TIAA Guaranteed Annuity

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tibbitts
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Re: TIAA Guaranteed Annuity

Post by tibbitts » Mon Apr 30, 2018 7:50 am

Kathys wrote:
Mon Apr 30, 2018 5:17 am
tibbitts wrote:
Sun Apr 29, 2018 9:44 am
Traditional and Real Estate are two investments available at TIAA for which there are generally not alternatives available elsewhere, and while both are arguably too complicated for most of us to fully understand, it's important to at least learn something about them before abandoning accounts that may provide access to them that you won't be able to get back as a retail investor.
I can transfer back to TIAA under my employer's plan. So I wouldn't become retail investor.
There are some privileges you retain at TIAA after employment; that you were once a TIAA-eligible customer is what matters. For a few decades I was what I would call a retail investor even though I retained some eligibility for TIAA thanks to having had a TIAA account with a previous employer (or maybe just having worked for an eligible employer - I'm not sure of the details for every feature.)

You're sure that once you're no longer employed at you eligible institution, you have access to all the same TIAA options?

The Wizard
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Re: TIAA Guaranteed Annuity

Post by The Wizard » Mon Apr 30, 2018 8:17 am

SGM wrote:
Sun Apr 29, 2018 5:00 pm
The Wizard wrote:
Sun Apr 29, 2018 10:20 am
SGM wrote:
Sun Apr 29, 2018 9:41 am
...A Washington Post article in 2016 discussed tontines and states that TIAA-CREF has a tontine-like quality. This means that as annuitants die off at least part of what would have been their payout is shared with living annuitants.

I wouldn't buy a variable annuity, but the CREF annuity under the university's contract is a good one. I believe the TIAA payout is adjusted near the end of the year.
The CREF payout is adjusted for the May 1st deposit. So far it has been excellent 3 or 4 years after annuitizing.
"Mortality credits" is the generic term for that tontine-like quality. That's why I get a 7% payout rather than being constrained to a 4% SWR.
For an involved explanation of tontines vs. traditional annuities see... https://www.kitces.com/blog/tontine-agr ... s-tontine/
Wizard:
A tontine combines the features of an annuity and a lottery.

Mortality credits in a standard annuity are included as a part of the initial income from the beginning of the contract not added until the deaths of other annuitants actually occur.

Milevsky states that guaranteeing mortality credits even before annuity owners have died requires an insurance company to maintain larger reserves. these guarantees add cost and decrease returns.

Like a tontine the mortality risk falls on the annuitants and is not guaranteed by CREF or TIAA.

If participants in a CREF variable annuity live longer than expected , the payouts to each will be less than if as a group the die sooner than expected.
CREF annuities have lower costs because the risk of your pool living longer than expected are taken upon by the annuitants not CREF. CREF does not need to have larger reserves.
This is correct.
Each year when TIAA publishes the performance data for all of their VAs, there's often a thread on the M* forum about the actual payout percentage changes compared to the theoretical 4% AIR (Assumed Investment Return).

The oldest VA, CREF Stock, usually increases the payout by a decent chunk more than would be expected by a pure 4% AIR calculation.
Conversely, their newest VA, TREA, adjusts very close to the theoretical.
So basically, annuitants in their 90s are way more likely to have annuitized CREF Stock than TREA...
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The Wizard
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Re: TIAA Guaranteed Annuity

Post by The Wizard » Mon Apr 30, 2018 8:26 am

dh wrote:
Sun Apr 29, 2018 5:08 pm

...When you do retire, you will have options depending upon your employers plan - you may be able to take a lump sum withdrawal, you may take it out as a TPA (transfer payout annuity - It will come out spaced out over 9 years and a day), you may be able to take monthly checks from it as an SPIA. In retirement you will choose the best options at that time. Today, think of it as an account that earns 4% (with the minimum set at 3%APR).

I wish you the best in discovering what works best for you!
One must remember, of course, that all withdrawals from a tax deferred 403(b) plan are taxed as ordinary income, so a lump sum withdrawal of a typically large amount would be a terrible idea.
Now a large ROLLOVER from TIAA to an IRA at a different custodian is not taxed...
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The Wizard
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Re: TIAA Guaranteed Annuity

Post by The Wizard » Mon Apr 30, 2018 8:43 am

tibbitts wrote:
Mon Apr 30, 2018 7:50 am

...There are some privileges you retain at TIAA after employment; that you were once a TIAA-eligible customer is what matters. For a few decades I was what I would call a retail investor even though I retained some eligibility for TIAA thanks to having had a TIAA account with a previous employer (or maybe just having worked for an eligible employer - I'm not sure of the details for every feature.)

You're sure that once you're no longer employed at you eligible institution, you have access to all the same TIAA options?
Three years after I retired, I did some significant part-time work and needed to do a backdoor Roth IRA to get $6500 into my Roth IRA at Vanguard.
Prior to doing that, I was able to do a rollover of my traditional IRA at Vanguard to one of my GSRAs at TIAA, thus avoiding the pro rata issue.

But you need to have existing open accounts at TIAA to be able to move tax deferred money into your TIAA plan from elsewhere.
If you close all of your GRA and GSRA accounts by rolling funds to an IRA, at TIAA or elsewhere, there's no way to return to your previous lower ER employer plan...
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Northster
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Re: TIAA Guaranteed Annuity

Post by Northster » Mon Apr 30, 2018 9:10 am

Let me add another wrinkle. When I retired I began taking the interest from my TIAA Traditional because I was not ready to annuitize. Faced with a looming RMD at 70 I made a spreadsheet comparing an annuity with taking the RMD. While the annuity would bring in more income in the early years, the underlying asset is gone, whereas the account with an RMD retains considerable value for my younger wife to roll over into an IRA in the event of my death and eventually pass on some to heirs. In my position I think I will do the RMD. Am I missing something?

dbr
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Re: TIAA Guaranteed Annuity

Post by dbr » Mon Apr 30, 2018 9:14 am

Northster wrote:
Mon Apr 30, 2018 9:10 am
Let me add another wrinkle. When I retired I began taking the interest from my TIAA Traditional because I was not ready to annuitize. Faced with a looming RMD at 70 I made a spreadsheet comparing an annuity with taking the RMD. While the annuity would bring in more income in the early years, the underlying asset is gone, whereas the account with an RMD retains considerable value for my younger wife to roll over into an IRA in the event of my death and eventually pass on some to heirs. In my position I think I will do the RMD. Am I missing something?
Does the annuity you take with TIAA provide the option of a survivor benefit? Most couples buying/taking an annuity would choose joint and survivor for that reason.

