AA help- TIAA CREF mess!

[manuvns]

Hmm . i was told by tiaa-cref that with CREF stock, bond, equity etc have the option to annuitize the holding when you retire . Is the higher expense worth the annuity

Well, if all you have access to are the TIAA and CREF annuities, and funds with even higher expense ratios, you don't have much choice in the matter. (Until retirement or separation, when you have the option to transfer out.)

On the other hand, some of us have access to cheap index funds in addition to the annuities, in which case you don't have to pay the extra expenses of, say, CREF Stock until you reach the point where you want to buy an income stream.

Although some people do use the variable annuities for retirement income, it doesn't seem particularly attractive to me. I'd rather use Traditional for that.
IMO the point of buying an income stream is to reduce uncertainty; layering market risk on top doesn't help.

i do have access to 4 cheap(er) index funds ( not cref but regular funds ) from TIAA-cref .

S&p 500 index premier class 0.08
large cap value index institutional 0.08
small cap blend index institutional 0.15
international index institutional/ premier ( developed marked index) 0.24

should i trade my cref stock to these funds ?

[House Blend]

Ok, I see what you are all saying. Let me reiterate...

I need the bonds to re-balance because it's so hard to move Trad and RE is restricted so if I needed it and had already moved some in the same quarter I'd be SOL. It will be hard to create this bond stash quickly with only future contributions. So, I could move the 12% RE in the old plan right to bonds so it's there when I need it for re-balancing instead of putting it into stocks and then having nothing much on hand to re-balance with in the event of a down turn. And I could also take a look at how the Trad will increase say 10 yrs out (with no further current contribution) and choose some portion of it to transfer out to control it's slow but steady push on my desired allocation. I can use my still a bit too high RE allocation to fill in the cracks as I go forward.

Yes that's the basic idea.

But keep in mind that the first order of business is settling on an overall asset allocation. More specifically, settling on the equity percentage.

I am reluctant to touch the current plan RE yet as some large fraction of that is bubble priced and new investment - I can scape off non-principle chunks as they accumulate.

Here, you're lapsing back into that CNBC "good buying opportunity" tone that Valuethinker was chiding you for.

If it helps, imagine your current investments as 100% cash, and don't anchor yourself to where RE was or is now.

[House Blend]

Hmm . i was told by tiaa-cref that with CREF stock, bond, equity etc have the option to annuitize the holding when you retire . Is the higher expense worth the annuity

Well, if all you have access to are the TIAA and CREF annuities, and funds with even higher expense ratios, you don't have much choice in the matter. (Until retirement or separation, when you have the option to transfer out.)

On the other hand, some of us have access to cheap index funds in addition to the annuities, in which case you don't have to pay the extra expenses of, say, CREF Stock until you reach the point where you want to buy an income stream.

Although some people do use the variable annuities for retirement income, it doesn't seem particularly attractive to me. I'd rather use Traditional for that.
IMO the point of buying an income stream is to reduce uncertainty; layering market risk on top doesn't help.

i do have access to 4 cheap(er) index funds ( not cref but regular funds ) from TIAA-cref .

S&p 500 index premier class 0.08
large cap value index institutional 0.08
small cap blend index institutional 0.15
international index institutional/ premier ( developed marked index) 0.24

should i trade my cref stock to these funds ?

Hmm. looks a bit like square pegs and round holes.

You could fashion a decent US equity total market by combining the S&P 500 with the Small Cap Blend Index. (I think 80/20 would be market weight, but don't trust me on that.)

The international index is missing emerging markets and small caps. I could live without international small, but would not want to skip EM. Do you have an IRA? If you could hold VG Total International there, that would be a much better arrangement IMO.

But now we have at least three moving parts: S&P500, US Small, and Total International. Some people enjoy the fussing that goes with it; others prefer paying a ~25bp premium for just CREF Stock and less fussing.

Maybe a better solution is to talk your benefits office into adding some Vanguard index funds to their plan. (That's what my employer did, and someone else did all of the complaining required to make it happen.

[sscritic]

If you are not of RMD age, the first money out of Traditional in a 403(b) is from the "grandfathered" amounts* (pre-1987). All other money comes out proportionally from all vintages.

