Half-baked fixed income plan incl TIAA traditional

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Topic Author
PerfectName
Posts: 76
Joined: Sat Aug 15, 2020 5:09 pm

Half-baked fixed income plan incl TIAA traditional

Post by PerfectName »

Recently retired and trying to figure out how to adjust our (DW and me) portfolio accordingly. I am still trying to figure out decumulation, and would appreciate feedback (brainstorming?) on my work in progress.

Current asset allocation (totals 25x-30x annual expenses):
55% equities (primarily SP500, only a smattering of international)
15% TIAA traditional (earning 5.6% (rate recalc every March) with a min interest rate of 3%)
6% bonds (primarily total bond)
24% money market

In terms of social security, DW and I are close in both age and earning history, and plan to wait until age 70 (5+ years)for both of us to collect. We should get enough from SS to cover the bulk of our essential living expenses. Haven't really considered what happens, financially, if one of us doesn't make it that far. While some calculators would suggest that in order to maximize $ earned from SS one of us should take it now, and the other at 70, we are treating it as longevity insurance for both of us. But, if there is a market crash (extending beyond our cash buffer), I'd be willing to claim it sooner in order to avoid selling low.

As I was ramping down our % in equities over the last few year, I stuck the funds into money market instead of bonds, due to concern that interest rates would be falling. Market timing, but we got lucky.

Would appreciate your thoughts on any of the above, plus the following:

1) I treat all our funds (pre/post tax, bank accts, etc.) as a single portfolio. I don't set aside emergency funds or anything else prior to calculating our asset allocation. Not sure if I should mentally treat the emergency funds as separate and not count them for asset allocation.

2) I am thinking about building a ladder (TIPS, other treasury, or CD,or ...) with our essential annual expenses, to carry us to social security at age 70. The plan would be to hold these to maturity. While I think TIPS might be the best choice, I don't yet understand them well enough to take that plunge. Fear of TIPS...

3) Shift my bond funds all to intermediate (or short), along with a big chunk of the money market. Amateurish use of Portfolio Visualizer suggests to me that cash almost always loses to inflation, while intermediate bonds (over time) beat inflation

4) Not sure how duration matching fits in. Duration of what? If I have a 5 year ladder, then does that mean my duration is for 5+ years?

5) What to do with TIAA traditional? I like having a guaranteed minimum rate, in case interest rates get really low again. But, it is a substantial portion of our assets. FYI, the vast majority of it is the flavor of funds that is liquid--I don't have to move it piecewise over a 10-year period.

Thanks!
CloseEnough
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Re: Half-baked fixed income plan incl TIAA traditional

Post by CloseEnough »

Does not sound half-baked to me. From what I can tell, you are well set-up. Others may have more detailed responses but the things that come to mind to me immediately are:

1. I would keep TIAA Trad., mostly for the guaranteed minimum. It is a unique investment so if you have it available I would keep it available. And at 15% it is really not so much.

2. Although you don't mention it, I would consider what tax attributes of your accounts are, and how you will drawdown in a tax efficient way, both getting to SS and after. So, do you have any Roth accounts, are you considering Roth conversions if you tIRA accounts are substantially all of your investment accounts, do you have taxable accounts?

3. Others here will say you should have a TIPs ladder for the bridge to SS. With just 5 years, I am not sure that complexity is needed, given your assets. I would keep the funds you need for expenses for the bridge in conservative place, either MM or CD or Treasuries. MM rates of course may change quickly, so you might consider locking in at least some of this at current rates. Again, consider tax issues. Assuming the MM at 24% is the bucket you are using for the bridge, I think the issue you need to consider is how to deploy this for the next 5 years. Leaving in MM might not be optimal depending on interest rate movements.

4. My personal view is to have more international in the equities than you do, but as you may know there is a significant split on this board, which you can read about. Also, I assume all of your equities are in low cost, index funds, or perhaps a mix with some managed, but in any case I would keep an eye on expense ratios.

As I said, you appear to be well positioned, and what you are doing is tinkering to improve things, probably won't move your needle all that much. Seems like you are more than CloseEnough, so don't sweat it, enjoy.
crefwatch
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Re: Half-baked fixed income plan incl TIAA traditional

Post by crefwatch »

Presumably your TIAA funds are in a tax-qualified plan, so they'll have taxes to be paid when and if you do take them out. You don't mention (although I think you understand) that TIAA Traditional doesn't go down in value when interest rates go up, as do all bond mutual funds. Don't be distracted by the unique character of TIAA Traditional. However, are you aware you can take "Interest-Only" payout of that money, without (gasp!) touching the principal? (Caution: I believe IPRO cannot be turned OFF, but only converted to lifetime annuity.)

That brings up something you didn't mention: Is there a desire/need to leave a legacy? And you didn't mention the fact that despite having similar ages, women tend to live much longer than men do.

When you make your long-term performance statement (" while intermediate bonds (over time) beat inflation"), you don't allow for the fact that you don't have an unlimited amount of time to test that proposition!

You don't make a specific observation about your (two people's) risk-tolerance. This is not based on a calculator, or on some investment policy, but on reading between the lines in your OP: It may be desirable to take SS for the first of you to reach FRA. That would be in order to reduce the amount of capital you have to spend until the second person reaches 70. That would make you feel better about a few years of spending. Even a reduced SS payout still represents inflation-adjusted longevity insurance, just on a smaller beginning payment.

