Suggestions From TIAA and Checkup

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obafgkm
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Suggestions From TIAA and Checkup

Post by obafgkm » Thu Aug 22, 2019 10:25 pm

I am a professor, widowed, with one daughter about to enter high school. I'd like thoughts about where I stand (as well as thoughts about suggestions from TIAA as to what I should be invested in). I'm 53, and hope to retire when I'm 60.

Emergency Funds: $14,000 in savings account, $8000 in CD; $20,000 in I-Bonds over 5 years old (purchased in 2003 and face value $10,000).
Debt: $75,000 mortgage (3.375% interest rate). House value (approximately $260,000).
Tax Filing Status: Head of Household
Tax Rate: 22% Federal (marginal); 3% State (flat)
State of Residence: Pennsylvania
Age: 53
Desired Asset Allocation: 70% Stock/30% Bond
Desired International Allocation: 30% of stock
529 account for daughter (just about to enter high school): $130,000
Total Portfolio Size: Approximately $2 million (does not include house or 529 account)

Contributions
$16000 to 403(b) + $8000 Employer Contribution (2019)
$7000 to Roth IRA

Annual expenses (mortgage, private school tuition, groceries, auto (gas/insurance), household, utilities, home repair, travel) $58,000 in 2018.

Below left of the bar are my current investments; below right of the bar are the suggested 403(b) and Savings and Investment Plan (inherited Spousal 403(b)) investments. As you can see, there are more positions in the suggested investments. 403(b) is held at TIAA; IRA and taxable at Fidelity.

Other 403(b) offerings are the TIAA-CREF Lifecycle funds; TIAA Real Estate is not in my 403(b) plan. My employer does not offer a Roth 403(b).

Image

Questions:
  1. My Wealth Management Advisor (WMA) at TIAA has suggested the preceding allocations for future contributions to the 403(b) and reallocation for the SIP (a spousal inherited 403(b)). I am balking because I’m focused on lower expense ratios, but he says that I should focus on what is forecast to be in my estate when I die at 95 (a difference of $600,000). I’m thinking that’s a load of BS (who knows what the markets will do?), but I’d like some confirmation.

    As for my IRA, he suggested transferring it to TIAA. I'd like to keep my IRA and taxable investment at Fidelity (matter of personal taste).
  2. For the last several years I have contributed the maximum allowed (e.g., $24,500 in 2018) to my 403(b) and the maximum to my Roth IRA. I asked my WMA about taking my foot off the gas a bit (to have some money to do some “fun” stuff with my daughter before she goes off to college, for example). As you can see, only 1% of my total investments is in taxable (a bit more if you include my emergency funds).

    He said it was okay — I’m in a pretty good position, he said, (net worth about 33 times current annual expenses). I have lowered the contribution, but what do you think?
  3. Is my WMA really trying to sell me (relatively) expensive mutual funds (or are these the best for me)? I like him (and I'm not paying anything for his advice), but I guess I have to tell him that I'm not interested.
Last edited by obafgkm on Sat Nov 09, 2019 8:10 am, edited 4 times in total.

tibbitts
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Re: Suggestions From TIAA and Checkup

Post by tibbitts » Thu Aug 22, 2019 10:31 pm

I think you'll have to be concerned about RMDs at some point, depending on when you retire and whether you do Roth conversions.

I'd spend whatever you want on experiences with your daughter now, even if you don't contribute any more to deferred accounts at all.

lakpr
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Re: Suggestions From TIAA and Checkup

Post by lakpr » Fri Aug 23, 2019 5:48 am

Firstly, let me express my deep sympathy for your loss.

With already $2 million in nest egg, it is very likely that come RMD time, you will be in the 25% marginal tax bracket (you would be filing as single then).

Given this, I would suggest that you stop contributing to the traditional 403b, and contribute to Roth 403b starting the next paycheck and for all years in the future. I would also suggest upping your contributions to the maximum ($25k employee contribution).

The house loan is small enough and the interest rate is high enough that I would seriously consider paying it off in one fell swoop, if you have the inclination and the funds for it. Very likely it is not helping you with any tax deductions given its small balance, and there is no other safe instrument out there that would give you 3.375% return tax free.

Regarding the WMA advice, your instincts are right. That portfolio is needlessly complicated. Ignore his advice.

Here is what I suggest you do:

1. The Roth IRA is 18% of your total portfolio. You also said your overall portfolio desired allocation is 70% stocks / 30% bonds and 30% of stock allocation be international. That would be about 70% * 30% = 21% of your total portfolio in international stocks. Use this Roth IRA to invest in VTIAX (Vanguard Total International ex-US Index fund) exclusively. With future contributions of $7k per year, that 18% will reach the 21% desired allocation in few short years.

2. Move everything in your Spousal Inherited 403b plan to CREF Bond Market fund. That account is approximately 34% of your overall portfolio, but close to the 30% bond fund allocation you desire. Since you cannot contribute further to this fund, it might be 34% today but as time progresses and you make future contributions, this will drop in overall percentage and reach the 30% threshold you desire in a few years. The 0.27% expense ratio for the bond fund is not quite Vanguard-like, but 0.27% is quite reasonable. For comparison, my own 401k plan has the cheapest bond fund at 0.39% ... so compared to that, you are better off.

3. Move everything in your 403b plan to Vanguard 500 Index Admiral and Vanguard Extended Market Index in a 4:1 ratio, to simulate the Total Stock Market in your plan.

4. Set and redirect all your future 403b contributions (remember that they should be Roth 403b contributions) to Vanguard 500 Index fund and Vanguard Extended Market Index fund in a 4:1 ratio.

The simplicity of these steps is that all your allocations are neatly encapsulated into separate accounts
- Roth IRA = international stocks
- Spousal 403b = Bonds
- Own 403b = two-fund portfolio simulating domestic stocks.

I considered also recommending that your own 403b be turned into a bond-fund repository (lower bond index fund expense ratio), and making the spousal 403b as repository for domestic stocks. But since 70% of your desired allocation of stocks = 49% of the overall portfolio is in domestic stocks, and the spousal 403b stock index fund has higher expense ratio than your own 403b, I had switched them around to realize an overall reduction in the portfolio costs.