Transfers and withdrawals are paid pro-rata from each Vintage.

* grandfathered amounts are not subject to RMD before age 75, but any withdrawals in excess of your RMD comes from your grandfathered amounts. If your RMD this year is zero because you are 45, all your withdrawal will come from your grandfathered amounts. Then again, you may not have any grandfathered amounts.

On the grounds that I really have zero comprehension of this stuff. Is there therefore an advantage/ disadvantage to making withdrawals from the one v. the other?

If you just have one account, you have no choice. IRS regulations (which I found once, it's a long piece on 403(b)s) spell it out. If you have $1000 of old money and $20,000 of new money, and you take out $500 pre-RMD, it comes out of the old money, leaving you with $500 old and $20,000 new. On the other hand, if you are 72 and need to take an RMD of $1000, all of it will come from the new money and you will still have $1000 old plus $19,000 new. If your RMD is $1000 but you take out $1500, you end up with $500 old, $19,000 new.

Since most people would like their money to grow tax-sheltered as long as possible, they would prefer to have no RMDs. Given that they have RMDs, they would prefer they start at 75 rather than 70.5. The way it works is that TIAA will compute your RMD for you excluding the old amounts until you hit 75. You can also ask TIAA to tell you how much you have in each vintage.

Now if you have two accounts and one has more old money than the other and you want to take a distribution in excess of your RMD, then you should take it from the 403(b) that has less old money (once you have computed your RMDs from your 403(b)s, you can take it all from just one, as you can with IRAs).

Similarly, a 403(b) contract owner must calculate the RMD separately for each 403(b) contract that he or she owns, but can take the total amount from one or more of the 403(b) contracts.

http://www.irs.gov/retirement/article/0 ... ,00.html#5

Now here is where I might have made a mistake, but maybe not. I had two 403(b)s, one an RA (paying the higher rate) and one an SRA. I knew the RA paid more, so I converted my Stock in the RA to Traditional and converted my Traditional in the SRA to Stock. I picked up another 0.5% to 0.75% in interest rates (since reduced to 0%), but lost all my old money (of any vintage) in the SRA which was replaced with the vintage as of the day I made the switch in my RA. At the time, I wasn't thinking clearly about vintages, let alone about grandfathered amounts. If the separation in interest rates opens up again, I might have made the right call. If not, that's life.

[szmaine]

But keep in mind that the first order of business is settling on an overall asset allocation. More specifically, settling on the equity percentage.

I think the AA suggested by Valuethinker fits the bill quite well if I think of the RE as an equity type of investment then I'd be at the 60%, with Trad/Bond at 40%.

30% TIAA Traditional
10% TIAA inflation linked bond
10% TIAA RE
50% CREF stock

If I moved the old plan RE to bonds I'd be here right away:
Trad - 45%
Stock - 32%
Bonds 10%
RE - 15%

Then, I GUESS, I COULD move some of the other RE funds to wind up with about 38% equity also pretty quickly. Then I can think about how to trim the traditional after looking into my vintages and what could be achieved with future contributions.

I am reluctant to touch the current plan RE yet as some large fraction of that is bubble priced and new investment - I can scape off non-principle chunks as they accumulate.

Here, you're lapsing back into that CNBC "good buying opportunity" tone that Valuethinker was chiding you for.

If it helps, imagine your current investments as 100% cash, and don't anchor yourself to where RE was or is now.

Ok, I'll work on it. Thanks again for all your help. It's is interesting!

[livesoft]

Remember back at the beginning of this thread when I mentioned Step 1 and gave a hint that a Step 2 would follow? Let's just say we seem to be stuck in Step 1 while some folks are already talking about Step 2.

Another comment, the book you chose to read from William Bernstein was one of his first books. I think he found that folks found it very difficult to get into, so he had to write a 2nd book that was simpler: The Four Pillars of Investing. But even that was too much for many folks, so he wrote another book "The Investor's Manifesto". Anyways, books are good.

BTW, I have had a TIAA-CREF 403(b) for more than 25 years. I own TIAA traditional and TREA, but no longer own CREF Stock. I agree with what folks are saying about these products in this thread.