I also suspect that you don't need to jump on the TIPS Ladder bandwagon. Have you prepared an income spreadsheet for the next ten years? You need a concrete idea of your cash needs. What are your plans for moving or aging-in-place? For reduced capacity or disability?
folkher0
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Re: Half-baked fixed income plan incl TIAA traditional

Post by folkher0 »

One option is to annuitize the tiaa traditional. The rates may be very attractive, depending on how long you've been holding (the so-called loyalty bonus). Between that and SS you might have all the income you will need to cover typical expenses. The rest of your portfolio could be gravy. The annuity income might also cover your RMDs
Topic Author
PerfectName
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Joined: Sat Aug 15, 2020 5:09 pm

Re: Half-baked fixed income plan incl TIAA traditional

Post by PerfectName »

CloseEnough wrote: Mon Feb 12, 2024 7:48 am Does not sound half-baked to me.
Getting some independent reads is helpful. . Turning off our salaries has made me uncomfortable.
CloseEnough wrote: Mon Feb 12, 2024 7:48 am 1. I would keep TIAA Trad., mostly for the guaranteed minimum. It is a unique investment so if you have it available I would keep it available. And at 15% it is really not so much.
That is a big part of my motivation for keeping it. A risk is that the balance substantially exceeds the state insurance annuity guarantee (whatever that is properly called...), but given TIAA's ratings we are willing to live with that risk.
CloseEnough wrote: Mon Feb 12, 2024 7:48 am 2. Although you don't mention it, I would consider what tax attributes of your accounts are, and how you will drawdown in a tax efficient way, both getting to SS and after. So, do you have any Roth accounts, are you considering Roth conversions if you tIRA accounts are substantially all of your investment accounts, do you have taxable accounts?
Fair point. I'm holding that for a subsequent iteration of refinement. I figure that getting the asset allocation right, including any adjustments for the panoply of risks that others (not me) are able to enumerate and discuss fluently (inflation, interest rate, duration, and who the heck knows what else...) Is more important for now. I am open to being told otherwise.

We have a mix of 401(a), 403(b), several 401(k), and a couple of IRAs. I have made the atypical choice of trying to stay as much as possible in the numbered retirement plans, for purposes of ERISA protections. That said, we have a small percentage (3% of grand total assets) of Roth in one of my plans, I am looking into "in plan Roth conversions" which seems to be an option for small percentages of some of our plans (only for my contributions which exceeded the amount my employer would match), and rolling some of the smaller 401(k) into an IRA for piecemeal Roth conversion. I'd be interested in hearing if there was a rule of thumb as to what percentage of total assets should be in Roth.

Taxable account is about 50% equities, and the rest in banks. It represents about 10% of our grand total assets. There are a lot of capital gains lurking within--which means good things happened, but it remains an annoyance.

FYI, we are currently pulling our first year's income out of money market within a 403(b), and are remaining cognizant of when it would bump us up a tax bracket.
CloseEnough wrote: Mon Feb 12, 2024 7:48 am 3. Others here will say you should have a TIPs ladder for the bridge to SS. With just 5 years, I am not sure that complexity is needed, given your assets. I would keep the funds you need for expenses for the bridge in conservative place, either MM or CD or Treasuries. MM rates of course may change quickly, so you might consider locking in at least some of this at current rates. Again, consider tax issues. Assuming the MM at 24% is the bucket you are using for the bridge, I think the issue you need to consider is how to deploy this for the next 5 years. Leaving in MM might not be optimal depending on interest rate movements.
I'm surprised to hear that a TIPS ladder is not being recommended. I had persuaded myself that putting half of the next 5 years into a TIPS ladder, and the other half into a CD or other treasuries ladder, was the way to mitigate risks should interest rates rise (FOMO) or inflation rises. Inflation was double digit for 3 consecutive years (1979-1981). That would be big hit. I would be pleased to hear thoughts on why TIPS wouldn't make sense in this case. My fear of TIPS remains, but I'm speaking to them in a gentle tone, with my hand outstretched, and almost willing to try scratching them behind the ears.

Would be curious as to your thoughts as to where to put things instead of money market for the next 5 years. Treasury or CD ladder or ???
CloseEnough wrote: Mon Feb 12, 2024 7:48 am 4. My personal view is to have more international in the equities than you do, but as you may know there is a significant split on this board, which you can read about. Also, I assume all of your equities are in low cost, index funds, or perhaps a mix with some managed, but in any case I would keep an eye on expense ratios.
Our 55% in equities is 50% US and 5% international, so not sure if misleading to call it a smattering. I'm thinking about bumping it up a bit, but my investments in international equities have been a disappointment over the years, and I haven't looked as the data to see if I'm missing something. I also seem to recall that Warren Buffet said that the multinationals in the SP500 represented enough exposure to international
CloseEnough wrote: Mon Feb 12, 2024 7:48 am As I said, you appear to be well positioned, and what you are doing is tinkering to improve things, probably won't move your needle all that much. Seems like you are more than CloseEnough, so don't sweat it, enjoy.
Working on the "don't sweat it part". This forum will help! :-)
Topic Author
PerfectName
Posts: 76
Joined: Sat Aug 15, 2020 5:09 pm

