Composition and safety of TIAA traditional annuity

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Nittany_Lion
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Composition and safety of TIAA traditional annuity

Post by Nittany_Lion » Sat May 11, 2019 11:13 am

Hello Folks,

After much searching, I discovered the following document, which displays the investment portfolio for TIAA's general account. I believe this is the pool of money that supports the traditional annuity, currently yielding 3.25% for those who invest in a supplemental retirement annuity, and more if you are prepared to lock in for nine years and a day.

https://www.tiaa.org/public/pdf/perform ... rength.pdf

This strikes me as an excellent yield for a stable-value fund and I am reticent to give it up for the lower yields of the other fixed-income investments available to me through my retirement accounts, such as Total Bond, although I do have a diversified set of FI investments, including Total Bond, TIPS, VG's international bond, and some treasury funds. All told, I have about 16% of my wealth in TIAA Traditional.

The issue that is bothering me is the guarantee and how likely it would be to hold up in a true financial meltdown scenario, such as the Great Depression, or something slightly worse than 2008.

I am not a financial professional or accountant and am wondering what role 38 billion labeled as "capital and surpluses" might play in such a scenario. Is it a way of meeting the guarantees without divesting from the account's main investments?

Also, I wonder if anyone knows what fraction of those invested in the Traditional Annuity are locked in for the nine years, which presumably offers some protection against a run on the account's assets in the event of financial crisis.

Any thoughts on any of this would be much appreciated!

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oldzey
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Re: Composition and safety of TIAA traditiona annuity

Post by oldzey » Sat May 11, 2019 11:42 am

I use both the RA (restricted, 9 years + 1 day to completely withdraw) and GSRA (liquid) versions of TIAA Traditional. It is the only fixed income investment I use and it is an excellent stable value fund. I use the TIAA Traditional in my GSRA to rebalance, if needed. However, I monitor my automatic contributions to TIAA and have not had to rebalance for some time now.

I do plan to annuitize some of my TIAA Traditional upon retirement. I am currently 51 and plan to retire at 67. TIAA is a financially stable company that I don't expect to go bankrupt. No guarantees, of course. More information about this at the top of the document you linked: https://www.tiaa.org/public/pdf/perform ... rength.pdf

Here is my current AA (my target AA is 67% equities, 26% fixed income, and 7% Real Estate):

EQUITIES
27.59% TIEIX - TIAA-CREF Equity Index Fund (Institutional) (403b GSRA)
24.95% VTSAX - Vanguard Total Stock Market Index Fund Admiral Shares (ROTH)
13.89% VONE - Vanguard Russell 1000 ETF (TAXABLE)

FIXED INCOME
19.32% TIAA Traditional (403b RA) - Restricted
6.91% TIAA Traditional (403b GSRA) - Liquid

REAL ESTATE
7.34% QREARX - TIAA Real Estate Account (403b GSRA)
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whomever
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Re: Composition and safety of TIAA traditiona annuity

Post by whomever » Sat May 11, 2019 12:14 pm

FWIW, Standard & Poors currently rates the TIAA general account and US Government debt the same: AA+. Whether that gives you the warm fuzzies or scares you is up to the reader :-)

It does hold more corporate/less gov't bonds that I would of guessed. I'm not a finance type either, but I suppose the ratio of assets to liabilities matters, in addition to the credit quality of the holdings.

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Re: Composition and safety of TIAA traditiona annuity

Post by rgs92 » Sat May 11, 2019 12:23 pm

I personally wouldn't worry at all about TIAA.

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Nittany_Lion
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Re: Composition and safety of TIAA traditiona annuity

Post by Nittany_Lion » Sat May 11, 2019 2:15 pm

I guess the key issue is whether this is a unique investing opportunity whereby TIAA, as they claim, has been able to lever into some relatively safe, albeit less liquid, investments, with the excess yield being compensation for the lower liquidity. Or, instead, are they reaching for yield without enough of a cushion to honor the guarantee is times of extreme stress (something worse than 2008, for example)?