If you want fun stuff to do with your daughter, and your assets are all locked up in your retirement assets, reducing your 403b contributions is perfectly fine.

Lastly - DO NOT SELL THOSE IBONDS! Those purchased in 2003 have, I believe, paying 3% over inflation. You will never get that kind of return anywhere if you sell them. Hold them through their maturity in 2033. If you need funds for your daughter's education etc,, borrow from your home temporarily through a HELOC until you reach the age of 59.5, then use the withdrawals from either your 403b or Spousal 403b and repay the loan. That would likely be a better financial move than selling iBonds for your daughter's education.

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Re: Suggestions From TIAA and Checkup

Post by Dantes » Fri Aug 23, 2019 5:49 am

OP: Your portfolio size is currently 2 million dollars. If you were retirement age right now you could reasonably withdraw 4%, or 80,000. That is well over your current expenses of $58,000, and does not include Social Security. So you certainly look like you are in fine shape. In your situation I would feel free to spend more.

You may not be paying your "Wealth Management Advisor", but someone is. Your current investments look absolutely fine, the advisor's suggestions are all more expensive. He's suggesting he can predict the difference in your portfolio value nearly 40 years from now if you follow his advise; that seems absurd.

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Re: Suggestions From TIAA and Checkup

Post by student » Fri Aug 23, 2019 6:11 am

I agree that there is no need to change the portfolio makeup. I think investments like CREF Equity Index offer additional withdrawal options. I do not remember the details. In any case, even if I remember correctly, the time to switch is not now. Keep the funds with the lower ER. I believe you are in good shape and she can ease off a bit on your savings. I also agree with others regarding Roth 403b.

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Re: Suggestions From TIAA and Checkup

Post by obafgkm » Fri Aug 23, 2019 7:08 am

lakpr wrote:
Fri Aug 23, 2019 5:48 am
Firstly, let me express my deep sympathy for your loss.
Thank you.
lakpr wrote:
Fri Aug 23, 2019 5:48 am
With already $2 million in nest egg, it is very likely that come RMD time, you will be in the 25% marginal tax bracket (you would be filing as single then).

Given this, I would suggest that you stop contributing to the traditional 403b, and contribute to Roth 403b starting the next paycheck and for all years in the future. I would also suggest upping your contributions to the maximum ($25k employee contribution).

The house loan is small enough and the interest rate is high enough that I would seriously consider paying it off in one fell swoop, if you have the inclination and the funds for it. Very likely it is not helping you with any tax deductions given its small balance, and there is no other safe instrument out there that would give you 3.375% return tax free.
My employer does not offer a Roth 403(b), and in any case, I couldn't pay off the mortgage now if I wanted to (and I want to), because I don't have enough not-tax-sheltered money. What would your suggestion be without the Roth 403(b)?

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Re: Suggestions From TIAA and Checkup

Post by MStrambolo » Fri Aug 23, 2019 7:10 am

I'm a teacher whose school uses TIAA for our retirement accounts. I have come to see that the TIAA Wealth Managers have one job, which is to keep you and your money at TIAA forever. Here's why.

In my middle 50's (68 now) I had a meeting with a TIAA rep who configured my accounts with 8-10 different funds, some of which I later learned had many overlapping holdings after looking carefully at the information on the TIAA website. The funds he put me into had higher ER's than the broader funds at TIAA. This didn't become apparent until I was in my early 60's and I scheduled a meeting with my Wealth Manager to do a financial plan and get an idea on where I was and where I should go.

The first odd thing that he told me, when presenting the plan in a second meeting, was that TIAA had another company do the report "in order to fulfill our fiduciary responsibility." I had already moved my Roth IRA to Vanguard at this point to take advantage of the lower fees. He wanted to engage in a discussion about how my Roth was doing at Vanguard, which was not of interest to me. One point of discussion was my asking, if the lowest ER at TIAA was higher than the highest ER at Vanguard, why should I be at TIAA? His answer was something to the effect that TIAA would do better for me than the Vanguard index funds. He also told me in passing that I could move my 403b money since I was over 59.5. Thinking about all this later I decided to roll my 403b from TIAA into an IRA at Vanguard. 'We'll do better than Vanguard' was in no way an answer to my question about ER's.

When the rollover had been requested, I first got a call from one of the members of my Wealth Management Team, asking if I had, indeed, asked to move the money. I appreciated the call for security purposes and told him yes, I had asked to move the money. But then, my Wealth Manager himself called me later that day to talk about the move. He too asked if I had requested the move and I told him that I had already answered that question from another TIAA employee, but yes I did ask to move the money. "You're making me look bad" was his response.

In the course of the next couple of minutes I realized that what was best for me was not at the top of his list of priorities, just what "made him look good." It was at this point that I understood why TIAA has to farm out the financial plans to a third party - their interests are not aligned with the investors in their funds.

My suggestion is that you keep this in mind when considering suggestions from advisors at TIAA. Their job is to keep you at TIAA in the vehicles with the highest ER's; anything else makes them look bad.
Last edited by MStrambolo on Wed Sep 04, 2019 2:53 pm, edited 2 times in total.

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Re: Suggestions From TIAA and Checkup

Post by obafgkm » Fri Aug 23, 2019 7:31 am

MStrambolo wrote:
Fri Aug 23, 2019 7:10 am
I'm a teacher whose school uses TIAA for our retirement accounts. I have come to see that the TIAA Wealth Managers have one job, which is to keep you and your money at TIAA forever.
(...)
My suggestion is that you keep this in mind when considering suggestions from advisors at TIAA. Their job is to keep you at TIAA in the vehicles with the highest ER's; anything else makes them look bad.
Thanks - that has been very helpful. I have had the same suspicion. The WMA has been helpful in asking me to consider things I hadn't though of (term life insurance, for example, that I eventually purchased from elsewhere). He's never been pushy, and I've been stubborn in keeping something close to the three-fund portfolio.