Re: Half-baked fixed income plan incl TIAA traditional

Post by PerfectName »

crefwatch wrote: Mon Feb 12, 2024 8:16 am Presumably your TIAA funds are in a tax-qualified plan, so they'll have taxes to be paid when and if you do take them out. You don't mention (although I think you understand) that TIAA Traditional doesn't go down in value when interest rates go up, as do all bond mutual funds. Don't be distracted by the unique character of TIAA Traditional. However, are you aware you can take "Interest-Only" payout of that money, without (gasp!) touching the principal? (Caution: I believe IPRO cannot be turned OFF, but only converted to lifetime annuity.)
Yes, tax qualified, with it being useful to remind me that we have less total funds than we think. Most of them are pre-tax, and so we will lose slice of all. We don't have any major plans for a legacy, although most (not all) Monte Carlo outcomes would leave us with a fair chunk.

I was aware of interest-only as an option, although if I had my druthers would want "interest minus inflation" as a payout option, so that my real returns would stay stable. I don't think such an option exists, but I may be able to calculate it myself and then request a fixed monthly payout matching that number.

What is IPRO?
crefwatch wrote: Mon Feb 12, 2024 8:16 am That brings up something you didn't mention: Is there a desire/need to leave a legacy? And you didn't mention the fact that despite having similar ages, women tend to live much longer than men do.
Once you throw in differences in our respective parents longevity, as well as our own medical histories, I think that rule of thumb gets muddied, at least in my head. But, I haven't done any investigation to see which parameters are most predictive.

I'm embarrassed to say that I had forgotten that we both still have term life insurance. I know there is some age, probably specific to decisions we made when we purchased policies decades ago, at which the premiums double or triple, effectively serving as a marker for the end of the term. I should figure out how that factors into our plan. I had thought we would just drop it, but perhaps not.

For any who are curious, I will say that I briefly looked at at a couple of websites for companies that would buy your term life insurance. The online questionnaire concluded that we were too young and too healthy. So that's good news, but not a potential source of funds.
crefwatch wrote: Mon Feb 12, 2024 8:16 am When you make your long-term performance statement (" while intermediate bonds (over time) beat inflation"), you don't allow for the fact that you don't have an unlimited amount of time to test that proposition!
True, and admittedly I am behind on building my cryogenic chamber and (as a redundant solution) uploading my brain to the cloud.

But I thought that if you invested in a bond fund with X duration, you should typically have a positive return after 0.5X years. But, I still don't understand duration matching and haven't figured out the right way to use a tool to ensure that intermediate bonds really are the holy grail. Also, for the stock market people typically say ten years is enough time to almost guarantee a profit in the stock market. Perhaps there is a similar rule of thumb for bonds of some TBD duration?
crefwatch wrote: Mon Feb 12, 2024 8:16 am You don't make a specific observation about your (two people's) risk-tolerance. This is not based on a calculator, or on some investment policy, but on reading between the lines in your OP: It may be desirable to take SS for the first of you to reach FRA. That would be in order to reduce the amount of capital you have to spend until the second person reaches 70. That would make you feel better about a few years of spending. Even a reduced SS payout still represents inflation-adjusted longevity insurance, just on a smaller beginning payment.
I no longer know my risk tolerance, and my hyper-intelligent DW choses to leave all those decisions to my discretion. I used to have fairly high risk tolerance, and then as retirement approached it got lower, and now that retirement has arrived it has gotten quite low. That said, I see risk in not being in the stock market, and so we are still there at 55%
crefwatch wrote: Mon Feb 12, 2024 8:16 am I also suspect that you don't need to jump on the TIPS Ladder bandwagon. Have you prepared an income spreadsheet for the next ten years? You need a concrete idea of your cash needs. What are your plans for moving or aging-in-place? For reduced capacity or disability?
Similarly to my other recent reply, I'd be curious to hear your thoughts on "why not TIPS". There have been periods of substantial inflation in the not-extremely-distant (at least for people my age) past.

We are thinking about moving, but haven't figured out where we would go. We have state income tax, an impressively high real estate tax bill, no local family ties. One reason we are waiting on Roth conversions, until the end of the year, is because we my have the sale of a house to factor into calculations. But I suppose that statement misses your key point, which is planning for our days of reduced capacity.

I have a 1 year spreadsheet, of the quick and dirty variety. Now that you mention it, I can see where a 10 year plan would make sense, but that seems like an awfully long prediction. Does such a spreadsheet take into account predicted market fluctuations and rate of return?
Topic Author
PerfectName
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Re: Half-baked fixed income plan incl TIAA traditional

Post by PerfectName »

folkher0 wrote: Mon Feb 12, 2024 8:44 am One option is to annuitize the tiaa traditional. The rates may be very attractive, depending on how long you've been holding (the so-called loyalty bonus). Between that and SS you might have all the income you will need to cover typical expenses. The rest of your portfolio could be gravy. The annuity income might also cover your RMDs
I probably don't have much loyalty bonus since I moved most of my funds out of TIAA traditional for 90 days (or something...) so that when I moved it back I would get the "new money" rates which were at least 1% higher. It also let me retain my floor of 3%. If I had been willing to go illiquid, then some of those numbers would be even higher.