ResearchMed
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Re: TIAA Guaranteed Annuity

Post by ResearchMed » Mon Apr 30, 2018 9:16 am

Northster wrote:
Mon Apr 30, 2018 9:10 am
Let me add another wrinkle. When I retired I began taking the interest from my TIAA Traditional because I was not ready to annuitize. Faced with a looming RMD at 70 I made a spreadsheet comparing an annuity with taking the RMD. While the annuity would bring in more income in the early years, the underlying asset is gone, whereas the account with an RMD retains considerable value for my younger wife to roll over into an IRA in the event of my death and eventually pass on some to heirs. In my position I think I will do the RMD. Am I missing something?
In case it helps, have you considered annuitizing part, jointly with your wife, which will leave her with that income for the rest of *her* life as well?
If she is much younger, then that will affect - reduce - the amount of each payment compared with if she were similar in age to you, but you'd need to check to see how much.

(If your goal is to pass some on to heirs, then of course, you wouldn't want to annuitize that amount with a life annuity for either of you.)

RM
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Kathys
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Re: TIAA Guaranteed Annuity

Post by Kathys » Mon May 07, 2018 4:41 am

tibbitts wrote:
Mon Apr 30, 2018 7:50 am
Kathys wrote:
Mon Apr 30, 2018 5:17 am
tibbitts wrote:
Sun Apr 29, 2018 9:44 am
Traditional and Real Estate are two investments available at TIAA for which there are generally not alternatives available elsewhere, and while both are arguably too complicated for most of us to fully understand, it's important to at least learn something about them before abandoning accounts that may provide access to them that you won't be able to get back as a retail investor.
I can transfer back to TIAA under my employer's plan. So I wouldn't become retail investor.
There are some privileges you retain at TIAA after employment; that you were once a TIAA-eligible customer is what matters. For a few decades I was what I would call a retail investor even though I retained some eligibility for TIAA thanks to having had a TIAA account with a previous employer (or maybe just having worked for an eligible employer - I'm not sure of the details for every feature.)

You're sure that once you're no longer employed at you eligible institution, you have access to all the same TIAA options?
Yes, I met with TIAA advisor and she told me so.

Kathys
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Re: Vanguard Guaranteed Annuity

Post by Kathys » Mon May 07, 2018 5:21 am

The Wizard wrote:
Sun Apr 29, 2018 9:55 am
Kathys wrote:
Sun Apr 29, 2018 9:24 am
What does it mean when you say you "twice annuitized"? I guess I don't understand what it means to "annuitize"?
"Annuitize" in this case means to convert a portion of your accumulated assets to a lifetime monthly income stream.
I did this initially at age 63 and again at age 67.
At age 63 I got a 6.52% payout rate and at age 67 I got 7.04% payout rate.
Both are for a single person with ten year guarantee.

One you annuitize $100,000, it disappears from your portfolio and is replaced with a monthly check for the rest of your life...
Since I posted this I've been reading about TIAA traditional and now I see how ridiculous my questions had been. Tell me if I understand this correctly or if I'm still confused.
So the interest rate on the monies in my TIAA traditional depends on when it was contributed and I can see it here https://www.tiaa.org/public/investment- ... r=47933630 under ACCUMULATING STAGE INTEREST CREDITING RATES AS OF 5/01/2018
and then the payout rates are on the same page under INCOME PAYOUT RATES FOR LIFETIME ANNUITIES ISSUED DURING JUNE 2018, yes?

If you annuitize $100,000, how is the rate determined (how do you know from which vintage the money comes from? Is this something TIAA figures out and if monies come from different vintages you get an average payout rate of those vintages) and how does age affect the payout rate?
Also at 6.25% payout rate on $100,000 you get $6250/year ($520 monthly) not $6250/month, right?
Last edited by Kathys on Mon May 07, 2018 5:36 am, edited 1 time in total.

Kathys
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Re: TIAA Guaranteed Annuity

Post by Kathys » Mon May 07, 2018 5:29 am

When I'm doing my AA how do I treat TIAA traditional in my 70/30? Can I simply substitute it for bonds? Or should I split the 30% into 15% bond and 15% TIAA traditional?

student
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Re: Vanguard Guaranteed Annuity

Post by student » Mon May 07, 2018 5:37 am

Kathys wrote:
Mon May 07, 2018 5:21 am
Since I posted this I've been reading about TIAA traditional and now I see how ridiculous my questions had been. Tell me if I understand this correctly or if I'm still confused.
So the interest rate on the monies in my TIAA traditional depends on when it was contributed and I can see it here https://www.tiaa.org/public/investment- ... r=47933630 under ACCUMULATING STAGE INTEREST CREDITING RATES AS OF 5/01/2018
and then the payout rates are on the same page under INCOME PAYOUT RATES FOR LIFETIME ANNUITIES ISSUED DURING JUNE 2018, yes?
Yes. This is my understanding. Note that the payout rate is not fixed forever but there is a min.
Kathys wrote:
Mon May 07, 2018 5:21 am
If you annuitize $100,000, how is the rate determined (how do you know from which vintage the money comes from? Is this something TIAA figures out and if monies come from different vintages you get an average payout rate of those vintages) and how does age affect the payout rate?
Also at 6.25% payout rate on $100,000 you get $6250/year ($520 monthly) or $6250/month?
Since "an income payout rate represents the amount of annual income you will receive as a percentage of the amount you convert to lifetime annuity payments," the amount is per year. So $6,250 per year.

student
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Re: TIAA Guaranteed Annuity

Post by student » Mon May 07, 2018 5:39 am

Kathys wrote:
Mon May 07, 2018 5:29 am
When I'm doing my AA how do I treat TIAA traditional in my 70/30? Can I simply substitute it for bonds? Or should I split the 30% into 15% bond and 15% TIAA traditional?
I am not authoritative enough to answer this but I can tell you that my fixed income portion is almost essentially all TIAA Traditional.

