TIAA traditional question

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maddogio
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TIAA traditional question

Post by maddogio » Sun Mar 18, 2018 9:02 am

I know that there have been many questions here regarding this particular product, but I've not found a clear answer to my question here or in the TIAA literature.

After annuitizing, there is some likelihood that the amount of the monthly payout will increase. TIAA states that the increase depends on how much an investor has contributed and how long the customer has been contributing to the annuity. Is that math available somewhere? I'm currently contributing to TIAA trad instead of bonds, but I'm having a hard time understanding and modeling this particular advantage.

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willthrill81
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Re: TIAA traditional question

Post by willthrill81 » Sun Mar 18, 2018 9:21 am

maddogio wrote:
Sun Mar 18, 2018 9:02 am
I know that there have been many questions here regarding this particular product, but I've not found a clear answer to my question here or in the TIAA literature.

After annuitizing, there is some likelihood that the amount of the monthly payout will increase. TIAA states that the increase depends on how much an investor has contributed and how long the customer has been contributing to the annuity. Is that math available somewhere? I'm currently contributing to TIAA trad instead of bonds, but I'm having a hard time understanding and modeling this particular advantage.
The best thing to do is to contact them directly to get specific numbers.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Geologist
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Re: TIAA traditional question

Post by Geologist » Sun Mar 18, 2018 9:25 am

I don't think you can get specific numbers or an equation. My father and then my mother as a survivor received payments from a Traditional TIAA annuity for a total of 32 years. It included the base amount plus "additional payments". The additional payments increased over the years, but these were described as not guaranteed (however, they never decreased) and there was no set pattern to the increases.

The Wizard
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Re: TIAA traditional question

Post by The Wizard » Sun Mar 18, 2018 10:30 am

TIAA appears to be giving high priority to annuitants vs certain other things, like IRA investors.
Priority appears to be not DECREASING those additional amounts, to extent possible.
But in the five years if been receiving lifetime income from my annuitized Trad, I've seen three modest increases in the 1% to 2% range.

Note: there's a certain element of faith or trust in TIAA's motives in this area compared to a typical SPIA insurance company.
But so far I've not been disappointed...
Attempted new signature...

columbia
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Re: TIAA traditional question

Post by columbia » Sun Mar 18, 2018 11:31 am

The Wizard wrote:
Sun Mar 18, 2018 10:30 am
TIAA appears to be giving high priority to annuitants vs certain other things, like IRA investors.
Priority appears to be not DECREASING those additional amounts, to extent possible.
But in the five years if been receiving lifetime income from my annuitized Trad, I've seen three modest increases in the 1% to 2% range.

Note: there's a certain element of faith or trust in TIAA's motives in this area compared to a typical SPIA insurance company.
But so far I've not been disappointed...
You have standard annuity or the inflation linked option?

whomever
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Re: TIAA traditional question

Post by whomever » Sun Mar 18, 2018 11:38 am

Just for the sake of completeness, there are two kinds of increases for TIAA life annuities.

1)All of them consist of a 'guaranteed amount' and 'additional amounts'. The guaranteed amount is just what it sounds like - TIAA must pay that much unless they go broke, like any other annuity provider. The additional amounts are not a contractual requirement; TIAA has historically paid out what they thought they prudently could, and TIAA annuitants certainly hope they continue to do so. My sense is that the guaranteed amounts are usually less than commercial annuities but the guaranteed+additional is usually more than commercial annuities.

