TIAA "guaranteed" annuity is not all guaranteed. Better options?

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syc
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TIAA "guaranteed" annuity is not all guaranteed. Better options?

Post by syc »

I'll be retiring from an academic position in a couple months. I participate in the TIAA "Optional Retirement Program (ORP)". It's a defined-contribution plan. Total assets about 1M; about 375K in the Traditional---about 150K in the liquid flavor and the other approx 225K in the less-liquid.

I have planned to annuitize my entire Traditional balance, to form part of my "guaranteed" income, or "floor." (Yes, there's inflation, but nevertheless...) Wife also has a COLA's govt pension, and I just recently set up a TIPS ladder to bridge to SocSec (she in 4y, me in 7). I requested an illustration from TIAA of expected income this would generate. The illustration is filled with caveats--"may receive," "could receive", and so on. The estimate is 27,900 annually. But only 15,500 of that is truly guaranteed; the rest is "additional amounts" and "loyalty bonus," which as I understand it could theoretically go away.

I've been aware of this for a long time, but as The Date approaches, it has newfound meaning for me. I'm reminded of Stan the Annuity Man's slogan: one buys a SPIA for what it "Will do, not might do." I know TIAA is a strong company and has been paying the "additional amounts" since Isaac Newton was a freshman, but still, what good is a guaranteed floor that's not really guaranteed?

Makes me wonder whether it would be better to take the illiquid part as the 10-year transfer payout annuity, and withdraw the liquid portion as lump sum and buy a real SPIA from some other equally strong company. Big income tax hit to that. And the other company would probably pay less, but with less equivocation.
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Admiral Fun
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Re: TIAA "guaranteed" annuity is not all guaranteed. Better options?

Post by Admiral Fun »

why not annuitize the illiquid trad, and move the liquid trad into a tips ladder? That way you are not all-in on TIAA, and get the guarantee of the US treasury.

(Oh, by the way, I think the 3% guarantee does not apply to money you are taking out over 10 years. You get a lower rate during liquidation period)

Admiral Fun
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ResearchMed
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Re: TIAA "guaranteed" annuity is not all guaranteed. Better options?

Post by ResearchMed »

syc wrote: Mon May 13, 2024 8:58 pm I requested an illustration from TIAA of expected income this would generate. The illustration is filled with caveats--"may receive," "could receive", and so on. The estimate is 27,900 annually. But only 15,500 of that is truly guaranteed; the rest is "additional amounts" and "loyalty bonus," which as I understand it could theoretically go away.

How do the "guaranteed amount" and the "additional amounts" compare with what the base holding would generate if you instead used it to get a commercial life annuity/SPIA?
You could look at
www.immediateannuities.com to get some estimates.

That could help you understand whether the TIAA annuitization is anything special or not.
You might want to double check this before you get rid of the chance to annuitize TIAA Trad Ann.
(I do not know how the comparison would work out. Perhaps you could share that with us?)

RM
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student
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Re: TIAA "guaranteed" annuity is not all guaranteed. Better options?

Post by student »

ResearchMed wrote: Mon May 13, 2024 9:46 pm
syc wrote: Mon May 13, 2024 8:58 pm I requested an illustration from TIAA of expected income this would generate. The illustration is filled with caveats--"may receive," "could receive", and so on. The estimate is 27,900 annually. But only 15,500 of that is truly guaranteed; the rest is "additional amounts" and "loyalty bonus," which as I understand it could theoretically go away.

How do the "guaranteed amount" and the "additional amounts" compare with what the base holding would generate if you instead used it to get a commercial life annuity/SPIA?
You could look at
www.immediateannuities.com to get some estimates.

That could help you understand whether the TIAA annuitization is anything special or not.
You might want to double check this before you get rid of the chance to annuitize TIAA Trad Ann.
(I do not know how the comparison would work out. Perhaps you could share that with us?)

RM
That's a good suggestion.
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Re: TIAA "guaranteed" annuity is not all guaranteed. Better options?

Post by crefwatch »

I'm sorry I don't have any links to post, but people have done that comparison and described it on this newsboard. As I remember, the usual result is that the TIAA payout is superior to any open market fully for-profit insurance company offers for an SPIA.

Unfortunately, even if this gets established to your satisfaction, it doesn't solve the problem of the Guaranteed portion of your payout and the Additional Amounts, as they are called. You are taking TIAA's legally required conditional verb tenses as something suspicious, something to fear. Would it help to consult some friends and colleagues who might've retired in the last 10 years? Why did your school's investment committee select or approve this financial services provider if they are a danger to the employees?

Did you happen to notice how your interest rates varied widely during your long accumulation period? This is how the product works.

It's puzzling that you propose to take a lower payout just because there are no conditional verb tenses at the other company. I can't make any promises either, but the fact is that TIAA appears to work very hard to avoid or minimize any decreases in established payouts to annuitants. In fact they've made un-promised substantial increases for all, two or three times in the last 10 years. Did anybody tell you about that? The "other" company has never done that!

