CREF VarAnty funds vs TIAA Access TIAA-CREF Mutual Funds

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bhscott
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CREF VarAnty funds vs TIAA Access TIAA-CREF Mutual Funds

Post by bhscott » Thu Nov 02, 2017 3:30 pm

Research prior to post:
- Called TIAA and talked to 3 diff people -- 1st was call center and then they gave me this number for more details 800-842-2888
- BH: TIAA wiki: https://www.bogleheads.org/wiki/TIAA -- this is very good overall
- BH: three fund wiki: https://www.bogleheads.org/wiki/Three-fund_portfolio
- various google search

Goal: I am trying to help my son and significant other (SO) who are in their late 20s. SO is at a private collage and is eligible for a TIAA plan. The school is not that large (read small AUM) so when I look at their TIAA plan they have the lowest class Variably Annuity options (R1) and Mutual funds (T4). This is not the exact plan ID (to stay anonymous) but same options: https://www.tiaa.org/public/investment- ... nid=314022

The picture below shows the CREF variably annuities(VAs) (orange) with much lower expense ratios than the TIAA Access TIAA-CREF mutual funds (MFs) (purple).

1) In general, I like being able to follow funds using a ticker in various tools (personal capital, financial engines, google finance, morningstar, etc), HOWEVER, I can't overlook the lower expense fees. Aside: maybe just invest up to company match and rest in ROTH IRA external.

2) In a TIAA 403(b), I really can't understand the major differences between the VA (orange) and the MFs (purple). What flexibility or benefits is there with one over the other. I was told with VAs they could be annuitized (sp?) and made into a guaranteed monthly withdrawal but it seem you could just take out x% from your MFs as well every month with the VA overhead cost.

3) Trying to figure out how to help steer my kids. The two wiki pages were of some help. Personally my wife and I have used low-cost index funds from Vanguard and from Fidelity (401Ks converted to IRAs). I've used tools like Financial Engines to give some suggestions.

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Last edited by bhscott on Thu Nov 02, 2017 10:31 pm, edited 1 time in total.

mariezzz
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Re: CREF VarAnty funds vs TIAA Access TIAA-CREF Mutual Funds

Post by mariezzz » Thu Nov 02, 2017 9:18 pm

Others here have far more expertise than I do, but I'll say a few things:
Those expense ratios are ridiculously high.
TIAA gives universities and colleges access to options with much lower expense ratio - including Vanguard options (e.g., VTSAX at .05%)
The first thing to do is to write the retirement committee and ask them to provide lower cost options. They have a fiduciary duty to do that.
Additionally, read this article and beware any advice from TIAA: https://www.nytimes.com/2017/10/21/busi ... -tiaa.html

What generally is suggested in situations like this is to choose one of the lowest cost options, and contribute only the amount that is required to get the employer match. Contributions after that go to a personal traditional or Roth IRA. If they can afford to contribute more, then they would have to put that in the 403b (unless they have exceptional circumstances that would allow them to use some other retirement vehicle).

Do they have access to a 457? (it's unlikely and with some of those, fees can be even higher, but there are good ones through government employers; others here can tell you more).

Perhaps others can tell you more about which of your options would be best. You'd have to look at the terms of each account carefully, but given that list, I'd probably go with CREF Equity Index with the .61 ratio, and then use the IRA space for whatever bonds, etc. you need to balance out total asset allocation you desire.

Roth IRA contributions can double as an emergency fund, but if they don't have one, that's something that needs to be addressed too. (Search this site; lots of discussion on that).

When I had TIAA options, CREF Equity had a .37 expense ratio - TIAA seems to be able to change them for different clients (I find it hard to believe, though, that the difference is due to one university's expenses being higher than another). Others might have opinions on this.

The good news is that if they change jobs, they can roll this over into another 401k/403b or an IRA (terminology gets tricky here so 'roll over' might not be the correct term). Lots of info in other threads at this site & in the wiki.

Search this site for explanations of CREFs VA. They're weird things, and others have explained them better than I could. Additional, CREF Equity (in the past at least) wasn't a true index fund. It had some index components but it had actively components too. I don't know what it is now (I'm only in Vanguard in my TIAA account), but I'm sure there are threads here discussing that.

People can't see the TIAA doc you linked to without logging in.
Last edited by mariezzz on Thu Nov 02, 2017 9:28 pm, edited 1 time in total.

aristotelian
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Re: CREF VarAnty funds vs TIAA Access TIAA-CREF Mutual Funds

Post by aristotelian » Thu Nov 02, 2017 9:26 pm

I have pretty much the same plan (nonprofit with <100 employees), except we recently added a couple of Vanguard funds. I do not see any upside to the TIAA Access funds. I would advise your son to put his IRA in 100% equities so as to avoid paying the high expense ratios as much as possible. Use the 403b to hold as much fixed income as possible, and use TIAA Traditional for that purpose. Once fixed income allocation is met, fill the rest of the 403b with CREF Equity Index.