If it's the latter, the guarantee could paradoxically make the fund more risky in that a failure to pay could throw them into some kind of bankruptcy proceeding, with all of the uncertainty that entails.

OTOH, if they have set aside a reserve of some kind as insurance against just this type of eventuality -- as in the "capital and surpluses" alluded to in the document -- then I would feel better about pocketing what is mostly a premium for a lack of liquidity.

NL

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Re: Composition and safety of TIAA traditiona annuity

Post by oldzey » Sat May 11, 2019 4:27 pm

You might find some documents to help answer your questions here: https://www.tiaa.org/public/about-tiaa/ ... nt-library
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Re: Composition and safety of TIAA traditiona annuity

Post by Spinola » Sat May 11, 2019 5:02 pm

TIAA Annuity has been around since 1918. It already survived the great depression.. and everything else since..

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Re: Composition and safety of TIAA traditiona annuity

Post by student » Sat May 11, 2019 5:24 pm

Although I can say with certainty, I believe in it enough that I use TIAA Traditional for essentially my fixed income allocation.

Correction: "can" should be "can't" in my reply.
Last edited by student on Sun May 12, 2019 5:43 pm, edited 1 time in total.

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Re: Composition and safety of TIAA traditiona annuity

Post by 22twain » Sun May 12, 2019 2:48 am

whomever wrote:
Sat May 11, 2019 12:14 pm
FWIW, Standard & Poors currently rates the TIAA general account and US Government debt the same: AA+. Whether that gives you the warm fuzzies or scares you is up to the reader :-)
IIRC during the showdown between the US Congress and administration over the federal debt ceiling in summer 2011, at least one of the credit rating agencies downgraded the US government to below TIAA.
My investing princiPLEs do not include absolutely preserving princiPAL.

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oldzey
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Re: Composition and safety of TIAA traditiona annuity

Post by oldzey » Sun May 12, 2019 10:15 am

Nittany_Lion, you might be familiar with the TIAA Funds forums over at Morningstar.

If not, just a heads-up that there is a wealth of information posted there about a wide variety of topics, including TIAA Traditional.

Here is the old forum (where 99% of the posts are):
https://discuss.morningstar.com/NewSoci ... 00044.aspx

Here is the new forum (which just opened a couple weeks ago):
https://community.morningstar.com/t5/TI ... /bd-p/TIAA
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Re: Composition and safety of TIAA traditional annuity

Post by talzara » Sun May 12, 2019 12:30 pm

Nittany_Lion wrote:
Sat May 11, 2019 11:13 am
The issue that is bothering me is the guarantee and how likely it would be to hold up in a true financial meltdown scenario, such as the Great Depression, or something slightly worse than 2008.

I am not a financial professional or accountant and am wondering what role 38 billion labeled as "capital and surpluses" might play in such a scenario. Is it a way of meeting the guarantees without divesting from the account's main investments?
TIAA is structured as a New York life insurance company.

The life insurance companies survived the Great Depression. That's why the New Deal did not make major changes to insurance regulation, even as Wall Street and banking were being reined in with Glass-Steagall, the FDIC, and the SEC.

"Capital and surpluses" is just assets minus liabilities. A non-insurance company would report it as Shareholder's equity. Moody's reports it as Shareholder's equity in their TIAA credit opinion.
Nittany_Lion wrote:
Sat May 11, 2019 11:13 am
Also, I wonder if anyone knows what fraction of those invested in the Traditional Annuity are locked in for the nine years, which presumably offers some protection against a run on the account's assets in the event of financial crisis.
TIAA has very little exposure to withdrawals:
Unique liability structure - approximately 75% of TIAA's liabilities are not subject to discretionary withdrawal

https://www.tiaa.org/public/pdf/moodys_eco_report.pdf

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Re: Composition and safety of TIAA traditiona annuity

Post by The Wizard » Sun May 12, 2019 1:24 pm

student wrote:
Sat May 11, 2019 5:24 pm
Although I can say with certainty, I believe in it enough that I use TIAA Traditional for essentially my fixed income allocation.
Same here, roughly.
I'm 60% stock funds and my 40% non-stock is split equally between Trad and TREA...
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Re: Composition and safety of TIAA traditional annuity