2)Annuitants can elect a 'graded option' where they get less initially but can expect (hope?) that the payments will grow. See the 'How
it Works' section here:

https://www.tiaa.org/public/pdf/institu ... 46_red.pdf

I don't think any of this is based on any simple math, but rather that historically when investments are doing well TIAA shared the 'winnings' with annuitants (in contrast with a regular annuity provider where any excess goes to the company owners). It's not completely clear how durable TIAA's noble traditions will prove to be (see the 'Profile' section):

https://en.wikipedia.org/wiki/TIAA-CRE

(Disclosure: I have a TIAA Trad account that I plan to annuitize in a few years)

maddogio
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Re: TIAA traditional question

Post by maddogio » Sun Mar 18, 2018 12:40 pm

Thanks, all. At 20+ years from retirement TIAA Trad is far from the bulk of my portfolio, but there are things to like about it, I think, regardless of the 'additional amount' provided upon annuitization.

beardsworth
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Re: TIAA traditional question

Post by beardsworth » Sun Mar 18, 2018 1:05 pm

columbia (to The Wizard) wrote:
You have standard annuity or the inflation linked option?
TIAA Traditional can be annuitized for lifetime income under the Standard Method or the Graded Method.

In exchange for a lower starting payout, the Graded Method holds back a portion of the "additional amounts" generated by the TIAA general account's return, and uses them to buy increases in paid-up future annuity income.

However, while it was offered as a way to help keep up with inflation, it does not promise to do so, and is not explicitly "linked" to any official or unofficial measure of inflation.

CZjc1330
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Re: TIAA traditional question

Post by CZjc1330 » Sun Mar 18, 2018 1:28 pm

I first enrolled in TIAA/CREF in 1959. I fear most of the respondents are living in the past. Andrew Carnegie set up TIAA in the early 1900s because he was shocked that most college professors did not have any pension income. For some 70 years, Tiaa/Cref was non-profit and true to Carnegie's plan to help retired college individuals. There were trustworthy.

BUT in the 1980s or thereabouts they quietly switched to a for-profit mode. They hired a Goldman Sacks executive and the old T/C disappeared. They aggressively seek profit. The old caring counselors have been replaced by crass, but polished, salespersons.

TIAA is being sued by several whistleblowers ( see N Y Times Fall 2017 -- at least two stories on this).
TIAA is no longer customer-oriented. They are motivated by profits. I don't trust them. Read the N Y Times articles. I have moved my sizeable account. Beware!

The Wizard
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Re: TIAA traditional question

Post by The Wizard » Sun Mar 18, 2018 1:52 pm

columbia wrote:
Sun Mar 18, 2018 11:31 am

You have standard annuity or the inflation linked option?
I have standard TIAA Traditional annuties, not "graded".
The graded ones go up a certain amount each year, regardless of in inflation actually.

So in my case, those 1% to 2% increases in three of five years are totally beyond their contractual obligations.
Somewhere they call this a "participating" annuity, I think...
Attempted new signature...

beardsworth
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Re: TIAA traditional question

Post by beardsworth » Sun Mar 18, 2018 2:28 pm

CZjc1330 wrote:
Sun Mar 18, 2018 1:28 pm
I first enrolled in TIAA/CREF in 1959. I fear most of the respondents are living in the past. Andrew Carnegie set up TIAA in the early 1900s because he was shocked that most college professors did not have any pension income. For some 70 years, Tiaa/Cref was non-profit and true to Carnegie's plan to help retired college individuals. There were trustworthy.

BUT in the 1980s or thereabouts they quietly switched to a for-profit mode. They hired a Goldman Sacks executive and the old T/C disappeared. They aggressively seek profit. The old caring counselors have been replaced by crass, but polished, salespersons.

TIAA is being sued by several whistleblowers ( see N Y Times Fall 2017 -- at least two stories on this).
TIAA is no longer customer-oriented. They are motivated by profits. I don't trust them. Read the N Y Times articles. I have moved my sizeable account. Beware!
It's difficult to know where to start in addressing the above, but TIAA did not "quietly switch" its tax status. Rather, its tax status was changed by an act of Congress. Since the rules of the Bogleheads forum prohibit political discussions, it's beyond the scope of this post to discuss the behind-the-scenes motivations of that legislation, and who was working to advance whose interests at whose expense, but here's a contemporaneous news story about the legislation itself.

http://www.nytimes.com/1997/07/30/busin ... ption.html

The CEO later hired by TIAA was Herbert Allison, who had previously been at Merrill Lynch, not Goldman Sachs, although I get what the poster more generally seems to suggest. After TIAA, Allison would serve as an Assistant Secretary of the Treasury. Many TIAA participants seem to regard the Allison years as a not-very-good time in the history of the company, but not solely because of Allison's background in the corporate and banking world. Which, in any case, has not been unique, since TIAA's current CEO, Roger Ferguson, was previously associated with the Federal Reserve and was executive of financial services for Swiss Re.