I had heard a general recommendation to not do an annuity until age 70-75. A quick spot check on some random tool showed me that payouts went up substantially if you waited some extra years. But, I do have the temptation to annuitize while rates are up. I wonder if anybody has done something methodical to determine how annuity payout rates vary as a function of both interest rates and claiming age.

There is also the inflation risk of having non-COLA annuities, although I read some paper at some point that said to avoid paying for COLA riders in annuities because the cost exceeded the gain. I have no idea if it was a respected paper. I wonder if someone (perhaps TIAA?) tracks how much "extra" TIAA really does throw into their annuity payments every once in a while, per their advertising. I don't even know if it is consistent across all annuities, or a function of factors like age of money.
tibbitts
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Re: Half-baked fixed income plan incl TIAA traditional

Post by tibbitts »

PerfectName wrote: Mon Feb 12, 2024 8:09 pm I probably don't have much loyalty bonus since I moved most of my funds out of TIAA traditional for 90 days (or something...) so that when I moved it back I would get the "new money" rates which were at least 1% higher. It also let me retain my floor of 3%. If I had been willing to go illiquid, then some of those numbers would be even higher.

I had heard a general recommendation to not do an annuity until age 70-75. A quick spot check on some random tool showed me that payouts went up substantially if you waited some extra years. But, I do have the temptation to annuitize while rates are up. I wonder if anybody has done something methodical to determine how annuity payout rates vary as a function of both interest rates and claiming age.

There is also the inflation risk of having non-COLA annuities, although I read some paper at some point that said to avoid paying for COLA riders in annuities because the cost exceeded the gain. I have no idea if it was a respected paper. I wonder if someone (perhaps TIAA?) tracks how much "extra" TIAA really does throw into their annuity payments every once in a while, per their advertising. I don't even know if it is consistent across all annuities, or a function of factors like age of money.
I don't believe anyone would recommend annuitizing all the TIAA at the same time, or even close to the same time.
crefwatch
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Re: Half-baked fixed income plan incl TIAA traditional

Post by crefwatch »

PerfectName wrote: Mon Feb 12, 2024 7:55 pm I was aware of interest-only as an option, although if I had my druthers would want "interest minus inflation" as a payout option, so that my real returns would stay stable. I don't think such an option exists, but I may be able to calculate it myself and then request a fixed monthly payout matching that number.

What is IPRO?
Sorry, it stands for Interest Payment Retirement Option, referred to in that paragraph. Here's a link to a random school I found on Google, which includes a paragraph on IPRO.
https://hr.umich.edu/benefits-wellness/ ... me-options

If you don't spend one year's IPRO payout, you still have it on hand, for sudden medical expenses or travel or whatever. Or to invest in a Tech fund!
PerfectName wrote: Mon Feb 12, 2024 7:55 pm Once you throw in differences in our respective parents longevity, as well as our own medical histories, I think that rule of thumb gets muddied, at least in my head. But, I haven't done any investigation to see which parameters are most predictive.

I'm embarrassed to say that I had forgotten that we both still have term life insurance. I know there is some age, probably specific to decisions we made when we purchased policies decades ago, at which the premiums double or triple, effectively serving as a marker for the end of the term. I should figure out how that factors into our plan. I had thought we would just drop it, but perhaps not.
Well, actuarial statistics aren't susceptible to personal imagining. In fact, some people point out that TIAA customers are wealthier and healthier than the average American, which might have a small negative effect on lifetime payout, due to Mortality Risk.

Insurance is a product to protect against a risk. Do you have a life-income risk anymore? Is it actually true (making this up) that "they need money to bury me?" Term insurance costs go up sharply after 55 or so. Pricing is going to make a negative decision "for you." I'm not saying you need to post your total dollar assets, but I suspect that you do not have the slightest need for Life Insurance. Well, maybe "second to die", for a complex tax plan, with professional advisors, but that's something other than what you're expressing.
PerfectName wrote: Mon Feb 12, 2024 7:55 pm For any who are curious, I will say that I briefly looked at at a couple of websites for companies that would buy your term life insurance. The online questionnaire concluded that we were too young and too healthy. So that's good news, but not a potential source of funds.
Insurance is a risk-tool. It's not an investment. Term insurance is not a realistic product for someone over 60. This is not an "insurance thread", and I am not qualified to discuss insurance with you. I have bought ten-year term insurance in the past, but gave it up long ago. It's important to understand that, even if you "bought" it decades ago, it is being regularly re-priced (or decreased in payout) to reflect the increased probability of your death.

It's not precisely true, but in retirement, many couples' costs (other than Federal Income Tax!) go down precipitously with the first death.
PerfectName wrote: Mon Feb 12, 2024 7:55 pm But I thought that if you invested in a bond fund with X duration, you should typically have a positive return after 0.5X years. But, I still don't understand duration matching and haven't figured out the right way to use a tool to ensure that intermediate bonds really are the holy grail. Also, for the stock market people typically say ten years is enough time to almost guarantee a profit in the stock market. Perhaps there is a similar rule of thumb for bonds of some TBD duration?
I thought it was unnecessary to refer to the actual performance of BND in each of the last three years! It takes a while to make up for a 10% loss! But part of my point was to CONTRAST non-volatile TIAA Traditional with volatile Bond Mutual Funds.
PerfectName wrote: Mon Feb 12, 2024 7:55 pm Similarly to my other recent reply, I'd be curious to hear your thoughts on "why not TIPS". There have been periods of substantial inflation in the not-extremely-distant (at least for people my age) past.
Short answer: The last time there was double-digit inflation in the US, TIAA Traditional also had double-digit interest rates. My main inflation protection is my equity allocation and our Social Security. That, and our substantial assets.