Some people like TIAA Real Estate. The ER includes real estate maintenance costs so the ER is arguably not comparable to traditional mutual funds.

Long term, have them write a stern letter to the administration and see if the can get some colleagues on board to push for some low cost index funds. For what it's worth, we were able to add Vanguard Wellesley Income and Emerging Markets.

TropikThunder
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Re: CREF VarAnty funds vs TIAA Access TIAA-CREF Mutual Funds

Post by TropikThunder » Thu Nov 02, 2017 9:53 pm

mariezzz wrote:
Thu Nov 02, 2017 9:18 pm
When I had TIAA options, CREF Equity had a .37 expense ratio - TIAA seems to be able to change them for different clients (I find it hard to believe, though, that the difference is due to one university's expenses being higher than another). Others might have opinions on this.
Simply put, your 403b had lower ERs because your employer had more assets under management and qualified for the R2 funds (as OP implied his son's SO's employer only qualifies for R1 funds due to small size). It's not that one university's expenses are higher, but that a larger AUM gives economy of scale to the 403b custodian and allows lower costs. Vanguard (and pretty much every custodian) does this too (see: Vanguard Institutional Funds).

OP, keep in mind that cost is important but it's not the only consideration. Take the two best equity choices (best meaning Total Market or close to it): CREF Equity Index QCEQRX at 0.61% vs TIAA Equity Index TIEIX at 0.80%. They both seem to be tracking the Russell 3000 (essentially Total Market minus the smallest caps). $10,000 in QCEQRX costs $61/year while $10,000 in TIEIX costs $80/year. Yes, I'd rather pay $61 than $80 but it's not a deal breaker so I'd look into the funds a little more before deciding solely on cost. Both can be annuitized though, so I honestly don't know how much different they are (which means you could use TIEIX as a proxy for QCEQRX in Morningstar since they track the same index).

That said, I strongly agree with aristotelian that the best first choice in the TIAA account is Traditional as the fixed income component, then stocks in IRA, then back to either QCEQRX or TIEIX to fill out the remainder of the equity allocation. And keep in mind people don't stay at jobs forever.

ETA: those TIAA Access accounts are worse than I thought: TIEIX is the Institutional class shares of TIAA Equity Index. Outside the Access wrapper, the ER is only 0.05% (but requires a quite large AUM) :(

student
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Re: CREF VarAnty funds vs TIAA Access TIAA-CREF Mutual Funds

Post by student » Thu Nov 02, 2017 9:57 pm

Your TIAA Access MFs are not good at all. For example, both TIEIX and QCEQRX track the Russell 3000, and QCEQRX has the advantage that you can annuitize when you retire. I do not see any reason to invest in TIEIX over QCEQRX. I would eliminate all the TIAA Access MFs for considerations. I personally like TIAA Traditional. Almost my entire fixed income portion is in TIAA Traditional (both the illiquid RA version and the liquid SRA version.) I would recommend that you try to have the equity portion of your asset allocation elsewhere and use your TIAA account solely for your fixed income portion via TIAA Traditional. If this is not possible and you must include equity in your TIAA account, then use either equity index, growth or stock. Note that stock includes international investments.

bhscott
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Re: CREF VarAnty funds vs TIAA Access TIAA-CREF Mutual Funds

Post by bhscott » Thu Nov 02, 2017 10:42 pm

You folks have some awesome input. Much appreciated. I will review it again in the a.m. with a fresh set of eyes.

BTW, I did see the comparable equity funds holdings were the 'same'. Below is my google sheet comparing the holdings cut-n-pasted from the TIAA site.

I know the expense fees are bad. The prospectus had fee breakdowns for the TIAA Access MFs and in that the fees totals were way less than the TIAA summary page showed. There are some overhead expenses in the 'TIAA Access MFs' for all the classes but it is superbad in the T4s.

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jjustice
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Re: CREF VarAnty funds vs TIAA Access TIAA-CREF Mutual Funds

Post by jjustice » Fri Nov 03, 2017 10:14 am

Your son's partner has access to two of TIAA's best annuity accounts on the same conditions as everyone else: TIAA Traditional and TIAA Real Estate. It is at times like these, with both stocks and bonds high, that TIAA Traditional is at its best. I am very happy to have a significant portion of my own annuity in Traditional. I annuitized over four years ago using Traditional, CREF Stock, and TIAA Real Estate. It was the best financial decision that I ever made.

Don't scorn CREF Stock, even at R1's .71% expense ratio. I see that you have correctly identified it as equivalent to 70% VTSMX and 30% VGTSX. For the year ending 10/31/2017 CREF Stock (R1) returned 23.96%, while the two Vanguard funds returned 23.78%. When you annuitize CREF Stock, the expense ratio will be R3's .32%, no matter your institution.

