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.