I have found TIPS funds and the like (not individual securities) to be confusing and imprecise as to their returns. They also do not have the well-modeled response to changes in interest and inflation rates that conventional bonds do. Scholars have been studying conventional bonds for decades. Inflation-Bonds are a relatively recent innovation.
PerfectName wrote: Mon Feb 12, 2024 7:55 pm I have a 1 year spreadsheet, of the quick and dirty variety. Now that you mention it, I can see where a 10 year plan would make sense, but that seems like an awfully long prediction. Does such a spreadsheet take into account predicted market fluctuations and rate of return?
I had to choose a conservative number for my total portfolio, I think it's 5% or 6%. The perfect spreadsheet is the enemy of the good-enough spreadsheet. You can't make Roth Conversion or Social Security timing decisions without so "something" to look at over time.

Here's the left column of my spreadsheet. The columns to the right are one for each year. I would add that, for me, the "hardest" thing about my spreadsheet isn't the need to choose an expected rate of return. It's trying to distinguish between "annual income" (that is, new money) versus after-tax arrival of money that I already "own", and counted as an asset. It "muddies" your understanding of your annual spending.

Code: Select all

Person1's Age
Person2's Age

Year
Year End Date
= = = = = = =
Taxable Interest (+3%yr)
Tax-exempt Interest
Non-taxable distributions
QUALIFIED Dividends (+3%yr)
Non-Qual Dividends (+3%yr)
Self-Employment Income
MIL Trust Income (Ord. Inc.)
Capital Gains&distributed
IRA/RM Distributions-Person1
IRA/RM Distributions-Person2
Pension-Person1
Corp1 Pension-Person2
Corp2 Pension-Person2
Social Security-Person1 @ 68.8
Social Security-Person2 @ 70
Life Insurance Dividend-Person1
Charitable Annuities (Ord Inc.)
Investm't Sales & Savings
(Net "Withdrawal Rate")
Other Income+Non-txble SS
TOTAL EST. INC. to spend:
Less Capital Transfers??
Est./Actual AGI for that year
Est./Actual MAGI for that year
TAXABLE Income
Marginal FIT
Average Federal Rate
$ LEFT in that Bracket
Very Rough FIT estimate
Investment Income
NIIT @ 3.8%
CUMULATIVE Fed Tx+IRMAA
Estimated IRMAA (-2 yr MAGI)
Assumed Portfolio Total:
Family Assets w/Roth Dec 31
Ordinary Income
Item/Std Deduction
QD+LTCG this year
Topic Author
PerfectName
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Re: Half-baked fixed income plan incl TIAA traditional

Post by PerfectName »

tibbitts wrote: Mon Feb 12, 2024 8:41 pm I don't believe anyone would recommend annuitizing all the TIAA at the same time, or even close to the same time.
Could you elaborate a bit on this perspective, or perhaps point me at a good bogleheads thread or search term? I currently have no knowledge on how one makes the decision to annuitize, and doing it in slices.
Topic Author
PerfectName
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Re: Half-baked fixed income plan incl TIAA traditional

Post by PerfectName »

Firstly, I'd like to thank you for your extremely helpful, patient, and methodical replies to my overly voluminous second round of questions.
crefwatch wrote: Tue Feb 13, 2024 8:44 am Sorry, it stands for Interest Payment Retirement Option, referred to in that paragraph. Here's a link to a random school I found on Google, which includes a paragraph on IPRO.
https://hr.umich.edu/benefits-wellness/ ... me-options

If you don't spend one year's IPRO payout, you still have it on hand, for sudden medical expenses or travel or whatever. Or to invest in a Tech fund!
Got it. Thanks for the the extra info and pointer. It makes me realize I need to think in a little more detail not only about exactly how to handle the TIAA traditional dividends, but also more broadly things like the equity index fund dividends which I had just been automatically reinvesting until now.
crefwatch wrote: Tue Feb 13, 2024 8:44 am Insurance is a product to protect against a risk. Do you have a life-income risk anymore? Is it actually true (making this up) that "they need money to bury me?" Term insurance costs go up sharply after 55 or so. Pricing is going to make a negative decision "for you." I'm not saying you need to post your total dollar assets, but I suspect that you do not have the slightest need for Life Insurance. Well, maybe "second to die", for a complex tax plan, with professional advisors, but that's something other than what you're expressing.
That's a nice clear way to look at it. No complex tax plan, nor professional advisors, but it might affect the calculations for what happens if we don't both make it to SS at age 70. The original impetus for term insurance was making sure we could cover college for the kids, but they are now fully launched. This is a reminder that we need to look at the insurance again, see when the term ends, and if it makes sense to keep it.
crefwatch wrote: Tue Feb 13, 2024 8:44 am It's not precisely true, but in retirement, many couples' costs (other than Federal Income Tax!) go down precipitously with the first death.
First I'd heard that, but good to know. All the things we'd rather not think about, but add value to planning.
crefwatch wrote: Tue Feb 13, 2024 8:44 am I thought it was unnecessary to refer to the actual performance of BND in each of the last three years! It takes a while to make up for a 10% loss! But part of my point was to CONTRAST non-volatile TIAA Traditional with volatile Bond Mutual Funds.
Yeah, but I was hoping to get some kind of reassuring statement like "given its average duration, BND should not only fully recover in 2 yrs but also grow by a bit over the inflation rate".