[szmaine]

Remember back at the beginning of this thread when I mentioned Step 1 and gave a hint that a Step 2 would follow? Let's just say we seem to be stuck in Step 1 while some folks are already talking about Step 2.

Another comment, the book you chose to read from William Bernstein was one of his first books. I think he found that folks found it very difficult to get into, so he had to write a 2nd book that was simpler: The Four Pillars of Investing. But even that was too much for many folks, so he wrote another book "The Investor's Manifesto". Anyways, books are good.

BTW, I have had a TIAA-CREF 403(b) for more than 25 years. I own TIAA traditional and TREA, but no longer own CREF Stock. I agree with what folks are saying about these products in this thread.

Thanks for the additional book recommendations - I definitely will be getting something.

I think right now I'm just getting a feel for how re-balancing may be accomplished through various scenarios -obviously, it is new to me.
I understand that you are trying to spur me on to learn more about my stock investment options, US/International allocations etc. (er, at least I think thats what you are getting at here). But it seems there is a general dire abhorrence of my current RE allocation, with which you seem to say that you agree....why not take care of it right away?
It will take me some time to feel like I actually have a clue as to what stock funds should be used in what proportion....Cref Stock has 70/30 US/Intnl, isn't that supposed to be some kind of sweet spot, the cost is lower than the others... so why not just use that?

[sscritic]

I don't think you are following what livesoft is saying (at least not the way I am reading it). Note that livesoft says he doesn't hold Stock, but he doesn't say he doesn't hold stock. That's because his stock is in his other accounts. I don't know all of them, but I would guess they include several of the following in addition to his 403(b): taxable, tIRA, RothIRA, 401(k), etc. The first thing he decides is what types of things he wants to hold (asset classes); only after that does he decide where he wants to hold them.

Go back to his step 1.

1. With[out] any regard to what you currently have nor at what financial institution that you have it at (i.e. ignore anything and everything about TIAA-CREF), what is the is exact asset allocation that you want right now?

I don't know what other accounts you have or if you have any (most people have some taxable), but livesoft has asked you to ignore your accounts and the choices you have within those accounts and think only of what you want to have in your overall portfolio. That should be the goal of your reading, not how much of your 403(b) should be in a stable value fund.

[szmaine]

Thanks sscritic for the clarification, I will certainly take his advice and study up.

Thanks, livesoft!!

In the mean time, I do have a better idea of where to direct my current contribution which was part of my original goal with this post. I had come to the realization that the choices I was making were little better than eeny-meeny-miney-moe.

Thanks to everyone for all the thought provoking conversation and clarifications!

Suzanne

[DireWolf]

This thread has been an interesting read, since my wife's new employer has its 401K with TIAA-CREF.

I find their products to be very confusing, especially since my accounts are with Vanguard. I have always been suspicious of annuities.

Basically we want to use her 401K as a means of storing fixed income (i.e. bonds) to take advantage of the tax-free space.

Does TIAA-CREF have any bond funds similar to Vanguard's TBM (VBTLX) and TIPS (VIPSX) that we all know and love? I would also like to stay away from annuities and just get index funds.

Any suggestions would be appreciated.

[sscritic]

I would also like to stay away from annuities and just get index funds.

Why? If you read the thread, you see that many of us only use the annuities. Go back to this post.
http://www.bogleheads.org/forum/viewtop ... 8#p1325848

Then scroll forward and back from there to see the other posts where House Blend and I pat each other on the back for being so brilliant.

[jjustice]

DireWolf, TIAA-CREF annuities are not the annuities that you've been warned to stay away from. They are basically mutual funds that can be conveniently annuitized on retirement. They have reasonable expense ratios and a history of reliable performance. Your wife is fortunate to have access to them. Of the accounts praised by sscritic and House Blend, I especially recommend CREF Stock, TIAA Real Estate, and TIAA Traditional. Currently, they are all that I use in my own 403(b).

John

[The Wizard]

Note that CREF Stock has roughly 30% in international stocks; if that suits you, fine.
Equity Index may be another option that avoids the international exposure.
Not all T-C participants have access to all funds in their plan, due to helpful administrators protecting us from making wrong decisions.