Post by Tdubs » Sun May 12, 2019 1:43 pm

TIAA traditional is about 18% of my portfolio--the RA 9 years and a day version. I love the 4 percent return, but I decided against putting in more because they are still a private entity with some risk. It was a little disquieting that the RA vintages going forward just fell in a period of two months from 4.0% to 3.5%. It was also disquieting last year when TIAA did not raise its rates while everything else was going up. It is also concerning that TIAA has lost some colleges recently, such as Michigan State U. How much longer will colleges continue to buy into a family of funds with high ERs and some recent bad publicity? I don't have an answer.

But as others noted above, there are a lot of factors that argue for its stability and the likelihood that it will meet its commitments. So, I'm still in, partly.

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Re: Composition and safety of TIAA traditional annuity

Post by columbia » Sun May 12, 2019 1:49 pm

Tdubs wrote:
Sun May 12, 2019 1:43 pm
TIAA traditional is about 18% of my portfolio--the RA 9 years and a day version. I love the 4 percent return, but I decided against putting in more because they are still a private entity with some risk. It was a little disquieting that the RA vintages going forward just fell in a period of two months from 4.0% to 3.5%. It was also disquieting last year when TIAA did not raise its rates while everything else was going up. It is also concerning that TIAA has lost some colleges recently, such as Michigan State U. How much longer will colleges continue to buy into a family of funds with high ERs and some recent bad publicity? I don't have an answer.

But as others noted above, there are a lot of factors that argue for its stability and the likelihood that it will meet its commitments. So, I'm still in, partly.

I’m not super concerned about it losing customers. We have to pay a (quarterly? I should remember that...) fee for using any non-TIAA funds. The model seems to be to pass the higher costs (aka revenue streams for TIAA) on to the employees.

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Re: Composition and safety of TIAA traditional annuity

Post by oldzey » Sun May 12, 2019 3:45 pm

Nittany_Lion, Here are some supplemental links to various information about TIAA Traditional that I have posted before:

CALCULATING TIAA TRADITIONAL ANNUITY EARNINGS 2005

Frequently asked questions about TIAA Traditional Annuity

The Intricacies of TIAA-Traditional

Is TIAA Traditional a Good Deal? - The Accumulation Phase

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oldzey
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Re: Composition and safety of TIAA traditiona annuity

Post by bikechuck » Sun May 12, 2019 8:42 pm

.

I do plan to annuitize some of my TIAA Traditional upon retirement. I am currently 51 and plan to retire at 67.
[/quote]

I also have both flavors of TIAA Traditional, although I am already retired I have not yet annuitized them and will not consider doing so until my mid 70s when I could benefit from higher mortality credits and potentially higher interest rates. I might never annuitize them if my portfolio is holding up well when I reach my mid 70s. Meanwhile I am enjoying the yield and the lack of principal risk associated with interest rate fluctuations.

I am curious about your plans to annuitize some of your traditional at age 67. Am I overlooking something that I should be considering?

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Re: Composition and safety of TIAA traditional annuity

Post by oldzey » Sun May 12, 2019 9:00 pm

bikechuck wrote:
Sun May 12, 2019 8:42 pm
I am curious about your plans to annuitize some of your traditional at age 67. Am I overlooking something that I should be considering?
Annuities are appealing to me because I got a late start saving for retirement. It is likely that I will continue to work past 67 (full retirement age).

I still have 16 years to mull it over, assuming that I live that long.
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Re: Composition and safety of TIAA traditional annuity

Post by Nittany_Lion » Mon May 13, 2019 1:32 pm

Thanks everyone, especially Oldzey and Talzara, for all of the helpful links and information. I will stew on this some more, but it sounds as though much of the yield advantage of TIAA Traditional may be going away. Although my "vintage" is still at 3.25%, that is only guaranteed through February or March of next year. In addition, new contributions are being credited at 3.00%, which is not much above the 2.90% yield on Total Bond. For people looking for stable value that remains an advantage of TIAA Traditional, but bond funds are better at hedging declines in the stock market, which is probably the more relevant issue for me (although I wasn't keen on giving up 35 basis points to do it). So, as I said, lots to think about.