Kathys
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Re: Vanguard Guaranteed Annuity

Post by Kathys » Mon May 07, 2018 5:47 am

student wrote:
Mon May 07, 2018 5:37 am
Kathys wrote:
Mon May 07, 2018 5:21 am
Since I posted this I've been reading about TIAA traditional and now I see how ridiculous my questions had been. Tell me if I understand this correctly or if I'm still confused.
So the interest rate on the monies in my TIAA traditional depends on when it was contributed and I can see it here https://www.tiaa.org/public/investment- ... r=47933630 under ACCUMULATING STAGE INTEREST CREDITING RATES AS OF 5/01/2018
and then the payout rates are on the same page under INCOME PAYOUT RATES FOR LIFETIME ANNUITIES ISSUED DURING JUNE 2018, yes?
Yes. This is my understanding. Note that the payout rate is not fixed forever but there is a min.
Yes, I see that, my guaranteed rate is 3%
Kathys wrote:
Mon May 07, 2018 5:21 am
If you annuitize $100,000, how is the rate determined (how do you know from which vintage the money comes from? Is this something TIAA figures out and if monies come from different vintages you get an average payout rate of those vintages) and how does age affect the payout rate?
Also at 6.25% payout rate on $100,000 you get $6250/year ($520 monthly) or $6250/month?
Since "an income payout rate represents the amount of annual income you will receive as a percentage of the amount you convert to lifetime annuity payments," the amount is per year. So $6,250 per year.
Makes sense

beardsworth
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Re: Vanguard Guaranteed Annuity

Post by beardsworth » Mon May 07, 2018 6:11 am

Kathys wrote:
Mon May 07, 2018 5:21 am

So the interest rate on the monies in my TIAA traditional depends on when it was contributed and I can see it here https://www.tiaa.org/public/investment- ... r=47933630 under ACCUMULATING STAGE INTEREST CREDITING RATES AS OF 5/01/2018
and then the payout rates are on the same page under INCOME PAYOUT RATES FOR LIFETIME ANNUITIES ISSUED DURING JUNE 2018, yes?

If you annuitize $100,000, how is the rate determined (how do you know from which vintage the money comes from? Is this something TIAA figures out and if monies come from different vintages you get an average payout rate of those vintages) and how does age affect the payout rate?
Also at 6.25% payout rate on $100,000 you get $6250/year ($520 monthly) not $6250/month, right?
The payout rates shown on TIAA's monthly updated general announcements are approximations. Your exact payout rate will depend on your particular vintage profile and the parameters you set at the time you choose (if you choose) to annuitize for lifetime income.

When you annuitize a batch of TIAA Traditional for lifetime income, the money annuitized comes proportionally from all of the vintages in your accumulation. You don't get to choose to annuitize your highest-payout vintages first and inferior ones later, or vice versa.

Are you registered for online access at TIAA? You can generate current estimates of your own particular income flow from TIAA Traditional, based on your accumulation and rates now, projected into the future. (Of course, if rates go up, or down, or you annuitize sooner, or later, than the projection, the outcome will change. It is also heavily affected by how much you contribute between now and then.) Go to tiaa.org, choose the "What We Offer" pull-down menu in the border across the top of the page, then choose Tools and Financial Calculators, then choose the Retirement Income Planner, and play with it. The outcomes generated are just illustrations. You're not actually directing TIAA to do anything with the account right now.

sciencenerd
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Re: TIAA Guaranteed Annuity

Post by sciencenerd » Mon May 07, 2018 6:39 am

Kathys wrote:
Sun Apr 29, 2018 9:48 am
beardsworth wrote:
Sun Apr 29, 2018 9:38 am
Kathys wrote:
Sun Apr 29, 2018 9:25 am
beardsworth wrote:
Sun Apr 29, 2018 9:19 am
Kathys wrote:
Sun Apr 29, 2018 9:02 am
This is about money that's already in TIAA. It's not about new monies. So perhaps the question should have been about TIAA Guaranteed Annuity at 4%. Perhaps that's a reason not to move the monies out of it, or perhaps move some of it but not all of it.
You are apparently focusing on the 4% rate for new contributions made to TIAA Traditional in the Retirement Annuity type of contract during April. But that's not the whole "story" about TIAA Traditional rates.

TIAA classifies contributions into "vintages" based on the original date of contribution, and the eventual payout rates (if a TIAA Traditional accumulation is later annuitized for lifetime income) typically trend higher the longer the money is left in the account between contribution and annuitization. For example, scroll down to the sample income payout rate section here:

https://www.tiaa.org/public/investment- ... r=47933630

So, a focus only on the accumulation-stage rate for new contributions in a particular current month is, IMO, shortsighted.
So basically you are saying that it's not a good idea.
That depends on the antecedent of "it." If you mean that focusing on this month's TIAA Traditional rate is a bad idea, then, yes, I did say that. But if you're suggesting that I said TIAA Traditional itself is a bad idea, then I said no such thing, because I have the utmost respect for this retirement savings vehicle, which is used by both my wife and myself.

Kathys, I intend no disrespect of any kind when I observe that this thread seems to be following the course of your previous one that I linked above: As the thread develops, it becomes clear that you really don't have a clear understanding of the investments you're asking about, but as other respondents try to clarify matters, you challenge their statements or pursue the information toward black-or-white generalizations beyond what the respondent attended.

Regarding the TIAA Traditional Annuity, TIAA itself, for years and years, has put out abundant amounts of information. Start reading here to gain a better understanding:

https://www.tiaa.org/public/search-resu ... raditional

Gather information and achieve undertanding first. Make decisions after.

Best wishes.
You are absolutely right. I don't know anything. That's why I'm asking. Ultimately I just want to know if this is something I should be doing, since I have access to it? From your post and my lack of understanding I concluded that annuity is a bad idea in general. I don't understand this month's rate in annuity as I though it was just one rate 4%, that's all. I just double checked and it says yes it's 4% this month but minimum guaranteed 3%.
There are already a lot of good responses. One thing I am gathering from your post I am replying to is that you are conflating the TIAA Traditional investment with an annuity.