I like the access to TIAA Real Estate through the inherited 403(b), as well as TIAA Traditional (and I couldn't change my work 403(b) anyhow if I wanted). I'm happy to stay at TIAA and stay in inexpensive funds.

As long as I'm aware of the WMA's motives, I can take them into account and agree or disagree.

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Re: Suggestions From TIAA and Checkup

Post by livesoft » Fri Aug 23, 2019 8:28 am

obafgkm wrote:
Thu Aug 22, 2019 10:25 pm
I’m thinking that’s a load of BS (who knows what the markets will do?), but I’d like some confirmation.
I will confirm that.
As for my IRA, he suggested transferring it to TIAA. I'd like to keep my IRA and taxable investment at Fidelity (matter of personal taste).
I believe part of their compensation depends on their gathering assets.
[*]Is my WMA really trying to sell me (relatively) expensive mutual funds (or are these the best for me)? I like him (and I'm not paying anything for his advice), but I guess I have to tell him that I'm not interested.
He has to create value for TIAA.

As an aside, I have had a 403(b) since the mid-1980s. I have been contacted many times by a WMA, but never seen them or talked to them. I did look them up and saw there their work history which suggested they came from a high-fee sales-oriented advisory firm. Basically, I treat them as another schmuck trying to get some of my money. A friendly schmuck, but I do not expect any valid help from them. Am I being too harsh?
Last edited by livesoft on Fri Aug 23, 2019 8:53 am, edited 1 time in total.
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Re: Suggestions From TIAA and Checkup

Post by student » Fri Aug 23, 2019 8:40 am

livesoft wrote:
Fri Aug 23, 2019 8:28 am
Basically, I treat them as another schmuck trying to get some of my money. A friendly schmuck, but I do not expect any valid help from them. Am I being too harsh?
Not really. You probably know as much, if not more than the person from TIAA. I like my TIAA contact. He is helpful in answering my questions and took the initiative to alert me of the different flavors of TIAA Traditional. However, he did not tell me about the cheaper institutional version of equity index mutual fund until I asked him about it. I emailed him about my understanding of this version and the CREF version, which he confirmed that my understanding was correct. I told him that I am mainly an index fund guy and he agreed that it's a good strategy.

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Re: Suggestions From TIAA and Checkup

Post by HeelaMonster » Fri Aug 23, 2019 9:01 am

OP, I share some things in common with you and your daughter. I was a professor for 30 years, with TIAA/CREF for my tax deferred accounts, and am now on the cusp of retirement. I also lost a parent as I was entering high school, and appreciate the strength my mother showed in solo-parenting; I'd like to think I turned out OK, and am sure your daughter will, as well.

Others will have more knowledgeable advice on asset allocation and the like, but my comments will be more "qualitative."

1. I also sat down with a TIAA advisor, and was left disappointed. It really felt like a salespitch to churn TIAA products, and the recommendations would have fragmented my holdings into a hundred small pieces, with high expenses. Not unlike your spreadsheet. It was the exact opposite of where I wanted to be going, and where I ended up. The best thing I ever did was to consolidate and simplify. I was a relative latecomer to low cost index funds, but glad to be there now.

2. You are on a solid trajectory, with current assets and projected expenses, and should be in position to retire when you want.

3. One thing I didn't appreciate soon enough was the lurking tax ramifications of all those tax-deferred contributions and matching. The more the merrier, it seemed!? Now I am spending a lot of time thinking about how to whittle down that stockpile before RMDs kick in. I have had my personal (non-university) retirement assets in Vanguard Roth IRA for a long time, and that is going to be growing with annual conversions during low income years, while staying under tax bracket thresholds. With that in mind, I endorse the recommendation from others to consider backing off on new tax-deferred contributions.

4. Finally, with your daughter in mind.... do those fun things! My mom and I took a cross-country drive together, learned to play tennis, laughed. Just being there for each other went a long ways, but having some activities and experiences created good memories.

Good luck!

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Re: Suggestions From TIAA and Checkup

Post by lakpr » Fri Aug 23, 2019 9:51 am

obafgkm wrote:
Fri Aug 23, 2019 7:08 am
My employer does not offer a Roth 403(b), and in any case, I couldn't pay off the mortgage now if I wanted to (and I want to), because I don't have enough not-tax-sheltered money. What would your suggestion be without the Roth 403(b)?
Is there any account you can roll over into a traditional IRA? Either part of your own 403b or the Spousal 403b?

With a 2 million portfolio, you are in some serious need to reduce the traditional Tax-deferred balance to $1.5 million or less by age 70.5, to keep yourself in the 15% bracket in retirement. If you can roll over the money into a traditional IRA you can do some piecemeal Roth conversions between now and age 70.5 when RMDs start. Make sure that the money thus converted into Roth would be invested only into stocks, and the tax deferred account will be the sole repository of bonds in your overall portfolio.

The I-ORP tool (search the wiki) might help you properly plan such Roth conversions.

If rolling over to an IRA is not feasible either, then taxable account is your best bet. Stop the traditional 403b contributions altogether.
Last edited by lakpr on Fri Aug 23, 2019 11:05 am, edited 1 time in total.

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Re: Suggestions From TIAA and Checkup

Post by obafgkm » Fri Aug 23, 2019 10:16 am

HeelaMonster wrote:
Fri Aug 23, 2019 9:01 am
4. Finally, with your daughter in mind.... do those fun things! My mom and I took a cross-country drive together, learned to play tennis, laughed. Just being there for each other went a long ways, but having some activities and experiences created good memories.

Good luck!
Thanks, HeelaMonster. It has been about five years since my wife died, and I think my daughter and I are doing well. Some days are trying (never having been a girl, especially one entering adolescence :shock: ), but we're good. I'm very appreciative of the grandmothers and the aunts.

We did take a trip train trip cross-country together last month (something I'd been wanting to do since she was a baby). That was FAN-tastic. I hope to do more before college.