I have mental image of TIAA Traditional is as being akin to a money market fund, but one that has a minimum return, and less volatility in returns (due to the infrequency with which rates are adjusted). I wasn't thinking about it as a variant on a bund fund. If I do put extra funds in bonds, they could come out of money market.
crefwatch wrote: Tue Feb 13, 2024 8:44 am Short answer: The last time there was double-digit inflation in the US, TIAA Traditional also had double-digit interest rates. My main inflation protection is my equity allocation and our Social Security. That, and our substantial assets.

I have found TIPS funds and the like (not individual securities) to be confusing and imprecise as to their returns. They also do not have the well-modeled response to changes in interest and inflation rates that conventional bonds do. Scholars have been studying conventional bonds for decades. Inflation-Bonds are a relatively recent innovation.
I was only thinking of buying and holding TIPS to maturity as part of a ladder. I'm not sure if that would change your recommendation. It is a good point that I am maintaining a fair chunk in equities in order to "beat" inflation, and so throwing in TIPS may be redundant. Although, redundancy is not always a bad thing.
crefwatch wrote: Tue Feb 13, 2024 8:44 am
PerfectName wrote: Mon Feb 12, 2024 7:55 pm I have a 1 year spreadsheet, of the quick and dirty variety. Now that you mention it, I can see where a 10 year plan would make sense, but that seems like an awfully long prediction. Does such a spreadsheet take into account predicted market fluctuations and rate of return?
I had to choose a conservative number for my total portfolio, I think it's 5% or 6%. The perfect spreadsheet is the enemy of the good-enough spreadsheet. You can't make Roth Conversion or Social Security timing decisions without so "something" to look at over time.

Here's the left column of my spreadsheet. The columns to the right are one for each year. I would add that, for me, the "hardest" thing about my spreadsheet isn't the need to choose an expected rate of return. It's trying to distinguish between "annual income" (that is, new money) versus after-tax arrival of money that I already "own", and counted as an asset. It "muddies" your understanding of your annual spending.

Code: Select all

Person1's Age
Person2's Age

Year
Year End Date
= = = = = = =
Taxable Interest (+3%yr)
Tax-exempt Interest
Non-taxable distributions
QUALIFIED Dividends (+3%yr)
Non-Qual Dividends (+3%yr)
Self-Employment Income
MIL Trust Income (Ord. Inc.)
Capital Gains&distributed
IRA/RM Distributions-Person1
IRA/RM Distributions-Person2
Pension-Person1
Corp1 Pension-Person2
Corp2 Pension-Person2
Social Security-Person1 @ 68.8
Social Security-Person2 @ 70
Life Insurance Dividend-Person1
Charitable Annuities (Ord Inc.)
Investm't Sales & Savings
(Net "Withdrawal Rate")
Other Income+Non-txble SS
TOTAL EST. INC. to spend:
Less Capital Transfers??
Est./Actual AGI for that year
Est./Actual MAGI for that year
TAXABLE Income
Marginal FIT
Average Federal Rate
$ LEFT in that Bracket
Very Rough FIT estimate
Investment Income
NIIT @ 3.8%
CUMULATIVE Fed Tx+IRMAA
Estimated IRMAA (-2 yr MAGI)
Assumed Portfolio Total:
Family Assets w/Roth Dec 31
Ordinary Income
Item/Std Deduction
QD+LTCG this year
This is wonderful. Thanks so much for sharing it. As an aside, it does make me think that your portfolio is much more varied than ours.
tibbitts
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Re: Half-baked fixed income plan incl TIAA traditional

Post by tibbitts »

PerfectName wrote: Tue Feb 13, 2024 8:05 pm
tibbitts wrote: Mon Feb 12, 2024 8:41 pm I don't believe anyone would recommend annuitizing all the TIAA at the same time, or even close to the same time.
Could you elaborate a bit on this perspective, or perhaps point me at a good bogleheads thread or search term? I currently have no knowledge on how one makes the decision to annuitize, and doing it in slices.
I'm not aware of a thread that discusses it, sorry. Obviously there's a risk to annuitizing all of an account that represents a significant part of your investments. And annuitizing whatever percentage you decide to, all at once vs. over time, carries other risks as well. The decision will always personal based on your perceptions of the risks involved, life expectancy, and your predicted income requirements.
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ResearchMed
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Re: Half-baked fixed income plan incl TIAA traditional

Post by ResearchMed »

tibbitts wrote: Tue Feb 13, 2024 10:39 pm
PerfectName wrote: Tue Feb 13, 2024 8:05 pm
tibbitts wrote: Mon Feb 12, 2024 8:41 pm I don't believe anyone would recommend annuitizing all the TIAA at the same time, or even close to the same time.
Could you elaborate a bit on this perspective, or perhaps point me at a good bogleheads thread or search term? I currently have no knowledge on how one makes the decision to annuitize, and doing it in slices.
I'm not aware of a thread that discusses it, sorry. Obviously there's a risk to annuitizing all of an account that represents a significant part of your investments. And annuitizing whatever percentage you decide to, all at once vs. over time, carries other risks as well. The decision will always personal based on your perceptions of the risks involved, life expectancy, and your predicted income requirements.