TIAA Traditional is a low risk investment (guaranteed return, won't go down in value), which, however, comes with the drawback of reduced liquidity (access) to the account. For most Traditional accounts (RA, not GRA), you currently get a 4% interest rate during accumulation. It comes with the drawback of not being able to immediately access the fund. Payout is in 10 increments over a 10 year period, meaning that you can only withdraw 10% of the funds per year.

Once you retire, you have two choices: You can withdraw 10% of your traditional funds per year and use this money to fund your retirement. or you can convert the traditional funds into an annuity. An annuity means that you lose the initial investment, but instead get lifetime (or some other period) guaranteed monthly income in return.

Note that you don't need TIAA traditional to get an annuity, you can annuitize with other funds as well. However, my feeling is that many investors who hold TIAA traditional do so with the aim to annuitize in retirement. I, for sure, am planning to go this way.

Good luck!

sciencenerd
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Re: Vanguard Guaranteed Annuity

Post by sciencenerd » Mon May 07, 2018 6:44 am

Kathys wrote:
Mon May 07, 2018 5:21 am
Yes, I see that, my guaranteed rate is 3%
That's your minimum guaranteed interest rate during ACCUMULATION, not the payout rate during annutization.

student
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Re: Vanguard Guaranteed Annuity

Post by student » Mon May 07, 2018 6:53 am

sciencenerd wrote:
Mon May 07, 2018 6:44 am
Kathys wrote:
Mon May 07, 2018 5:21 am
Yes, I see that, my guaranteed rate is 3%
That's your minimum guaranteed interest rate during ACCUMULATION, not the payout rate during annutization.
Sciencenerd is correct. I believe the payout min rate is 2.5% for this particular version. See table on page 7. https://www.tiaa.org/public/pdf/TT_FAQ.pdf

beardsworth
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Re: TIAA Guaranteed Annuity

Post by beardsworth » Mon May 07, 2018 7:08 am

sciencenerd wrote:
Mon May 07, 2018 6:39 am

There are already a lot of good responses. One thing I am gathering from your post I am replying to is that you are conflating the TIAA Traditional investment with an annuity.

TIAA Traditional is a low risk investment (guaranteed return, won't go down in value), which, however, comes with the drawback of reduced liquidity (access) to the account. For most Traditional accounts (RA, not GRA), you currently get a 4% interest rate during accumulation. It comes with the drawback of not being able to immediately access the fund. Payout is in 10 increments over a 10 year period, meaning that you can only withdraw 10% of the funds per year.

Once you retire, you have two choices: You can withdraw 10% of your traditional funds per year and use this money to fund your retirement. or you can convert the traditional funds into an annuity. An annuity means that you lose the initial investment, but instead get lifetime (or some other period) guaranteed monthly income in return.

Note that you don't need TIAA traditional to get an annuity, you can annuitize with other funds as well. However, my feeling is that many investors who hold TIAA traditional do so with the aim to annuitize in retirement. I, for sure, am planning to go this way.
There are multiple oversimplifications or errors in the statements above.

The OP, or anyone else in TIAA Traditional, does not "currently get a 4% interest rate during accumulation." 4% happens to be the rate on new contributions made to a TIAA Traditional in a Retirement Annuity in April (when this thread began) and now in May, and those particular contributions will continue to earn that rate through 02-28-2019, the end of TIAA's current "declaration year." But (1) TIAA Traditional in other types of contracts, for example IRAs or employer-sponsored voluntary plans with the word "Supplemental" in their names, are earning different rates on current-month new contributions. And (2) contributions made in past years to TIAA Traditional in a Retirement Annuity, or any other contract type, may earn rates higher than, or lower than, the current rate on new contributions, as already made clear in a link I posted earlier in this thread, and now post again, showing the current accumulation vintage structure for Retirement Annuities.

https://www.tiaa.org/public/investment- ... r=47933630

The reference to a payout over 10 years pertains to a Transfer Payout Annuity, and is a specific contractual arrangement which can be chosen by a participant. The participant does not simply "withdraw" 10% of the chosen accumulation over 10 years, in a bank-withdrawal kind of way. The participant can choose to place all, or part of, her TIAA Traditional accumulation in a Retirement Annuity into a Transfer Payout Annuity, and TIAA itself will then automatically pay out the money in installments. Transfer Payout Annuities are generally relevant only for cash-like access to principal from a Retirement Annuity, because of the liquidity restrictions (and higher accumulation rates) on TIAA Traditional on a Retirement Annuity or Group Retirement Annuity. A Transfer Payout Annuity is not necessary to obtain cash-like installments from a "Supplemental" Annuity or IRA, because TIAA Traditional in those types of contracts is not subject to the same kinds of liquidity restrictions.

A retired person is not limited to just "two choices" for accessing TIAA Traditional in a Retirement Annuity or elsewhere. In addition to lifetime annuitization (in any type of contract) or a 10-installment Transfer Payout Annuity (in a Retirement Annuity contract with liquidity restrictions), it is also possible to establish "interest only" payouts from the TIAA Traditional accumulation, and, when the participant reaches age 70.5 and must start Required Minimum Distributions, it is possible to set up a Minimum Distribution Option (MDO) in which TIAA pays out the amount of TIAA Traditional necessary to meet the year's RMD while leaving the rest of the accumulation intact. (Of course, if the participant's account also contains other TIAA investment vehicles, or mutual funds, they can be used to meet RMDs without invading the TIAA Traditional itself.)

"You can annuitize with other funds as well." If this refers to other TIAA offerings structured for possible (although not required) annuitization, i.e., the assorted CREF variable annuities and the TIAA Real Estate variable annuity, then, yes, they can be annuitized for lifetime income, with actual payouts varying periodically upward or downward according to their underlying investment performance. But if the participant's TIAA account contains ordinary mutual funds, whether TIAA's or those of other companies, they cannot be directly annuitized in that form.

aristotelian
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Re: TIAA Guaranteed Annuity

Post by aristotelian » Mon May 07, 2018 7:39 am

OP, TIAA Traditonal Annuity is a complex product. It has different rules and restrictions depending on your share class, and during the "accumulation" phase it is not actually an annuity in the usual sense. I would suggest giving TIAA a call with a pencil and pad of paper in hand. Find out exactly what restrictions apply in your case. Read through the prospectus to confirm. Then come back here and post if you have questions.

For what it's worth, I have 10% of my portfolio (close to 50% of my fixed income) in TIAA Traditional.