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Re: Suggestions From TIAA and Checkup

Post by Duckie » Fri Aug 23, 2019 4:30 pm

obafgkm wrote:Below left of the bar are my current investments; below right of the bar are the suggested 403(b) and Savings and Investment Plan (inherited Spousal 403(b)) investments.
Has the inherited spousal 403b been retitled into your name so it's treated completely as yours or are you keeping it as "inherited" for some reason?

Can you roll the inherited spousal 403b (whether retitled or "inherited") out of your late-wife's TIAA plan into a rollover IRA? The TIAA expense ratios, while not horrid, could be a lot cheaper at Fidelity.

Consider removing the bond fund from the Roth IRA. In general it's better to put assets with higher expected growth (stocks) in Roth accounts and assets with lower expected growth (bonds) in pre-tax accounts. That's because you've already paid the taxes in the Roth accounts so future growth is tax-free. So shift that 7% bonds to your 403b.

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Re: Suggestions From TIAA and Checkup

Post by obafgkm » Fri Aug 23, 2019 5:18 pm

Duckie wrote:
Fri Aug 23, 2019 4:30 pm
Has the inherited spousal 403b been retitled into your name so it's treated completely as yours or are you keeping it as "inherited" for some reason?
No, it is completely in my name. Not everybody knows what "Savings and Investment Plan" means at TIAA, so I wanted to indicate its provenance in my post.
Duckie wrote:
Fri Aug 23, 2019 4:30 pm
Can you roll the inherited spousal 403b (whether retitled or "inherited") out of your late-wife's TIAA plan into a rollover IRA? The TIAA expense ratios, while not horrid, could be a lot cheaper at Fidelity.
I suppose I could. I do like the TIAA Real Estate availability (not available in my own 403(b)) and the liquid TIAA Traditional, but I could leave that part there.
Duckie wrote:
Fri Aug 23, 2019 4:30 pm
Consider removing the bond fund from the Roth IRA. In general it's better to put assets with higher expected growth (stocks) in Roth accounts and assets with lower expected growth (bonds) in pre-tax accounts. That's because you've already paid the taxes in the Roth accounts so future growth is tax-free. So shift that 7% bonds to your 403b.
I never thought about that -- it makes sense. I guess I missed that in my reading of the Bogleheads Wiki.

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Re: Suggestions From TIAA and Checkup

Post by Dregob » Fri Aug 23, 2019 10:10 pm

I met with my TIAA advisor. Pleasant enough and not a hard sell but their analysis and suggestions were opposite of a Boglehead approach. A list of 8 or so mutual funds that had to have overlap to be purchased with transfers from CREF stock. Shortly after Fidelity became an option for my 403B and moved CREF stock (75% of my TIAA funds) to Fidelity (.3 vs .02 ER). I left my TIAA annuity intact (more or less a bond fund) and I could only withdraw 10% a year if I wanted to take money out.

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Re: Suggestions From TIAA and Checkup

Post by obafgkm » Sat Aug 24, 2019 6:46 am

A lot of respondents have suggested that I will be in trouble at age 70.5 with Required Minimum Distributions (RMDs). Am I correct that this is "bad" because I'll be paying higher marginal taxes than I am now?

Some have said that it is okay to have cut back contributing to my 403(b), and at least one even says to not contribute any more to the 403(b) at all, which is anathema to me and to what I've read here on Bogleheads. Is this a "curse" of having been so diligent in contributing?

As I said, I'm interested in retiring at about 60. What I'm hearing is to
  1. cut back in contributing to the 403(b) drastically to ... what? (my employer would still contribute 8.5% of my salary no matter what);
  2. use what is not contributed to the 403(b) for "fun" and for taxable investing (and of course paying taxes on what is not contributed to the 403(b));
  3. continue contributing the maximum to the Roth IRA (currently $7000);
  4. try to convert the "Savings and Investment Plan" to a traditional IRA and then convert to a Roth (paying 22% taxes on the conversions while I'm working) before 70.5.
The responses seem to be necessarily predicated on my not being married again. Of course, I may not be single for the rest of my life, and that would probably change some of the dynamic (at least tax brackets and maybe Social Security). Right?

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Re: Suggestions From TIAA and Checkup

Post by student » Sat Aug 24, 2019 7:01 am

obafgkm wrote:
Sat Aug 24, 2019 6:46 am
A lot of respondents have suggested that I will be in trouble at age 70.5 with Required Minimum Distributions (RMDs). Am I correct that this is "bad" because I'll be paying higher marginal taxes than I am now?
Yes. This is the issue but I have no expertise in how to get around it. The next sentence is half joking: One way to get around it, is to never retire, as I think, as a college professor with a 403b, you do not have to take RMD at 70.5. (You should double check.)

Edit: I just checked. It is true if you plan allows it. From TIAA, it says " For your current employer’s plan: If the plan allows, you may be permitted to delay taking RMD from your current employer's plan until April 1 after the year you retire." Furthermore, it seems that this applies to all employment based accounts https://www.forbes.com/sites/bobcarlson ... 74f346909d

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Re: Suggestions From TIAA and Checkup

Post by obafgkm » Sat Aug 24, 2019 7:59 am

Well, I don't plan to keep working "forever". :happy

Another concern about RMDs: I have my own 403(b) and the one I inherited from my wife. Are those RMDs calculated separately? (She was ten months younger than I). Will I be in "double jeopardy" (having to take two RMDs each year), or is the total amount I'll have to take limited in some way?

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Re: Suggestions From TIAA and Checkup

Post by student » Sat Aug 24, 2019 8:12 am

obafgkm wrote:
Sat Aug 24, 2019 7:59 am
Well, I don't plan to keep working "forever". :happy

Another concern about RMDs: I have my own 403(b) and the one I inherited from my wife. Are those RMDs calculated separately? (She was ten months younger than I). Will I be in "double jeopardy" (having to take two RMDs each year), or is the total amount I'll have to take limited in some way?
This gives information that you may find useful. https://www.fidelity.com/viewpoints/per ... tance-tips For example, it says "If the inheritor of a Roth or traditional 401(k) is a spouse or the employee, the surviving spouse can either leave the money in the 401(k), roll it over to their employer-sponsored plan (assuming the plan permits rollovers) or roll it to their own IRA, or to an inherited IRA. Leaving an inherited 401(k) with the provider generally means you are subject to plan rules.