Thanks again,

NL

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Re: Composition and safety of TIAA traditional annuity

Post by oldzey » Mon May 13, 2019 5:22 pm

FWIW, I did exchange some of my liquid TIAA Traditional for more shares of TIEIX (TIAA-CREF Equity Index Fund - Institutional) today. 8-)
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Re: Composition and safety of TIAA traditional annuity

Post by afan » Mon May 13, 2019 6:29 pm

TIAA does not have any magic investments. It holds a conservative portfolio and adjusts its crediting rates based on market returns. As with any annuity, it protects the annuitants by using mortality credits to pay those who have long lives.

Between its traditional management and state guarantee funds, there is little reason to worry that you will not get your promised return. Note that the current returns are not promised forever. If the market returns go down then so will the rates TIAA pays.
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Re: Composition and safety of TIAA traditional annuity

Post by willthrill81 » Mon May 13, 2019 6:34 pm

afan wrote:
Mon May 13, 2019 6:29 pm
TIAA does not have any magic investments.
No, but it does have some rather unique investments. TIAA Traditional is one of them, and TIAA Real Estate is another.
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Re: Composition and safety of TIAA traditional annuity

Post by ResearchMed » Mon May 13, 2019 6:42 pm

afan wrote:
Mon May 13, 2019 6:29 pm
TIAA does not have any magic investments. It holds a conservative portfolio and adjusts its crediting rates based on market returns. As with any annuity, it protects the annuitants by using mortality credits to pay those who have long lives.

Between its traditional management and state guarantee funds, there is little reason to worry that you will not get your promised return. Note that the current returns are not promised forever. If the market returns go down then so will the rates TIAA pays.
I'd need to double check again, but my understanding is that at least for those who have Trad Annuity as part of a contract (e.g., with our 403b plan; not sure if there are other ways to get Trad Ann?), for money already "in", the 3% minimum IS a "guaranteed" return. It's the extra amounts that aren't guaranteed, and can fluctuate from time to time, as TIAA sees fit.

I don't think TIAA is obligated to keep that rate for future money put in, but not sure if it's within the contracted plan.

RM
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Re: Composition and safety of TIAA traditional annuity

Post by The Wizard » Mon May 13, 2019 7:40 pm

oldzey wrote:
Sun May 12, 2019 9:00 pm
bikechuck wrote:
Sun May 12, 2019 8:42 pm
I am curious about your plans to annuitize some of your traditional at age 67. Am I overlooking something that I should be considering?
Annuities are appealing to me because I got a late start saving for retirement. It is likely that I will continue to work past 67 (full retirement age).

I still have 16 years to mull it over, assuming that I live that long.
I annuitized a hefty amount with TIAA when I retired at age 63 in 2013.
The majority of annuitized funds was in TREA, with 15% in Trad and another 15% in CREF Stock.
I've found this gives me decent income in retirement to fund discretionary expenses, mainly travel.
And the TREA + CREF Stock tend to keep up with inflation.

I could annuitize additional amounts in my 70s if needed, but right now it doesn't seem like I will need to, with age 70 SS starting in ten months....
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Re: Composition and safety of TIAA traditional annuity

Post by House Blend » Tue May 14, 2019 9:01 am

ResearchMed wrote:
Mon May 13, 2019 6:42 pm
afan wrote:
Mon May 13, 2019 6:29 pm
TIAA does not have any magic investments. It holds a conservative portfolio and adjusts its crediting rates based on market returns. As with any annuity, it protects the annuitants by using mortality credits to pay those who have long lives.

Between its traditional management and state guarantee funds, there is little reason to worry that you will not get your promised return. Note that the current returns are not promised forever. If the market returns go down then so will the rates TIAA pays.
I'd need to double check again, but my understanding is that at least for those who have Trad Annuity as part of a contract (e.g., with our 403b plan; not sure if there are other ways to get Trad Ann?), for money already "in", the 3% minimum IS a "guaranteed" return. It's the extra amounts that aren't guaranteed, and can fluctuate from time to time, as TIAA sees fit.