I have a personal rule that prohibits me from investing in *any* product that I do not understand.

Kathys
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Re: Vanguard Guaranteed Annuity

Post by Kathys » Mon May 07, 2018 9:18 am

sciencenerd wrote:
Mon May 07, 2018 6:44 am
Kathys wrote:
Mon May 07, 2018 5:21 am
Yes, I see that, my guaranteed rate is 3%
That's your minimum guaranteed interest rate during ACCUMULATION, not the payout rate during annutization.
Yes, thanks.

sciencenerd
Posts: 62
Joined: Sun May 18, 2014 12:29 am

Re: TIAA Guaranteed Annuity

Post by sciencenerd » Mon May 07, 2018 9:19 am

beardsworth wrote:
Mon May 07, 2018 7:08 am
sciencenerd wrote:
Mon May 07, 2018 6:39 am

There are already a lot of good responses. One thing I am gathering from your post I am replying to is that you are conflating the TIAA Traditional investment with an annuity.

TIAA Traditional is a low risk investment (guaranteed return, won't go down in value), which, however, comes with the drawback of reduced liquidity (access) to the account. For most Traditional accounts (RA, not GRA), you currently get a 4% interest rate during accumulation. It comes with the drawback of not being able to immediately access the fund. Payout is in 10 increments over a 10 year period, meaning that you can only withdraw 10% of the funds per year.

Once you retire, you have two choices: You can withdraw 10% of your traditional funds per year and use this money to fund your retirement. or you can convert the traditional funds into an annuity. An annuity means that you lose the initial investment, but instead get lifetime (or some other period) guaranteed monthly income in return.

Note that you don't need TIAA traditional to get an annuity, you can annuitize with other funds as well. However, my feeling is that many investors who hold TIAA traditional do so with the aim to annuitize in retirement. I, for sure, am planning to go this way.
There are multiple oversimplifications or errors in the statements above.

The OP, or anyone else in TIAA Traditional, does not "currently get a 4% interest rate during accumulation." 4% happens to be the rate on new contributions made to a TIAA Traditional in a Retirement Annuity in April (when this thread began) and now in May, and those particular contributions will continue to earn that rate through 02-28-2019, the end of TIAA's current "declaration year." But (1) TIAA Traditional in other types of contracts, for example IRAs or employer-sponsored voluntary plans with the word "Supplemental" in their names, are earning different rates on current-month new contributions. And (2) contributions made in past years to TIAA Traditional in a Retirement Annuity, or any other contract type, may earn rates higher than, or lower than, the current rate on new contributions, as already made clear in a link I posted earlier in this thread, and now post again, showing the current accumulation vintage structure for Retirement Annuities.

https://www.tiaa.org/public/investment- ... r=47933630

The reference to a payout over 10 years pertains to a Transfer Payout Annuity, and is a specific contractual arrangement which can be chosen by a participant. The participant does not simply "withdraw" 10% of the chosen accumulation over 10 years, in a bank-withdrawal kind of way. The participant can choose to place all, or part of, her TIAA Traditional accumulation in a Retirement Annuity into a Transfer Payout Annuity, and TIAA itself will then automatically pay out the money in installments. Transfer Payout Annuities are generally relevant only for cash-like access to principal from a Retirement Annuity, because of the liquidity restrictions (and higher accumulation rates) on TIAA Traditional on a Retirement Annuity or Group Retirement Annuity. A Transfer Payout Annuity is not necessary to obtain cash-like installments from a "Supplemental" Annuity or IRA, because TIAA Traditional in those types of contracts is not subject to the same kinds of liquidity restrictions.

A retired person is not limited to just "two choices" for accessing TIAA Traditional in a Retirement Annuity or elsewhere. In addition to lifetime annuitization (in any type of contract) or a 10-installment Transfer Payout Annuity (in a Retirement Annuity contract with liquidity restrictions), it is also possible to establish "interest only" payouts from the TIAA Traditional accumulation, and, when the participant reaches age 70.5 and must start Required Minimum Distributions, it is possible to set up a Minimum Distribution Option (MDO) in which TIAA pays out the amount of TIAA Traditional necessary to meet the year's RMD while leaving the rest of the accumulation intact. (Of course, if the participant's account also contains other TIAA investment vehicles, or mutual funds, they can be used to meet RMDs without invading the TIAA Traditional itself.)

"You can annuitize with other funds as well." If this refers to other TIAA offerings structured for possible (although not required) annuitization, i.e., the assorted CREF variable annuities and the TIAA Real Estate variable annuity, then, yes, they can be annuitized for lifetime income, with actual payouts varying periodically upward or downward according to their underlying investment performance. But if the participant's TIAA account contains ordinary mutual funds, whether TIAA's or those of other companies, they cannot be directly annuitized in that form.
Thanks for the clarifications, I realize some of these issues, but are still grappling with the complexities of TIAA traditional myself, not being close to the payout phase yet. I was trying to simplify it for the OP, because I think the complexities of the TIAA traditional make it very difficult for new investors to understand the investment in a nutshell

Kathys
Posts: 204
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Re: TIAA Guaranteed Annuity

Post by Kathys » Mon May 07, 2018 9:35 am

beardsworth wrote:
Mon May 07, 2018 7:08 am
sciencenerd wrote:
Mon May 07, 2018 6:39 am

There are already a lot of good responses. One thing I am gathering from your post I am replying to is that you are conflating the TIAA Traditional investment with an annuity.

TIAA Traditional is a low risk investment (guaranteed return, won't go down in value), which, however, comes with the drawback of reduced liquidity (access) to the account. For most Traditional accounts (RA, not GRA), you currently get a 4% interest rate during accumulation. It comes with the drawback of not being able to immediately access the fund. Payout is in 10 increments over a 10 year period, meaning that you can only withdraw 10% of the funds per year.

Once you retire, you have two choices: You can withdraw 10% of your traditional funds per year and use this money to fund your retirement. or you can convert the traditional funds into an annuity. An annuity means that you lose the initial investment, but instead get lifetime (or some other period) guaranteed monthly income in return.

Note that you don't need TIAA traditional to get an annuity, you can annuitize with other funds as well. However, my feeling is that many investors who hold TIAA traditional do so with the aim to annuitize in retirement. I, for sure, am planning to go this way.
There are multiple oversimplifications or errors in the statements above.