One factor to consider when determining when to take the required minimum distributions (RMDs) is whether the deceased spouse had commenced RMDs. If the deceased spouse had not commenced RMDs, then a surviving spouse would not have to take RMDs on a 401(k) until the year the participant would have attained age 70½. If the surviving spouse leaves the funds in the plan, they'd need to commence RMDs in the year the deceased spouse would have attained age 70-1/2. If the beneficiary rolls the account over to their own IRA, then RMDs from the IRA begin during the year that they themselves turn 70-1/2."

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Re: Suggestions From TIAA and Checkup

Post by HeelaMonster » Sat Aug 24, 2019 10:13 am

Glad to hear your train trip was fun! My daughter and I have taken some fun trips together, now that she is an adult (but yes, it's just as well I didn't have to guide her through the teen years on my own).
obafgkm wrote:
Sat Aug 24, 2019 6:46 am
A lot of respondents have suggested that I will be in trouble at age 70.5 with Required Minimum Distributions (RMDs). Am I correct that this is "bad" because I'll be paying higher marginal taxes than I am now?
As part of your continuing ed credits (ha), read up on the "tax torpedo." Apart from the tax hit on Social Security benefits (as covered in this article), there is an overall hit waiting when RMDs kick in... if they bump your income up higher than needed or wanted. https://www.kiplinger.com/article/taxes ... rpedo.html

One way to manage this is through partial conversions from tax-deferred account(s) into Roth IRA, paying taxes year-by-year while staying within a (presumably) more attractive bracket. Assuming you are filing as head of household, the first $18k is essentially a freebie (with standard deduction), and then you've got up $52k to stay in 12% bracket, and $84k to stay wihin 22%. (in combo with other income, of course).

OTOH, if you don't do anything and your tax-deferred accounts continue to grow (even without new contributions), your RMDs could blow those brackets out of the water (i.e., boom goes the torpedo). Try out this Schwab calculator, plugging in the total amount of accounts that will be subject to RMDs, with a reasonable rate ot return, and see what you might be facing.... https://www.schwab.com/public/schwab/in ... lators/rmd

If you retire at age 60, you will have a ten-year window of opportunity to do this (assuming your income drops during that period, and you delay SS). You're not trying to deplete the tax-deferred account entirely... just whittling it down to a level that RMDs don't bump you up where you don't want to be.

Once you are in the Roth, that money (a) is not subject to RMD, (b) will never be taxed again, and (c) can be passed along to your child(ren) in a favorable manner, if you don't end up needing. :beer

[DISCLAIMER: I am not a tax pro, by any stretch, so apologies if I confused any of those bracket details. The concept should be intact.]

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Re: Suggestions From TIAA and Checkup

Post by Katietsu » Sat Aug 24, 2019 11:02 am

obafgkm wrote:
Sat Aug 24, 2019 6:46 am
A lot of respondents have suggested that I will be in trouble at age 70.5 with Required Minimum Distributions (RMDs). Am I correct that this is "bad" because I'll be paying higher marginal taxes than I am now?I do not think you need to worry about this now. You are already in the 22% bracket and single. And you plan to retire at 60. So you will have more than a decade of using your income for your expenses, possibly doing Roth conversions, etc. This is something to address at the time of retirement, IMO. Also the tax torpedo from the article is such a specific combination of income types and level that I can not see worrying about it almost 20 years before it might be relevant. Too much is unknown.

Some have said that it is okay to have cut back contributing to my 403(b), and at least one even says to not contribute any more to the 403(b) at all, which is anathema to me and to what I've read here on Bogleheads. Is this a "curse" of having been so diligent in contributing? You said that you had things you wanted to do now that your current cash flow made difficult. You also have very little in taxable to be accessed without penalty over the next 6 years. And you are on target for a financially sound retirement. For these reasons, I think some have given you permission to ease up a bit on retirement savings so that you can take that trip to Europe with your daughter to celebrate high school graduation.

As I said, I'm interested in retiring at about 60. What I'm hearing is to
  1. cut back in contributing to the 403(b) drastically to ... what? (my employer would still contribute 8.5% of my salary no matter what);Cut back enough to have the cash flow for “fun” and to build up a bit of a cushion of accessible funds.
  2. use what is not contributed to the 403(b) for "fun" and for taxable investing (and of course paying taxes on what is not contributed to the 403(b));Yes.
  3. continue contributing the maximum to the Roth IRA (currently $7000);
  4. try to convert the "Savings and Investment Plan" to a traditional IRA and then convert to a Roth (paying 22% taxes on the conversions while I'm working) before 70.5.
The responses seem to be necessarily predicated on my not being married again. Of course, I may not be single for the rest of my life, and that would probably change some of the dynamic (at least tax brackets and maybe Social Security). Right?
And as to TIAA WMA advice: Advisors are rewarded for keeping and increasing assets under management. If you read the disclosure notices, TIAA now makes this clear after getting into trouble for routing how their advisors received no “commissions”. The externally created portfolios are more complicated and with higher ER’s than a BH approach would produce. However, they are created using a legitimate widely accepted approach. I would not consider it to be analogous to an Edward Jones advisor putting you in an actively managed large fund with an ER ratio of 1.0 and no chance of performing any better than Vanguard Total Stock.

That said, I would also not reallocate my portfolio as suggested. I would put all stock in Roth as suggested. I would meet with someone who is very good with taxes and retirement in 5 years.