Like any large organization, TIAA has its share of quirks and problems. But for purposes of life income annuities (which are, after all, the subject of this thread), I've not encountered any company I'd prefer to it.

CZjc1330
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Re: TIAA traditional question

Post by CZjc1330 » Sun Mar 18, 2018 7:24 pm

Dear Beardsworth
Thank you for the corrections.
Still, my main point was Tiaa isn't our father's Tiaa.
Investor beware. You can do better!

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willthrill81
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Re: TIAA traditional question

Post by willthrill81 » Mon Mar 19, 2018 10:52 am

CZjc1330 wrote:
Sun Mar 18, 2018 7:24 pm
Dear Beardsworth
Thank you for the corrections.
Still, my main point was Tiaa isn't our father's Tiaa.
Investor beware. You can do better!
In general, I'm inclined to agree. I just completed a rollover from a 401k at TIAA to an IRA at Vanguard. The 401k plan with that employer had no index funds at all, and the ERs were around .5%. The TIAA plan with my current employer has several index funds with ERs below .1%.

The one 'saving grace' I see that TIAA has is, coincident to this thread, their TIAA Traditional annuity. The liquid version currently pays 3.25%, and the illiquid version pays 4.0%. Those yields are significantly higher than any investment grade bond fund I'm aware of these days.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

beardsworth
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Re: TIAA traditional question

Post by beardsworth » Mon Mar 19, 2018 11:34 am

willthrill81 wrote:
Mon Mar 19, 2018 10:52 am
The liquid version currently pays 3.25%, and the illiquid version pays 4.0%. Those yields are significantly higher than any investment grade bond fund I'm aware of these days.
Those numbers are accurate, as far as they go, as a shorthand way of describing current rates for new contributions made this month to TIAA Traditional still in the accumulation stage. Contributions made in March will earn that rate through the end of February 2019. The rate on new contributions is subject to change each month, and new contributions made in April will then earn the announced April rate through the end of February 2019. And so on in May, June, etc., all earning their respective new-contribution rates through next February. (The entire accumulation rate schedule is then subject to a more general re-set each March 1.)

Because of TIAA's practice of classifying past year rates into "vintages," with the oldest contributions tending to earn the highest accumulating rates, contributions made in other years, but still in the accumulation stage, may be earning more than, or less than, the rate on new contributions in a current month. And, of course, if Traditional is actually annuitized for lifetime income, the payout rates are higher than the accumulation-stage rates.

Here's the current chart, including both accumulation and payout vintage rates, for one of the TIAA Traditional contract types that willthrill81 is describing as the "illiquid" variety. But keep in mind that the payout rates are relatively generic, and the reality would be affected substantially by the particular contribution history and current age of the participant.

https://www.tiaa.org/public/investment- ... r=47933630
Last edited by beardsworth on Mon Mar 19, 2018 11:36 am, edited 1 time in total.

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willthrill81
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Re: TIAA traditional question

Post by willthrill81 » Mon Mar 19, 2018 11:36 am

beardsworth wrote:
Mon Mar 19, 2018 11:34 am
willthrill81 wrote:
Mon Mar 19, 2018 10:52 am
The liquid version currently pays 3.25%, and the illiquid version pays 4.0%. Those yields are significantly higher than any investment grade bond fund I'm aware of these days.
Those numbers are accurate, as far as they go, as a shorthand way of describing current rates for new contributions made this month to TIAA Traditional still in the accumulation stage.
That's true, but it's worth pointing out that they've been offering those rates for several years, even when interest rates were lower than now.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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