The OP, or anyone else in TIAA Traditional, does not "currently get a 4% interest rate during accumulation." 4% happens to be the rate on new contributions made to a TIAA Traditional in a Retirement Annuity in April (when this thread began) and now in May, and those particular contributions will continue to earn that rate through 02-28-2019, the end of TIAA's current "declaration year." But (1) TIAA Traditional in other types of contracts, for example IRAs or employer-sponsored voluntary plans with the word "Supplemental" in their names, are earning different rates on current-month new contributions. And (2) contributions made in past years to TIAA Traditional in a Retirement Annuity, or any other contract type, may earn rates higher than, or lower than, the current rate on new contributions, as already made clear in a link I posted earlier in this thread, and now post again, showing the current accumulation vintage structure for Retirement Annuities.

https://www.tiaa.org/public/investment- ... r=47933630

The reference to a payout over 10 years pertains to a Transfer Payout Annuity, and is a specific contractual arrangement which can be chosen by a participant. The participant does not simply "withdraw" 10% of the chosen accumulation over 10 years, in a bank-withdrawal kind of way. The participant can choose to place all, or part of, her TIAA Traditional accumulation in a Retirement Annuity into a Transfer Payout Annuity, and TIAA itself will then automatically pay out the money in installments. Transfer Payout Annuities are generally relevant only for cash-like access to principal from a Retirement Annuity, because of the liquidity restrictions (and higher accumulation rates) on TIAA Traditional on a Retirement Annuity or Group Retirement Annuity. A Transfer Payout Annuity is not necessary to obtain cash-like installments from a "Supplemental" Annuity or IRA, because TIAA Traditional in those types of contracts is not subject to the same kinds of liquidity restrictions.

A retired person is not limited to just "two choices" for accessing TIAA Traditional in a Retirement Annuity or elsewhere. In addition to lifetime annuitization (in any type of contract) or a 10-installment Transfer Payout Annuity (in a Retirement Annuity contract with liquidity restrictions), it is also possible to establish "interest only" payouts from the TIAA Traditional accumulation, and, when the participant reaches age 70.5 and must start Required Minimum Distributions, it is possible to set up a Minimum Distribution Option (MDO) in which TIAA pays out the amount of TIAA Traditional necessary to meet the year's RMD while leaving the rest of the accumulation intact. (Of course, if the participant's account also contains other TIAA investment vehicles, or mutual funds, they can be used to meet RMDs without invading the TIAA Traditional itself.)

"You can annuitize with other funds as well." If this refers to other TIAA offerings structured for possible (although not required) annuitization, i.e., the assorted CREF variable annuities and the TIAA Real Estate variable annuity, then, yes, they can be annuitized for lifetime income, with actual payouts varying periodically upward or downward according to their underlying investment performance. But if the participant's TIAA account contains ordinary mutual funds, whether TIAA's or those of other companies, they cannot be directly annuitized in that form.
Thanks for this very detailed explanation. I have $23,015.19 in TIAA traditional RA from my previous employer (crediting rate 3.977 %) and $30,548.30 in TIAA traditional GRA in my current plan (crediting rate 3.863 %). I now understand that this is quite different than annuities at other institutions. I'm thinking of keeping both as they are but keep contributing to the current one. What I have a hard time figuring in is how it fits into my overall AA. Should/can/is it advisable to use this in place of bonds?

Kathys
Posts: 204
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Re: TIAA Guaranteed Annuity

Post by Kathys » Mon May 07, 2018 9:36 am

aristotelian wrote:
Mon May 07, 2018 7:39 am
OP, TIAA Traditonal Annuity is a complex product. It has different rules and restrictions depending on your share class, and during the "accumulation" phase it is not actually an annuity in the usual sense. I would suggest giving TIAA a call with a pencil and pad of paper in hand. Find out exactly what restrictions apply in your case. Read through the prospectus to confirm. Then come back here and post if you have questions.

For what it's worth, I have 10% of my portfolio (close to 50% of my fixed income) in TIAA Traditional.

I have a personal rule that prohibits me from investing in *any* product that I do not understand.
I made an appointment with TIAA rep to sit down with me and go over this.

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jjustice
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Re: TIAA Guaranteed Annuity

Post by jjustice » Mon May 07, 2018 9:44 am

The definitive information from TIAA about Traditional is in this white paper:

https://www.tiaa.org/public/pdf/complia ... -paper.pdf

John

beardsworth
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Re: TIAA Guaranteed Annuity

Post by beardsworth » Mon May 07, 2018 9:46 am

sciencenerd wrote:
Mon May 07, 2018 9:19 am
Thanks for the clarifications, I realize some of these issues, but are still grappling with the complexities of TIAA traditional myself, not being close to the payout phase yet. I was trying to simplify it for the OP, because I think the complexities of the TIAA traditional make it very difficult for new investors to understand the investment in a nutshell
Absolutely agree that TIAA Traditional, or rather the multiple ways and rules for getting money out of it (since putting money into it is quite straightforward), can be quite complicated. But, as the saying goes, "the devil is in the details," and "nutshell" explanations of this particular vehicle are likely to lead to confusion, as exemplified by the earlier posts of the OP in this thread. before she began to do some in-depth reading.

Of course, the TIAA Traditional journey from "nutshell" to "details" can make a person feel temporarily "nuts." :)

dbr
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Re: TIAA Guaranteed Annuity

Post by dbr » Mon May 07, 2018 9:53 am

beardsworth wrote:
Mon May 07, 2018 9:46 am
sciencenerd wrote:
Mon May 07, 2018 9:19 am
Thanks for the clarifications, I realize some of these issues, but are still grappling with the complexities of TIAA traditional myself, not being close to the payout phase yet. I was trying to simplify it for the OP, because I think the complexities of the TIAA traditional make it very difficult for new investors to understand the investment in a nutshell
Absolutely agree that TIAA Traditional, or rather the multiple ways and rules for getting money out of it (since putting money into it is quite straightforward), can be quite complicated. But, as the saying goes, "the devil is in the details," and "nutshell" explanations of this particular vehicle are likely to lead to confusion, as exemplified by the earlier posts of the OP in this thread. before she began to do some in-depth reading.