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Re: Suggestions From TIAA and Checkup

Post by tibbitts » Sat Aug 24, 2019 11:06 am

HeelaMonster wrote:
Sat Aug 24, 2019 10:13 am
Glad to hear your train trip was fun! My daughter and I have taken some fun trips together, now that she is an adult (but yes, it's just as well I didn't have to guide her through the teen years on my own).
obafgkm wrote:
Sat Aug 24, 2019 6:46 am
A lot of respondents have suggested that I will be in trouble at age 70.5 with Required Minimum Distributions (RMDs). Am I correct that this is "bad" because I'll be paying higher marginal taxes than I am now?
As part of your continuing ed credits (ha), read up on the "tax torpedo." Apart from the tax hit on Social Security benefits (as covered in this article), there is an overall hit waiting when RMDs kick in... if they bump your income up higher than needed or wanted. https://www.kiplinger.com/article/taxes ... rpedo.html

One way to manage this is through partial conversions from tax-deferred account(s) into Roth IRA, paying taxes year-by-year while staying within a (presumably) more attractive bracket. Assuming you are filing as head of household, the first $18k is essentially a freebie (with standard deduction), and then you've got up $52k to stay in 12% bracket, and $84k to stay wihin 22%. (in combo with other income, of course).

OTOH, if you don't do anything and your tax-deferred accounts continue to grow (even without new contributions), your RMDs could blow those brackets out of the water (i.e., boom goes the torpedo). Try out this Schwab calculator, plugging in the total amount of accounts that will be subject to RMDs, with a reasonable rate ot return, and see what you might be facing.... https://www.schwab.com/public/schwab/in ... lators/rmd

If you retire at age 60, you will have a ten-year window of opportunity to do this (assuming your income drops during that period, and you delay SS). You're not trying to deplete the tax-deferred account entirely... just whittling it down to a level that RMDs don't bump you up where you don't want to be.

Once you are in the Roth, that money (a) is not subject to RMD, (b) will never be taxed again, and (c) can be passed along to your child(ren) in a favorable manner, if you don't end up needing. :beer

[DISCLAIMER: I am not a tax pro, by any stretch, so apologies if I confused any of those bracket details. The concept should be intact.]
The main limitation of the calculator, if I understand correctly, is that it assumes:

1. your deferred investments will grow at the percent you supply;
2. you won't spend any of your deferred accounts.

For most people that probably won't apply - even if there are no Roth conversions, we'll spend down those deferred accounts to some extent.

Ideally the calculator would allow you to input two rate of return assumptions: a positive percentage for the years until you retire, and then a negative percentage for years after you retire (assuming you plan to spend more than the accounts will return, which might of course depend on your deferred account balances.)

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Re: Suggestions From TIAA and Checkup

Post by HeelaMonster » Sat Aug 24, 2019 11:44 am

Katietsu wrote:
Sat Aug 24, 2019 11:02 am
I do not think you need to worry about this now. You are already in the 22% bracket and single. And you plan to retire at 60. So you will have more than a decade of using your income for your expenses, possibly doing Roth conversions, etc. This is something to address at the time of retirement, IMO. Also the tax torpedo from the article is such a specific combination of income types and level that I can not see worrying about it almost 20 years before it might be relevant. Too much is unknown.
Agree that 20 years out is too long to be "worrying" about it. My comments are admittedly skewed by my own timeline, which is much closer (entering retirement and dealing with these issues, as we sit). From that vantage point, I will say that "I wish I knew now what I didn't know then" (with apologies to Bob Segar). If I had, there might be a little less scrambling involved. Despite a longstanding interest in personal finance and closely tracking our investments, I was clueless about the potential impact of over-investing in tax-deferred accounts until.... now. Hopefully the OP can just file all of this away as things to keep in mind, as his own timeline shortens. The one adjustment he might want to make sooner than later is....
Katietsu wrote:
Sat Aug 24, 2019 11:02 am
You said that you had things you wanted to do now that your current cash flow made difficult. You also have very little in taxable to be accessed without penalty over the next 6 years. And you are on target for a financially sound retirement. For these reasons, I think some have given you permission to ease up a bit on retirement savings so that you can take that trip to Europe with your daughter to celebrate high school graduation.
Agreed, on all fronts!

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Re: Suggestions From TIAA and Checkup

Post by obafgkm » Sun Aug 25, 2019 7:30 am

Thanks again for all the responses. I’ll have to do a bit more reading of the links provided, and to search for “I-ORP” (I don’t see it immediately in the wiki).

A couple of questions:
  1. My employer will contribute a percentage of my salary to my 403(b) even if I don’t contribute at all (currently $8000/year). Should I put that into bonds, or TIAA Traditional, or both, or something else? Under this new plan suggested here, I’d be contributing $7000/year to just stocks in the Roth IRA.
  2. Is there anything I can do about either 403(b) balance right now? I know I can take money out of the inherited 403(b) even now (and pay ordinary income tax on it). I don’t know if I can put that into a Roth IRA immediately. If so, is this something I should consider (converting up to the top of the 22% bracket)? Or wait until after I retire, and convert up to the top of the 15% bracket?
I may be making this all too complicated for myself. I find I learn better asking lots of questions to clarify things in my mind (yes, like most people :happy).

It is comforting to know that I am in a very good position at the moment (albeit with potentially large RMDs in 17 years). And I recognize it wasn’t just me saving a lot, but my wife doing the same.

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Re: Suggestions From TIAA and Checkup

Post by dodecahedron » Sun Aug 25, 2019 8:02 am

obafgkm wrote:
Sun Aug 25, 2019 7:30 am

[*]Is there anything I can do about either 403(b) balance right now?Yes, there is. I know I can take money out of the inherited 403(b) even now (and pay ordinary income tax on it). I don’t know if I can put that into a Roth IRA immediately. Yes.
First of all, my condolences for your loss. I am also widowed with a TIAA SIP 403b inherited from my late husband (six years ago.) I was able to do a partial Roth conversion of funds in that account into a Roth IRA in my name.

My TIAA Wealth Management Advisor (WMA) handled the paperwork for me. Like just about everything at TIAA, it took more time than it should have (several weeks) but the funds distributed from the TIAA SIP wound up in my Roth IRA at TIAA. Once it was in a TIAA Roth IRA, it was easy to move the funds to another custodian (in my case, I subsequently consolidated the funds via rollover into my Vanguard Roth IRA.)
If so, is this something I should consider (converting up to the top of the 22% bracket)? Or wait until after I retire, and convert up to the top of the 15% bracket?
Whether you should actually do this is a much harder question. What you need to realize is that even though you may be in the ¨15% bracket¨ in retirement, your marginal effective tax rate may be much higher than 15% in retirement.