I don't think TIAA is obligated to keep that rate for future money put in, but not sure if it's within the contracted plan.
The 3% + principal is forever -- until death or annuitization or TIAA bankruptcy.

For annuitants, the minimum guarantee is 2.5%. (This is not the same as the payout rate; it's the crediting rate for undistributed principal. The actual payout rate would be higher, depending on the age at annuitization, etc.)

And they can certainly stop accepting new contributions to accounts with 3% guaranteed contracts, and force new contributions, if any, to go into new contracts with less favorable terms.

And they have already done this with Traditional contracts in IRAs. I believe the new-ish RC/RC+ contracts are also a step in that direction. Certainly those contracts have less generous guarantees.

Another thing they've shown willingness to do is spread the pain of a financial crisis unevenly among their participants. In practice, annuitants I think are protected the most, and old (accumulation) vintages next. When things go south, it's the new contributions and liquid accounts that get the shortest straws.

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Re: Composition and safety of TIAA traditional annuity

Post by oldzey » Tue May 14, 2019 10:05 pm

Here is another resource showing TIAA and CREF contract comparison: https://www.tiaa.org/public/pdf/RC_Comp ... _8_fin.pdf
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Re: Composition and safety of TIAA traditional annuity

Post by columbia » Wed May 15, 2019 5:48 am

One needs to avoid a lot of things at TIAA, like their money market account:
https://www.tiaa.org/public/pdf/ffs/87244W706.pdf

0.39% for the retirement class.

Sticking with Traditional or the real estate fund seems wise.

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Re: Composition and safety of TIAA traditional annuity

Post by ResearchMed » Wed May 15, 2019 7:08 am

columbia wrote:
Wed May 15, 2019 5:48 am
One needs to avoid a lot of things at TIAA, like their money market account:
https://www.tiaa.org/public/pdf/ffs/87244W706.pdf

0.39% for the retirement class.

Sticking with Traditional or the real estate fund seems wise.
Those seem to be dated approx a year ago.
Interest rates have changed since then.

I just checked our 403b TIAA MM fund, and the returns are almost the same as Fidelity or Vanguard MM funds.
It's close enough to not matter much which we use more.

RM
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Re: Composition and safety of TIAA traditional annuity

Post by columbia » Wed May 15, 2019 7:33 am

ResearchMed wrote:
Wed May 15, 2019 7:08 am
columbia wrote:
Wed May 15, 2019 5:48 am
One needs to avoid a lot of things at TIAA, like their money market account:
https://www.tiaa.org/public/pdf/ffs/87244W706.pdf

0.39% for the retirement class.

Sticking with Traditional or the real estate fund seems wise.
Those seem to be dated approx a year ago.
Interest rates have changed since then.

I just checked our 403b TIAA MM fund, and the returns are almost the same as Fidelity or Vanguard MM funds.
It's close enough to not matter much which we use more.

RM

I was referring to the expense ratio.

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Re: Composition and safety of TIAA traditional annuity

Post by ResearchMed » Wed May 15, 2019 7:39 am

columbia wrote:
Wed May 15, 2019 7:33 am
ResearchMed wrote:
Wed May 15, 2019 7:08 am
columbia wrote:
Wed May 15, 2019 5:48 am
One needs to avoid a lot of things at TIAA, like their money market account:
https://www.tiaa.org/public/pdf/ffs/87244W706.pdf

0.39% for the retirement class.

Sticking with Traditional or the real estate fund seems wise.
Those seem to be dated approx a year ago.
Interest rates have changed since then.

I just checked our 403b TIAA MM fund, and the returns are almost the same as Fidelity or Vanguard MM funds.
It's close enough to not matter much which we use more.

RM

I was referring to the expense ratio.
AFAIK, the returns for MM funds are *after* expenses.
I'd pay more attention to the returns of various MM funds (many seem quite close, but then there are some that lag woefully).

RM
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