PerfectName,

You might try just Googling about SPIAs (Single Payment Immediate Annuities) or even look at the Wiki here on Bogleheads.org, in the "Pros and cons" section:
https://www.bogleheads.org/wiki/Immediate_fixed_annuity

I'm not sure if the firm selling an SPIA is likely to allow someone to annuitize everything at one time.
But in personal practical terms, one concern often raised involves "lumpy expenses", or unexpected significant expenses. IF one needed a large chunk of money, perhaps to replace a roof or car, unless one also has at least some separate money, there's not an immediately accessible fund for something like that.
And what about long term care, if one needed a tidy sum to "get into a facility"?

I was going to point you to one of the articles mentioned in the Wiki article, but the link doesn't work. Perhaps you could find it?
Annuity Analytics: How Much to Allocate to Annuities?, Moshe Milevsky, (September 1,2009)

I've reported the bad link, so hopefully it will get fixed in the near future.

As tibbetts mentioned, there may not be any specific thread about this issue, but it's discussed in many of the more general discussions about annuities in general and SPIAs in particular.

RM
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folkher0
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Re: Half-baked fixed income plan incl TIAA traditional

Post by folkher0 »

PerfectName wrote: Tue Feb 13, 2024 8:05 pm
tibbitts wrote: Mon Feb 12, 2024 8:41 pm I don't believe anyone would recommend annuitizing all the TIAA at the same time, or even close to the same time.
Could you elaborate a bit on this perspective, or perhaps point me at a good bogleheads thread or search term? I currently have no knowledge on how one makes the decision to annuitize, and doing it in slices.
My suggestion up thread was to consider annuitizing the part of your portfolio held in TIAA traditional. The annuity "feature" at TIAA is one of nice things about TIAA. Payouts from annuities from TIAA retirement accounts seem to have higher payouts than annuities from other funds. There was an excellent thread by McQ a few months ago discussing some of the advantages of the approach: viewtopic.php?t=403662
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PerfectName
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Re: Half-baked fixed income plan incl TIAA traditional

Post by PerfectName »

tibbitts wrote: Tue Feb 13, 2024 10:39 pm
folkher0 wrote: Wed Feb 14, 2024 7:50 am
ResearchMed wrote: Wed Feb 14, 2024 7:42 am
Using empty quotes to flag the relevant posters. Maybe there's a more elegant method. [NB: By "posters" I mean people who posted, not the big rectangular sheets of paper I used to pin or tape to my walls]

Thanks for the elaboration, pointers, etc. regarding annuities. As noted by folkher0, what may have gotten lost in the thread, is that we were only talking about annuitizing my TIAA Traditional which represents about 15% of total assets. BUT, I am trying to advance my annuities knowledge, as I think it would be a good addition to our asset mix within the next 5-10 years. What piqued my shorter term interest was the possibility that since interest rates are higher now than for the past several years, maybe I should "rush" into grabbing some annuity sooner.
folkher0
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Re: Half-baked fixed income plan incl TIAA traditional

Post by folkher0 »

PerfectName wrote: Wed Feb 14, 2024 7:37 pm
tibbitts wrote: Tue Feb 13, 2024 10:39 pm
folkher0 wrote: Wed Feb 14, 2024 7:50 am
ResearchMed wrote: Wed Feb 14, 2024 7:42 am
Using empty quotes to flag the relevant posters. Maybe there's a more elegant method. [NB: By "posters" I mean people who posted, not the big rectangular sheets of paper I used to pin or tape to my walls]

Thanks for the elaboration, pointers, etc. regarding annuities. As noted by folkher0, what may have gotten lost in the thread, is that we were only talking about annuitizing my TIAA Traditional which represents about 15% of total assets. BUT, I am trying to advance my annuities knowledge, as I think it would be a good addition to our asset mix within the next 5-10 years. What piqued my shorter term interest was the possibility that since interest rates are higher now than for the past several years, maybe I should "rush" into grabbing some annuity sooner.
If you're curious about it, maybe you should talk to a TIAA rep and ask them to give numbers about annuities from the TIAA traditional. They ought to be able to give you payout numbers for a number of scenarios. If you are confident in your expenses and have your SS plan lined up, you could model if an annuity makes sense to you at any given age.

I am a long way from retirement but I carry an increasing amount of TIAA traditional. I have a suspicion that around the age of 70 i will have enough TIAA traditional that, if thoughtfully annuitized and coupled with SS will cover all our expenses. At that time a hope the rest of my portfolio will be fun money, charity and legacy. There are pluses and minuses to TIAA, but really like having the options that traditional offers.
bikechuck
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Re: Half-baked fixed income plan incl TIAA traditional

Post by bikechuck »

PerfectName wrote: Wed Feb 14, 2024 7:37 pm Thanks for the elaboration, pointers, etc. regarding annuities. As noted by folkher0, what may have gotten lost in the thread, is that we were only talking about annuitizing my TIAA Traditional which represents about 15% of total assets. BUT, I am trying to advance my annuities knowledge, as I think it would be a good addition to our asset mix within the next 5-10 years. What piqued my shorter term interest was the possibility that since interest rates are higher now than for the past several years, maybe I should "rush" into grabbing some annuity sooner.
Hi PerfectName.