In my case, I will be in the ¨12% bracket¨ next year at age 67 but my marginal effective tax rate is going to be close to 50% (due to indirect effects on taxability of SS interacting with qualified dividend tax rate.) Other reasons for doing Roth conversions before retirement include avoiding IRMAA surcharges on Medicare premiums and maintaining eligibility for senior citizens property tax breaks that have income limits. (These are available in many locations and income requirements may differ from place to place.) For both those reasons, I am trying to keep my MAGI in retirement below $85K and having done a number of Roth conversions opportunistically in the past helps with that. But it was a big guessing game--so many factors that it was impossible to predict whether the Roth conversions were a good idea at the time.

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Re: Suggestions From TIAA and Checkup

Post by dodecahedron » Sun Aug 25, 2019 8:33 am

obafgkm wrote:
Fri Aug 23, 2019 7:31 am
I like the access to TIAA Real Estate through the inherited 403(b), as well as TIAA Traditional (and I couldn't change my work 403(b) anyhow if I wanted). I'm happy to stay at TIAA and stay in inexpensive funds.

As long as I'm aware of the WMA's motives, I can take them into account and agree or disagree.
I agree that TIAA Trad and TREA (real estate) are potentially good reasons to keep some money at TIAA. Thing that annoys me about TIAA is their high ER on their CREF TIPS fund! Investing in TIPS is not rocket science and should not cost so much. At least it looks like you have relatively lower cost R3 expense ratios. Costs at my late husband´s TIAA accounts were R2 levels. Really sorry for the folks at small colleges who pay R1 expense ratios. (53 basis points for CREF inflation protected at R1 institutions!)

About 25% of my portfolio is in TIAA (with the rest of my portfolio at other custodians.) It is almost entirely in TIAA Trad because that 3% guarantee combined (in my case) with total liquidity is very hard to beat in these low interest days. I am still working (very part-time) and contributing my entire salary to my 403b in TIAA Trad. I also have a small amount in TREA.

But I see no point in holding anything else at TIAA because their fees are unnecessarily high. The institution where I work allows employees to do in-service distributions from their retirement accounts to IRA rollovers once they are 59 1/2. So once I turned that age, I rolled all TIAA money other than what I wanted to keep in TRAD/TREA into IRAs at other custodians.

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Re: Suggestions From TIAA and Checkup

Post by student » Sun Aug 25, 2019 8:39 am

dodecahedron wrote:
Sun Aug 25, 2019 8:33 am
obafgkm wrote:
Fri Aug 23, 2019 7:31 am
I like the access to TIAA Real Estate through the inherited 403(b), as well as TIAA Traditional (and I couldn't change my work 403(b) anyhow if I wanted). I'm happy to stay at TIAA and stay in inexpensive funds.

As long as I'm aware of the WMA's motives, I can take them into account and agree or disagree.
I agree that TIAA Trad and TREA (real estate) are potentially good reasons to keep some money at TIAA. Thing that annoys me about TIAA is their high ER on their CREF TIPS fund! Investing in TIPS is not rocket science and should not cost so much. At least it looks like you have relatively lower cost R3 expense ratios. Costs at my late husband´s TIAA accounts were R2 levels. Really sorry for the folks at small colleges who pay R1 expense ratios. (53 basis points for CREF inflation protected at R1 institutions!)

About 25% of my portfolio is in TIAA (with the rest of my portfolio at other custodians.) It is almost entirely in TIAA Trad because that 3% guarantee combined (in my case) with total liquidity is very hard to beat in these low interest days. I am still working (very part-time) and contributing my entire salary to my 403b in TIAA Trad. I also have a small amount in TREA.

But I see no point in holding anything else at TIAA because their fees are unnecessarily high. The institution where I work allows employees to do in-service distributions from their retirement accounts to IRA rollovers once they are 59 1/2. So once I turned that age, I rolled all TIAA money other than what I wanted to keep in TRAD/TREA into IRAs at other custodians.
I also hold a lot of TIAA Traditional. Almost my entire TIAA account consists of TIAA Traditional. Although my TIAA contract has super low cost institutional funds that rival Vanguard's, I like to spread my investments in a couple of different companies.

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Re: Suggestions From TIAA and Checkup

Post by jeffarvon » Sun Aug 25, 2019 8:54 am

One subpoint discussed above by several posters & OP was rolling over some accounts to an IRA and leaving back some monies so as to invest in TIAA Trad and TREA (real estate).

Just offering a concrete example. This is exactly was my wife did a couple of years ago. For the purpose (a follow on subpoint) for doing Roth conversions.
"Enough is as good as a feast" - Mary Poppins

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Re: Suggestions From TIAA and Checkup

Post by ralph124cf » Sun Aug 25, 2019 1:17 pm

TREA.

You have mentioned that you like having access to this investment. Many bogleheads also like this very much.

Many people look at the ER, and are horrified. However, this should not be compared to a fund of REITs. This is in fact a real estate operating company. The expenses are the expense of buying and operating the individual properties. When looking at REIT funds, you only see the expenses of the fund that buys the REIT shares, not the expenses of the REITs themselves. I am delighted that the ER is ONLY .83%.

For these reasons I recommend that your inherited funds be reserved for this investment.

Ralph

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Re: Suggestions From TIAA and Checkup

Post by Tdubs » Sun Aug 25, 2019 2:23 pm

Many good comments already. I'll just chime in with my own recent experience with a TIAA advisor. It was like yours. After hearing the pitch to diversity into about 12 sliced and diced funds, I moved all my equities out of TIAA to my Thrift Savings Plan in the federal government. I left behind enough for TIAA traditional and real estate.

Advisors must have a thumb rule that 12 funds is the magic number. Before I looked at your list, I just knew that would be the total suggested and it is. Just enough to confuse clients and keep them from doing the math on how much they are paying in ERs.

Other than perhaps increasing your allocation to TREA, I wouldn't change a thing. You know what you are doing.