Of course, the TIAA Traditional journey from "nutshell" to "details" can make a person feel temporarily "nuts." :)
It certainly raises a question what kind of favor is being done to a retiree to be tied up in this kind of complexity, especially of the investor is not aware of the implications when they start. TIAA, however, is not attempting to take advantage of investors unlike most structured financial schemes.

beardsworth
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Re: TIAA Guaranteed Annuity

Post by beardsworth » Mon May 07, 2018 10:04 am

Kathys wrote:
Mon May 07, 2018 9:35 am
What I have a hard time figuring in is how it fits into my overall AA. Should/can/is it advisable to use this in place of bonds?
Many TIAA participants do consider TIAA Traditional to be a part of their overall fixed income allocation.

But it differs from "bonds" in several ways:

If you buy individual bonds and have to sell them before their maturity date, the market price of the bond at time of sale will determine whether you have a profit or loss. The same is true of bond mutual funds: their share prices fluctuate daily. Subject to the claims-paying ability of TIAA itself, which is about as safe as any insurance company gets, the dollar balance of a TIAA Traditional accumulation moves in only one direction: up. As you seen in your own contract(s), TIAA Traditional even guarantees you a minimum rate of return at all times, which makes it even more valuable in times of extremely low market interest rates for money market funds and "bonds," and further increases its purchasing power if there is actual deflation in the economy. It is less certain whether TIAA Traditional rates will always outpace inflation, but they have usually done so, and (if the Consumer Price Index is accepted as a measure of "inflation") are doing so now. But then, except for Series I Savings Bonds (I Bonds) and Treasury Inflation-Protected Securities (TIPS), there's no guarantee that the return on various forms of "bonds" will match inflation, either.

TIAA Traditional can be directly annuitized for lifetime income which never runs out, i.e., cannot be outlived.

One flip side is that, if you have the less liquid form of TIAA Traditional in a Retirement Annuity contract, you can't move it back and forth to rebalance a larger portfolio containing other types of investments (e.g., stocks), as you could with a bond mutual fund.

But, yes, TIAA Traditional is part of your "fixed income" allocation, although in terms of its actual characteristics and use, and depending on your goals for structuring eventual retirement income, I think there are ways in which it can be considered superior to "bonds."

beardsworth
Posts: 2087
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Re: TIAA Guaranteed Annuity

Post by beardsworth » Mon May 07, 2018 10:12 am

dbr wrote:
Mon May 07, 2018 9:53 am
TIAA, however, is not attempting to take advantage of investors unlike most structured financial schemes.
I agree. There are quite a few rules for certain account types, but the company is, in my opinion, admirably forthright.

One example is the "white paper" linked by jjustice a few posts above.

Others are assorted online company publications about TIAA Traditional, which I linked earlier in this thread but will link here again. Probably the single most helpful item on that list of documents, containing information on many points, all in one place, is the "Frequently Asked Questions."

https://www.tiaa.org/public/search-resu ... raditional
Last edited by beardsworth on Mon May 07, 2018 12:32 pm, edited 1 time in total.

Kathys
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Re: TIAA Guaranteed Annuity

Post by Kathys » Mon May 07, 2018 10:14 am

beardsworth wrote:
Mon May 07, 2018 10:04 am
Kathys wrote:
Mon May 07, 2018 9:35 am
What I have a hard time figuring in is how it fits into my overall AA. Should/can/is it advisable to use this in place of bonds?
Many TIAA participants do consider TIAA Traditional to be a part of their overall fixed income allocation.

But it differs from "bonds" in several ways:

If you buy individual bonds and have to sell them before their maturity date, the market price of the bond at time of sale will determine whether you have a profit or loss. The same is true of bond mutual funds: their share prices fluctuate daily. Subject to the claims-paying ability of TIAA itself, which is about as safe as any insurance company gets, the dollar balance of a TIAA Traditional accumulation moves in only one direction: up. As you seen in your own contract(s), TIAA Traditional even guarantees you a minimum rate of return at all times, which makes it even more valuable in times of extremely low market interest rates for money market funds and "bonds," and further increases its purchasing power if there is actual deflation in the economy. It is less certain whether TIAA Traditional rates will always outpace inflation, but they have usually done so, and (if the Consumer Price Index is accepted as a measure of "inflation") are doing so now. But then, except for Series I Savings Bonds (I Bonds) and Treasury Inflation-Protected Securities (TIPS), there's no guarantee that the return on various forms of "bonds" will match inflation, either.

TIAA Traditional can be directly annuitized for lifetime income which never runs out, i.e., cannot be outlived.

One flip side is that, if you have the less liquid form of TIAA Traditional in a Retirement Annuity contract, you can't move it back and forth to rebalance a larger portfolio containing other types of investments (e.g., stocks), as you could with a bond mutual fund.

But, yes, TIAA Traditional is part of your "fixed income" allocation, although in terms of its actual characteristics and use, and depending on your goals for structuring eventual retirement income, I think there are ways in which it can be considered superior to "bonds."
Yes, I know that I can't just move money out of TIAA traditional (it would take roughly 9 years to do so).
How does "fixed income" fit in let's say 80/20 AA? Should I treat it as separate money and not figure it in the 80/20 stocks/bonds split?

whomever
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Re: TIAA Guaranteed Annuity

Post by whomever » Mon May 07, 2018 11:00 am

How does "fixed income" fit in let's say 80/20 AA?
My 2 cents: we say 'stocks/bonds' when we should really say 'stocks/fixed income' (except that has too many syllables :-)).

When doing a taxonomy, you divide things into groups that are most similar: crows and robins are birds, cats and dogs are mammals.

Bonds, CD's, stable value funds, money market funds, etc all share a couple of primary characteristics: first, they are (relative to stocks) not very volatile. A CD or stable value fund has zero volatility. A marketable bond has some volatility when interest rates change (long term bonds somewhat more), but much, much less volatility than stocks. Second, the various fixed income investments almost always have lower returns than stocks. After all, if non-volatile CD's were paying 10%, who in their right mind would invest in volatile stocks returning 5%?