[DireWolf]

We are planning on using her account solely for fixed income assets (bonds).

It looks like our only options are:

CREF Bond Market Account
CREF Inflation-linked Bond Account


The TIAA Traditional Annuity is offered but after reading about it, I still don't understand what it is, and I don't feel comfortable investing in something I don't understand.

[shirleyj62]

You might want to read the following thread that appeared in the Morningstar TIAA-CREF forum:

T-C Model Portfolios
http://socialize.morningstar.com/NewSoc ... px#3232881

It may help you decide how to split up your TIAA-CREF portfolio.

Shirley

[sscritic]

We are planning on using her account solely for fixed income assets (bonds).
It looks like our only options are:

CREF Bond Market Account
CREF Inflation-linked Bond Account

The TIAA Traditional Annuity is offered but after reading about it, I still don't understand what it is, and I don't feel comfortable investing in something I don't understand.

I use traditional, but the good thing in the 401(k) (I have a 403(b), but I assume the 401(k) works the same way) is that there are no costs to switching around later, either with changing where your new contributions go or by selling some of what you have (except from Traditional in some contracts). So start without traditional and try and learn more to see if it fits with what you want.

You can think of traditional as a stable value fund. It goes up, but never goes down. It has a guaranteed return. Depending on the type of contract you have, you might have restrictions on withdrawals; one of my contracts restricts me to withdrawals over 9 years and one day (10 payments a year apart from each other). When I hit 70, I am going to have to think about either taking a life annuity or starting the 10 payment Transfer Payout Annuity. [note: your RMD from a 403(b) can be taken from any 403(b) you have, so I don't even have to start at 70 if I have other 403(b) money to take my RMD from and I do - do 401(k)s work the same?]

So use Bond Market and ILB for now and take your time to learn more about your contract wrt Traditional before jumping into it.

[shirleyj62]

We are planning on using her account solely for fixed income assets (bonds).

The TIAA Traditional Annuity is offered but after reading about it, I still don't understand what it is, and I don't feel comfortable investing in something I don't understand.

Basically TIAA Trad Annuity is similar to a stable value fund. It is comprised of a bunch of funds that, I believe are the CREF funds, some Vanguard funds, and others. This "pot" is then wrapped in an insurance wrapper. You are guaranteed never to lose money on this fund. You will always get the minimum of 3%, and I've seen it as high as 14% decades ago. You will never see this fund have negative quarters, years, etc. It will always be growing by at least 3%, and when interest rates are higher, the interest rate will go higher on this fund.

Here is an example prospectus:
http://enroll.tiaa-cref.org/resources/p ... tus_T1.pdf

Shirley

[ofckrupke]

The TIAA Traditional Annuity is offered but after reading about it, I still don't understand what it is, and I don't feel comfortable investing in something I don't understand.

it is highly likely that when the company mails the CREF annuity certificate or contract upon your enrollment and payment into one of the fixed income CREF accounts, they will also send a separate TIAA annuity certificate or contract pertinent to the Traditional and RE accounts even if you've contributed to neither. Having this document for reference will speed the construction of an understanding satisfying your personal requirements.

I too was deeply skeptical of anything with an annuity wrapper and of the mysteries in Traditional concerning the equitable distribution of additional amounts of interest according to vintages having shifting boundaries. Now it's almost all good.

[DickBenson]

We are planning on using her account solely for fixed income assets (bonds).

The TIAA Traditional Annuity is offered but after reading about it, I still don't understand what it is, and I don't feel comfortable investing in something I don't understand.

Basically TIAA Trad Annuity is similar to a stable value fund. It is comprised of a bunch of funds that, I believe are the CREF funds, some Vanguard funds, and others.

