thing as the interest credited during the payout stage since the total paid out includes principle.
It is on the same page that talks about TIAA interest rates. The payout rate is the last table of the page.

https://www.tiaa.org/public/investment- ... r=47933632

finite_difference
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Re: How or if to use TIAA annuity

Post by finite_difference » Sat Aug 12, 2017 1:28 pm

How does the TIAA lifetime income (available for the TIAA annuity products) compare to an SPIA?

I guess no matter what, you should take their quote and compare it to immediateannuities.com. Just curious if they are generally viewed as a good deal or not.
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The Wizard
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Re: How or if to use TIAA annuity

Post by The Wizard » Sat Aug 12, 2017 3:07 pm

finite_difference wrote:
Sat Aug 12, 2017 1:28 pm
How does the TIAA lifetime income (available for the TIAA annuity products) compare to an SPIA?

I guess no matter what, you should take their quote and compare it to immediateannuities.com. Just curious if they are generally viewed as a good deal or not.
TIAA is a better deal, based on my two experiences.
And TIAA occasionally gives small unscheduled upticks to current annuitants, something that SPIA issuers are unlikely to do...
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beardsworth
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Re: How or if to use TIAA annuity

Post by beardsworth » Sat Aug 12, 2017 4:16 pm

There may be some pieces of information missing here, or instances where different posters may seem to be talking about the same thing but are not.

First, unless TIAA has introduced some new account type unfamiliar to me, TIAA Traditional with a 3% minimum accumulating rate is no longer available in personal IRAs. In view of sustained low rates in bond markets, TIAA closed that door in mid-2013. Participants who already had 3%-minimum TIAA Traditional accumulations in IRAs before the cutoff date were allowed to keep those accumulations, but not to add to them with further contributions or with transfers from other accounts or institutions; in effect (except for the ongoing compounding of interest) they were frozen. TIAA Traditional in personal IRAs now carries a minimum accumulating rate of 1% although it's currently paying higher, although still not as high as the old 3% minimum. However, if such IRA accumulations are eventually annuitized for lifetime income, then the annuity payout rate for both types is still higher than the accumulation-stage rate.

Second, there have been a number of posts about the ability, i.e., greater liquidity, to move money in and out of what is here being called "3.25%" TIAA Traditional. That happens to be the current accumulating rate for voluntary employer plan annuity accounts whose name contains the term "Supplemental," although the 3.25% itself is subject to change. There is, however, a caveat to the liquidity. In olden days, when TIAA announced an increase in rates, it was possible to move money, even an entire accumulation, from TIAA Traditional to (for example) CREF Money Market, let it sit there for one business day, and then move it back and have it treated as a "new" contribution at the higher rate. TIAA, which (naturally) is trying to make stable investments not intended to be "gamed" through short-term participant trading, then implemented a rule in which money transferred out of TIAA Traditional in a Supplemental account and then transferred back less than 120 days later is restored to its previous interest rate profile as if the transfer had never occurred at all. See the fine print about Participant Transfers beneath the charts here:

https://www.tiaa.org/public/investment- ... r=47933633

And another caveat about liquidity and moving money around is that TIAA Traditional, for purposes of both accumulation rates and annuitization payout rates, is based on a "vintage" system in which older contributions tend to earn higher rates than newer ones. Repeated movements out of Traditional, and then back in (if more than 120 days later, so that the inbound money is indeed treated as "new") may wipe out the previous, more advantageous, vintage structure of the original accumulation. In other words, especially if a person contemplates the long-term goal of annuitization for lifetime income, short-term liquidity movements may impose long-term costs through reduction of the future composite vintage payout structure. Of course, if interest rates on "new" money have risen dramatically, this may be of less concern, although in such situations older rates would also tend to have risen.

The Wizard
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Re: How or if to use TIAA annuity

Post by The Wizard » Sat Aug 12, 2017 4:43 pm

beardsworth wrote:
Sat Aug 12, 2017 4:16 pm
... In other words, especially if a person contemplates the long-term goal of annuitization for lifetime income, short-term liquidity movements may impose long-term costs through reduction of the future composite vintage payout structure. Of course, if interest rates on "new" money have risen dramatically, this may be of less concern, although in such situations older rates would also tend to have risen.
In the other forum, we've discussed a lot of your points over time. I've theorized that their vintage system appears to have a sort of unstated Loyalty Bonus when annuitized for lifetime income.
This is because different vintages with similar accumulating rates have quite different payout rates...
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tanstaafl
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Re: How or if to use TIAA annuity

Post by tanstaafl » Sat Aug 12, 2017 7:06 pm

I use the illiquid version in my 403b, and it amounts to a third of my fixed income allocation. I have a stable job that I love and no need to access the funds until retirement. As others have speculated, I get the sense that their vintages have something akin to a loyalty bonus, so I'm banking on that becoming a nice annuity on retirement.

finite_difference
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Re: How or if to use TIAA annuity

Post by finite_difference » Mon Aug 14, 2017 8:53 pm

The Wizard wrote:
Sat Aug 12, 2017 3:07 pm
finite_difference wrote:
Sat Aug 12, 2017 1:28 pm
How does the TIAA lifetime income (available for the TIAA annuity products) compare to an SPIA?

I guess no matter what, you should take their quote and compare it to immediateannuities.com. Just curious if they are generally viewed as a good deal or not.
TIAA is a better deal, based on my two experiences.
And TIAA occasionally gives small unscheduled upticks to current annuitants, something that SPIA issuers are unlikely to do...
Interesting. Thanks!
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