To be sure, there are minor differences between the various flavors of fixed income - CD's can have FDIC insurance, different kinds of bonds can be taxed differently, etc, but those differences are fairly minor relative to the practical differences between fixed income as a class and stocks as a class. Consider a 5 year FDIC insured CD paying 3% and a 5 year treasury bond paying 3%. They have a couple of fundamental similarities: they are both 100% likely to pay your principal back in 5 years, and to pay 3% in the interim. They may have some minor differences (IIRC, states vary on taxation of treasury interest). You can sell the t-bond early (though maybe at a profit or loss), while you can (maybe) break the CD early for a penalty, etc, etc. But in the big picture, they are a lot more alike than different.

So my AA is actually in terms of stocks/fixed income, and TIAA Trad is part of the fixed income part.

YMMV!

Kathys
Posts: 204
Joined: Mon Mar 26, 2018 10:27 am

Re: TIAA Guaranteed Annuity

Post by Kathys » Tue May 08, 2018 5:15 am

beardsworth wrote:
Mon May 07, 2018 10:04 am
Kathys wrote:
Mon May 07, 2018 9:35 am
What I have a hard time figuring in is how it fits into my overall AA. Should/can/is it advisable to use this in place of bonds?
Many TIAA participants do consider TIAA Traditional to be a part of their overall fixed income allocation.

But it differs from "bonds" in several ways:

If you buy individual bonds and have to sell them before their maturity date, the market price of the bond at time of sale will determine whether you have a profit or loss. The same is true of bond mutual funds: their share prices fluctuate daily. Subject to the claims-paying ability of TIAA itself, which is about as safe as any insurance company gets, the dollar balance of a TIAA Traditional accumulation moves in only one direction: up. As you seen in your own contract(s), TIAA Traditional even guarantees you a minimum rate of return at all times, which makes it even more valuable in times of extremely low market interest rates for money market funds and "bonds," and further increases its purchasing power if there is actual deflation in the economy. It is less certain whether TIAA Traditional rates will always outpace inflation, but they have usually done so, and (if the Consumer Price Index is accepted as a measure of "inflation") are doing so now. But then, except for Series I Savings Bonds (I Bonds) and Treasury Inflation-Protected Securities (TIPS), there's no guarantee that the return on various forms of "bonds" will match inflation, either.

TIAA Traditional can be directly annuitized for lifetime income which never runs out, i.e., cannot be outlived.

One flip side is that, if you have the less liquid form of TIAA Traditional in a Retirement Annuity contract, you can't move it back and forth to rebalance a larger portfolio containing other types of investments (e.g., stocks), as you could with a bond mutual fund.

But, yes, TIAA Traditional is part of your "fixed income" allocation, although in terms of its actual characteristics and use, and depending on your goals for structuring eventual retirement income, I think there are ways in which it can be considered superior to "bonds."
Thanks. How much of overall portfolio one should have (or what is a general recommendation) as fixed income?

Kathys
Posts: 204
Joined: Mon Mar 26, 2018 10:27 am

Re: TIAA Guaranteed Annuity

Post by Kathys » Tue May 08, 2018 5:17 am

whomever wrote:
Mon May 07, 2018 11:00 am
How does "fixed income" fit in let's say 80/20 AA?
My 2 cents: we say 'stocks/bonds' when we should really say 'stocks/fixed income' (except that has too many syllables :-)).

When doing a taxonomy, you divide things into groups that are most similar: crows and robins are birds, cats and dogs are mammals.

Bonds, CD's, stable value funds, money market funds, etc all share a couple of primary characteristics: first, they are (relative to stocks) not very volatile. A CD or stable value fund has zero volatility. A marketable bond has some volatility when interest rates change (long term bonds somewhat more), but much, much less volatility than stocks. Second, the various fixed income investments almost always have lower returns than stocks. After all, if non-volatile CD's were paying 10%, who in their right mind would invest in volatile stocks returning 5%?

To be sure, there are minor differences between the various flavors of fixed income - CD's can have FDIC insurance, different kinds of bonds can be taxed differently, etc, but those differences are fairly minor relative to the practical differences between fixed income as a class and stocks as a class. Consider a 5 year FDIC insured CD paying 3% and a 5 year treasury bond paying 3%. They have a couple of fundamental similarities: they are both 100% likely to pay your principal back in 5 years, and to pay 3% in the interim. They may have some minor differences (IIRC, states vary on taxation of treasury interest). You can sell the t-bond early (though maybe at a profit or loss), while you can (maybe) break the CD early for a penalty, etc, etc. But in the big picture, they are a lot more alike than different.

So my AA is actually in terms of stocks/fixed income, and TIAA Trad is part of the fixed income part.

YMMV!
Thank you. Do you still hold bonds in addition to TIAA Trad as part of your fixed income?

aristotelian
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Re: TIAA Guaranteed Annuity

Post by aristotelian » Tue May 08, 2018 6:20 am

Kathys wrote:
Tue May 08, 2018 5:15 am
Thanks. How much of overall portfolio one should have (or what is a general recommendation) as fixed income?
That is an incredibly important and complex topic. General recommendation is at least 30% and not more than 70%. Obviously, that is a large tolerance. The primary factors to consider are your age/timeframe and tolerance for risk. I would not just recommend my allocation for you, because your situation may be completely different from mine.
Kathys wrote:
Tue May 08, 2018 5:17 am
Thank you. Do you still hold bonds in addition to TIAA Trad as part of your fixed income?
Some people do. I have about 40% of my fixed income allocation in it. I don't feel comfortable doing much more than that because I don't like having too much of my portfolio tied up. I want some of my fixed income to be available for rebalancing, and I might have second thoughts about TIAA Traditional vs bonds.

Kathys
Posts: 204
Joined: Mon Mar 26, 2018 10:27 am

Re: TIAA Guaranteed Annuity

Post by Kathys » Tue May 08, 2018 6:24 am

aristotelian wrote:
Tue May 08, 2018 6:20 am
Kathys wrote:
Tue May 08, 2018 5:17 am
Thank you. Do you still hold bonds in addition to TIAA Trad as part of your fixed income?
Some people do. I have about 40% of my fixed income allocation in it. I don't feel comfortable doing much more than that because I don't like having too much of my portfolio tied up. I want some of my fixed income to be available for rebalancing, and I might have second thoughts about TIAA Traditional vs bonds.
What are your second thoughts?

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