John

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House Blend
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Re: CREF VarAnty funds vs TIAA Access TIAA-CREF Mutual Funds

Post by House Blend » Fri Nov 03, 2017 10:38 am

The OP would be well advised to minimize the use of CREF Stock as long as they can access significantly cheaper index funds elsewhere, such as in an IRA.

1. They won't need to annuitize anything for 40+ years. If they need to annuitize in year 2057, they can transfer dollars into CREF Stock at that time, with zero disadvantages.
2. One year of performance proves nothing.
3. Costs matter.

(Of course make sure they get the maximum match before targeting an IRA.)

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jjustice
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Re: CREF VarAnty funds vs TIAA Access TIAA-CREF Mutual Funds

Post by jjustice » Fri Nov 03, 2017 12:39 pm

House Blend wrote:
Fri Nov 03, 2017 10:38 am
If they need to annuitize in year 2057, they can transfer dollars into CREF Stock at that time, with zero disadvantages.
Yes, in theory. I often hear and read this, but I have never heard or read of anyone who actually funded a CREF annuity with money he or she had saved up in equity mutual funds. I think that human nature, perhaps the endowment effect, makes one unwilling to jump from a familiar and trusted fund into a new account at retirement. Nearly all (maybe all) of us who enjoy CREF annuities have accumulated our annuities over the years in CREF annuity accounts.

John

22twain
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Re: CREF VarAnty funds vs TIAA Access TIAA-CREF Mutual Funds

Post by 22twain » Fri Nov 03, 2017 3:53 pm

People who want to annuitize all or part of a TIAA/CREF accumulation will probably prefer to get a steady income stream. The payout from a TIAA/CREF annuity goes up and down depending on the value of the underlying assets; annuities based on TIAA Traditional are very steady, but ones based on CREF Stock or other equity accounts are not. So people are probably much more likely to transfer into Trad for annuitization rather than to one of the equity accounts.

jalbert
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Re: CREF VarAnty funds vs TIAA Access TIAA-CREF Mutual Funds

Post by jalbert » Sat Nov 04, 2017 12:04 am

With the very high ERs of the mutual funds the CREF variable annuities are preferred to the mutual funds.

Option 1
Mix of CREF Stock and CREF Social Choice (60/40 balanced fund) to establish asset allocation. Allocation to CREF Stock would decrease to zero over their working life. This is to take advantage of Social Choice having a lower ER.

Option 2
Mix of CREF Stock and CREF Bond Market

Option 3
Mix of CREF Stock and TIAA Traditional Annuity

Option 4
Add TIAA Real Estate to the mix of any of the above.
Risk is not a guarantor of return.

Levett
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Re: CREF VarAnty funds vs TIAA Access TIAA-CREF Mutual Funds

Post by Levett » Sat Nov 04, 2017 5:44 am

A number of us old-timers used a version of jalbert's mix of options 3 & 4: namely, 75% (or 70%) CREF Stock, 15 (or 20%) Traditional, 10% Real Estate.

Of course, we eased off as we approached retirement (but that's way in the distance for your son and SO).

Really quite simple and effective in the long run.

I wish your son and SO satisfying careers.

Lev

bhscott
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Re: CREF VarAnty funds vs TIAA Access TIAA-CREF Mutual Funds

Post by bhscott » Sun Nov 05, 2017 12:40 am

Sorry for the delay. It definitely was not because I didn't appreciate the input. It was very interesting and varied. I read it a few times as well as read some other threads on this site. How does the saying go: the more you learn, the less you feel you know.

I did spend some time looking at the Trad Annuity. I've looked at diff annuities over the years but it never seemed like the 'cost' of them compared to the alternatives made sense. I think it is just the safety and guarantee rates of them that make them 'valuable' to many people based on their personal needs/comfort. I know they don't have traditional expenses fee rates but it seems it is factored in based on the type of investment it is. Long discussion on this old thread and others : TIAA Traditional Fees viewtopic.php?t=126800

It does appear that TIAA is in the top 10% as far as annuity companies are concerned, have a long history, and appear to be incredibly stables.

In any event, I haven't full decided on exactly what investments I will recommend but I do know I will recommend the following numbered strategy. It will likely just end up being the first 3. My son gets some match up to 6% (1to1 for 3; 1to.5 for other 3) and his wife believes she gets a match up to 5%. Can't over look this 'bonus' money. My son has been 401k investing for 5ish years so we need to factor in his aggressive asset allocation and both their current ages (50% S&P 500; 30% S&P 400; 20% S&P 600 - limited to his 401k fund provider).
  1. Employer plan with a match (up to)
  2. Roth IRA
  3. Employer plan without a match
  4. Traditional IRA
  5. Taxable investment
Thanks again for the input. I will review this thread a little more.

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