I am 70.5 and my wife is 69.5 years old we have two daughters and three granddaughters. . I have an older TIAA a/c from a former employer accounting for 16% of our portfolio (until recently half of this account was in an RA and half in an SRA).

In January I asked TIAA to give me a quote for a joint annuity with 20 years certain for each of these and I decided to annuitize my RA. The reason for my decision was that I was taking interest only payments on my RA and they were yielding approximately 4.5%. My annuity payout was approximately 9% so the same RA is now producing a payout amounting to twice as much as my interest only payments. In conjunction with our SS this annuitized RA payout is sufficient to cover all of our mandatory expenses and some of our discretionary expenses. It is true that over time the monthly payouts will lose purchasing power to inflation but since we were taking interest only payments we were already losing purchasing power on those smaller payments.

We will consider annuitizing the SRA when and if I live to age 80. TIAA was able to provide my annuity quote within 24 hours of my request. Good luck with your decision!
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PerfectName
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Re: Half-baked fixed income plan incl TIAA traditional

Post by PerfectName »

folkher0 wrote: Thu Feb 15, 2024 8:01 am If you're curious about it, maybe you should talk to a TIAA rep and ask them to give numbers about annuities from the TIAA traditional. They ought to be able to give you payout numbers for a number of scenarios. If you are confident in your expenses and have your SS plan lined up, you could model if an annuity makes sense to you at any given age.

I am a long way from retirement but I carry an increasing amount of TIAA traditional. I have a suspicion that around the age of 70 i will have enough TIAA traditional that, if thoughtfully annuitized and coupled with SS will cover all our expenses. At that time a hope the rest of my portfolio will be fun money, charity and legacy. There are pluses and minuses to TIAA, but really like having the options that traditional offers.
Talking to a TIAA rep does sound like the best way to get realistic data.

While I see that TIAA traditional has some unique attributes as an investment, it's less clear to me how it offers at annuitization that would differ from annuitizing from the other TIAA (formerly CREF) investments, or even from fidelity funds.

I wanted to mention, since you are pre-retirement, that I have mixed feelings about having purposely only kept my fully liquid funds (i.e., not subject to a phased withdrawal over 10 years) within TIAA traditional. On the one hand, that was useful (just one time...) when I wanted to be able to move funds out and then back in (after 90 days) in order to get the higher "new money" rate. On the other hand, it means that over the decades I have earned a lower interest rate than would have accrued if I'd used the less liquid flavor of funds. What I hadn't anticipated was that the stock portion of my portfolio would appreciate sufficiently that the TIAA traditional portion would become a smaller part of my total asset allocation and so leaving it funds locked into there would not feel while it would excessively limit my total set of investment options.
Topic Author
PerfectName
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Re: Half-baked fixed income plan incl TIAA traditional

Post by PerfectName »

bikechuck wrote: Thu Feb 15, 2024 1:42 pm
PerfectName wrote: Wed Feb 14, 2024 7:37 pm Thanks for the elaboration, pointers, etc. regarding annuities. As noted by folkher0, what may have gotten lost in the thread, is that we were only talking about annuitizing my TIAA Traditional which represents about 15% of total assets. BUT, I am trying to advance my annuities knowledge, as I think it would be a good addition to our asset mix within the next 5-10 years. What piqued my shorter term interest was the possibility that since interest rates are higher now than for the past several years, maybe I should "rush" into grabbing some annuity sooner.
Hi PerfectName.

I am 70.5 and my wife is 69.5 years old we have two daughters and three granddaughters. . I have an older TIAA a/c from a former employer accounting for 16% of our portfolio (until recently half of this account was in an RA and half in an SRA).

In January I asked TIAA to give me a quote for a joint annuity with 20 years certain for each of these and I decided to annuitize my RA. The reason for my decision was that I was taking interest only payments on my RA and they were yielding approximately 4.5%. My annuity payout was approximately 9% so the same RA is now producing a payout amounting to twice as much as my interest only payments. In conjunction with our SS this annuitized RA payout is sufficient to cover all of our mandatory expenses and some of our discretionary expenses. It is true that over time the monthly payouts will lose purchasing power to inflation but since we were taking interest only payments we were already losing purchasing power on those smaller payments.

We will consider annuitizing the SRA when and if I live to age 80. TIAA was able to provide my annuity quote within 24 hours of my request. Good luck with your decision!
Bikechuck,
Thanks for sharing the details of your specific situation. I have always found that I learn best from an example. Your age puts you into the 70-75 window that I was originally thinking about for doing an annuity. I suspect that if I did it now, I would find less of a delta in my yields, although I need to check. What I am leaning towards in the near term, for TIAA traditional, is to try to keep what is in there constant, adjusted for inflation. I will do a monthly withdrawal equivalent to the real return, which I will recalculate with a TBD periodicity (maybe quarterly...)
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