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Re: Suggestions From TIAA and Checkup

Post by livesoft » Sun Aug 25, 2019 2:46 pm

Despite all the love for TIAA TA and TREA, this year (2019) has shown what big drag they can be on performance of a portfolio.
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Re: Suggestions From TIAA and Checkup

Post by Tdubs » Sun Aug 25, 2019 3:43 pm

livesoft wrote:
Sun Aug 25, 2019 2:46 pm
Despite all the love for TIAA TA and TREA, this year (2019) has shown what big drag they can be on performance of a portfolio.
Buck up, the 4 percent Trad is going to feel pretty good next year.

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Re: Suggestions From TIAA and Checkup

Post by dknightd » Sun Aug 25, 2019 3:47 pm

livesoft wrote:
Sun Aug 25, 2019 2:46 pm
Despite all the love for TIAA TA and TREA, this year (2019) has shown what big drag they can be on performance of a portfolio.
True. But I suspect that is not true every year..

OP, I think you could probably retire now if you wanted to.
Have your TIAA WMA person run the numbers assuming you retired at the end of next academic year. My suspicion is you would have enough to be comfortable.
So I'd probably stop voluntary 403b contributions. Let the U continue obviously ;) Use the extra money to have experiences with your daughter (and pay taxes, and perhaps more of your mortgage).
I'd look at their investment suggestions, but probably ignore most of them ;)
p.s. If your spouses liquid tiaa traditional is the kind that guarantees 3%, I'd consider using that as a tax deferred savings account. I would not take it out until, or if, banks start paying more.
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Re: Suggestions From TIAA and Checkup

Post by obafgkm » Mon Aug 26, 2019 6:40 am

dknightd wrote:
Sun Aug 25, 2019 3:47 pm
OP, I think you could probably retire now if you wanted to.
:shock:
dknightd wrote:
Sun Aug 25, 2019 3:47 pm
Have your TIAA WMA person run the numbers assuming you retired at the end of next academic year. My suspicion is you would have enough to be comfortable.
So I'd probably stop voluntary 403b contributions. Let the U continue obviously ;) Use the extra money to have experiences with your daughter (and pay taxes, and perhaps more of your mortgage).
I was beginning to gather that from the earlier replies, but to have someone just come out and say it (that I could retire now) is shocking. Wow. This so shakes my worldview. If true, beginning to make a transition from an accumulator (always maxing out 403(b) and IRA) to proto-spender is going to be difficult. This is surprisingly unsettling (a good unsettling, but still unsettling).

I'm one of those who'd rather pay off the mortgage than keep it. I was planning on saving enough so I can lump sum the principal in a few years (maybe a bit earlier, now).

As for retirement, my plan was to wait until I could take advantage of my school's tuition remission plan and get my daughter covered under that (either free at my school -- she doesn't want to go there -- or up to half tuition elsewhere). I don't need to be employed the whole four years -- just when she starts.

I also would have one more sabbatical coming up, but I suppose I could take a permanent sabbatical and still do research if I desire. :sharebeer
dknightd wrote:
Sun Aug 25, 2019 3:47 pm
p.s. If your spouse's liquid tiaa traditional is the kind that guarantees 3%, I'd consider using that as a tax deferred savings account. I would not take it out until, or if, banks start paying more.
It is the 3% guaranteed (and my 403(b) is, as well).

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Re: Suggestions From TIAA and Checkup

Post by Naismith » Mon Aug 26, 2019 8:37 am

So sorry for the loss of your wife. Yes, this is a great time in your daughter's life to do fun things with her!

I appreciated the financial plan we received from TIAA. It didn't tell us much new, but did reinforce much of what we thought. He also walked us through our social security claiming strategy and confirmed our plan there.

But....

They don't take taxes into consideration, and since your little bird will be flying out of the next before you know it, leaving you as a single for tax purposes, that is a huge deal. You've gotten some advice here, but that might be the professional you may need next.

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Re: Suggestions From TIAA and Checkup

Post by 22twain » Mon Aug 26, 2019 8:48 am

Out of curiosity, what return are you getting on your TIAA Traditional? I contributed to my largest Trad accounts from 1985 to 2016, so I have some old vintages. Using the two most recent quarterly balances (3/31/19 and 6/30/19), I get annualized returns of about 4.0% on the liquid version (GSRA) and 4.1% on the illiquid version (RA).
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Re: Suggestions From TIAA and Checkup

Post by student » Mon Aug 26, 2019 9:46 am

22twain wrote:
Mon Aug 26, 2019 8:48 am
Out of curiosity, what return are you getting on your TIAA Traditional? I contributed to mine from 1984 to 2016, so I have some old vintages. Using the two most recent quarterly balances (3/31/19 and 6/30/19), I get annualized returns of about 4.0% on the liquid version (GSRA) and 4.1% on the illiquid version (RA).
They only have 3 vintages. https://www.tiaa.org/public/investment- ... r=47933632 for groups and https://www.tiaa.org/public/investment- ... r=47933633 for supplemental.

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Re: Suggestions From TIAA and Checkup

Post by obafgkm » Mon Aug 26, 2019 5:48 pm

22twain wrote:
Mon Aug 26, 2019 8:48 am
Out of curiosity, what return are you getting on your TIAA Traditional? I contributed to my largest Trad accounts from 1985 to 2016, so I have some old vintages. Using the two most recent quarterly balances (3/31/19 and 6/30/19), I get annualized returns of about 4.0% on the liquid version (GSRA) and 4.1% on the illiquid version (RA).
If you mean the "crediting rate", the SIP is just earning 3% (it was all put in at once when it was transferred from my wife's account in 2016), and my 403(b) has a range from 3.25% to 4.00% (I started TIAA Traditional in 2016.

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Re: Suggestions From TIAA and Checkup

Post by obafgkm » Wed Aug 28, 2019 6:19 am

It looks as if this thread is winding down. Thank you all for your comments, suggestions, and support. I have a lot to think about and to read. The assurances make the start of my school year after a good summer just a little easier :happy .

Thanks again.

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