TIAA Traditional is supported by the General Account of TIAA (This is by far the main purpose of the General Account). Traditional itself does not invest in any particular funds, but you can get an idea of the General Account's investments on page 2 of the following document. Essentially, the performance of the General Account's investments determine the performance of your Traditional Account (with the provision that the Traditional return will not go below 3%).

http://www.tiaa-cref.org/ucm/groups/con ... 026927.pdf

Dick

[DireWolf]

You can think of traditional as a stable value fund. It goes up, but never goes down. It has a guaranteed return. Depending on the type of contract you have, you might have restrictions on withdrawals; one of my contracts restricts me to withdrawals over 9 years and one day (10 payments a year apart from each other). When I hit 70, I am going to have to think about either taking a life annuity or starting the 10 payment Transfer Payout Annuity. [note: your RMD from a 403(b) can be taken from any 403(b) you have, so I don't even have to start at 70 if I have other 403(b) money to take my RMD from and I do - do 401(k)s work the same?]

The 3% "guaranteed" return makes me a little uneasy because a wise man once told me the only guarantees in life are death and taxes

If I can wrap my head around that... the next concern I have is the withdrawal terms... so let's say my TIAA Traditional Account has $100K when I turn 60 and retire. Instead of being able to withdrawal any amount that I want per year ($5K, $20K, $50K, etc), the most I would be able to withdrawal would be $10K per year for 10 years? So if I needed all $100K right away for whatever reason, I would be stuck getting $10K per year for 10 years?

Another question... what if I withdrawal $5K/year for 10 years... now I'm 70 and still have $50K left. What are the rules for withdrawing my remaining $50K?


As you can see, it's these stringent withdrawal rules that make me uneasy. When I turn 60, it would make me feel better if I could spend my money as I see fit. If I want to blow through all my retirement accounts in 2 years, then so be it, it would be nice to have that option.

[ofckrupke]

As you can see, it's these stringent withdrawal rules that make me uneasy. When I turn 60, it would make me feel better if I could spend my money as I see fit. If I want to blow through all my retirement accounts in 2 years, then so be it, it would be nice to have that option.

It (TIAA Traditional) is what it is. Wishing it were different won't make it so. It would be nice if the Bond and ILB accounts were guaranteed not to lose value too.
Maybe your wife's employer could change plans. Maybe your wife could change employers. Maybe you could change wives.

[DickBenson]

As you can see, it's these stringent withdrawal rules that make me uneasy. When I turn 60, it would make me feel better if I could spend my money as I see fit. If I want to blow through all my retirement accounts in 2 years, then so be it, it would be nice to have that option.

When I read this two thoughts came to mind. Social Security restrictions, and TIAA=CREF's motto "For the Greater Good".

Dick

[sscritic]

If I can wrap my head around that... the next concern I have is the withdrawal terms... so let's say my TIAA Traditional Account has $100K when I turn 60 and retire. Instead of being able to withdrawal any amount that I want per year ($5K, $20K, $50K, etc), the most I would be able to withdrawal would be $10K per year for 10 years? So if I needed all $100K right away for whatever reason, I would be stuck getting $10K per year for 10 years?

Another question... what if I withdrawal $5K/year for 10 years... now I'm 70 and still have $50K left. What are the rules for withdrawing my remaining $50K?

I will assume that this is not the only tax deferred account between the two of you. I will also assume that you have taxable money (when your retire, the grocery store clerk doesn't ask if you are spending taxable or tax deferred money).

Your hypothetical assets:
20% taxable
80% tax deferred
This account is 60% of tax deferred
This account is 30% TIAA Traditional

TIAA Traditional is (0.8)(.6)(.3) = 14.4% of all your retirement assets. If you need more than 85.6% + 1.44% = 87.04% of your assets in the first year of your retirement, you are in really big trouble.

P.S. You can ladder your TPAs and have several running at the same time. Start one at age 60 on 40% of your money; start another at 66 on 50% of what is left; start another at 70 on 50% of what is then left; and start another at 75 on everything left (this assumes you have other assets to cover your RMD from 70 to 75).

[wwross]

TIAA CREF definitely has some problematic choices.

In my wife's 403b, they have a VWO Emerging Markets selection (ER .13), which fits into our AA.

However, when you make your choice you have to agree to pay 2.0% of the value of that fund when you sell it. I guess since we are long term investors, we will take it.

[MoneyMythsSolved]

Deleted

[wwross]

Thanks MoneyMyths! I need to read the directions more carefully.