You are right to be cautious and skeptical. But that means that it's pointless for me to tell you the sad truth that annuitizing at TIAA is partly an act of faith. As it has been for 100 years.
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Re: TIAA "guaranteed" annuity is not all guaranteed. Better options?

Post by adamthesmythe »

ResearchMed wrote: Mon May 13, 2024 9:46 pm How do the "guaranteed amount" and the "additional amounts" compare with what the base holding would generate if you instead used it to get a commercial life annuity/SPIA?
You could look at
www.immediateannuities.com to get some estimates.
I wanna know too.
JS-Elcano
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Re: TIAA "guaranteed" annuity is not all guaranteed. Better options?

Post by JS-Elcano »

syc wrote: Mon May 13, 2024 8:58 pm I'll be retiring from an academic position in a couple months. I participate in the TIAA "Optional Retirement Program (ORP)". It's a defined-contribution plan. Total assets about 1M; about 375K in the Traditional---about 150K in the liquid flavor and the other approx 225K in the less-liquid.

...
Are your contributions very recent and are you far younger than 67? Because the TIAA docs show a 10.7% rate for pre-2006 contributions for a 67-year old (single life) or 9.8% (for joint). Your rate is ~7.44%, so pretty close to what annuities from 2020 contributions are getting. Have you considered waiting to annuitize?

Could you break down the rate you are getting into what is guaranteed and what is only certain for the rest of the year and loyalty bonus? Is it 3% guaranteed + 4.44% variable?

Btw, a SPIA that I looked up for a 60-year old (just guessing) for Single Life with 10 years certain (or joint with 10 years certain) shows a payout rate of 6.97% (6.33%). So, maybe a 1% difference to TIAA, but guaranteed.

I am also planning to annuitize, so this thread is very interesting to me.
afan
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Re: TIAA "guaranteed" annuity is not all guaranteed. Better options?

Post by afan »

There was a long thread on here that concluded:
The guaranteed part really is guaranteed
The loyalty bonus varies widely and could well be zero
The additional amount HAS been consistent over the years. Somewhere between never and almost never reduced. TIAA will not promise that it will be paid in the future but it has been paid in the past.

At least, that was my interpretation. It featured several bogleheads who were TIAA experts.
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Rex66
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Re: TIAA "guaranteed" annuity is not all guaranteed. Better options?

Post by Rex66 »

This is frankly always the situation when comparing guaranteed to non guaranteed of the “same” product.

As an example, whole life sold by companies that don’t provide dividends (same thing as bonuses) have better guaranteed values then those which do. Now interestingly when WL is recommended, it is always from one of those that provide dividends. Historically that has worked out as the better value (again not recommending WL) except with Ohio national which in essence sold out/went under/ however you wish to phrase it.

Guarantees always cost more. One reason is regulatory requirements for what is guaranteed.

If I were purchasing a spia, I’d be willing to use tiaa but each to their own comfort level.
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syc
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Re: TIAA "guaranteed" annuity is not all guaranteed. Better options?

Post by syc »

Well that was an interesting exercise; glad you all suggested it:

TIAA lifetime using 221K non-liquid Traditional: 16589
TIAA lifetime using 150K liquid Traditional: 11331
=====
27920

MassMutual lifetime annuity for 150K: 9552
MassMutual lifetime with 3% COLA, for 150K: 6636

TIPS ladder to age 93 (max on tipsladder.com) for 150000: 6850
TIPS ladder for investing 150K and getting 11000 annually: to 2040 (age 79)

EDIT:

15500 of the 27920 is "guaranteed," so about 56%. I don't know if that percentage is uniform across the liquid and the non-liquid. But let's assume that it is. So I get the following table, approximately:

guaranteed | not guaranteed
-----------------------------------------------------
liquid | 6345 | 4986
----------------------------------------------
non-liquid | 9290 | 7299


Thoughts?
Last edited by syc on Wed May 15, 2024 11:14 am, edited 1 time in total.
Nahtanoj
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Re: TIAA "guaranteed" annuity is not all guaranteed. Better options?

Post by Nahtanoj »

The credit rating of TIAA and Mass Mutual is comparable, but TIAA gives you a meaningfully higher payout on the non-COLA annuity. Unless you really have concerns about the “guaranteed” vs non-guaranteed portions, TIAA seems to have the edge. And even if you have those concerns, you probably also should consider TIAA’s history of periodically increasing their payouts, even when they have no contractual obligation to do so.

Unless my math is wrong, the liquid and illiquid versions of TIAA seem to pay out at almost exactly the same rate, which is interesting.

As for the TIPS ladder, it’s interesting that it seems to pay out at almost exactly the same rate as the Mass Mutual annuity with the 3.0% COLA. So I suppose it’s a matter of preference which you choose - with the standard tradeoffs: the TIPS ladder runs out at the end, while the annuity doesn’t. But the TIPS ladder leaves something for your heirs if you die before the end of the ladder, while the annuity may not (you’d have to check if that is true for the specific annuity you are considering). And the TIPS ladder does better with inflation above 3%, while the 3% COLA annuity does better with inflation below 3%.
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Re: TIAA "guaranteed" annuity is not all guaranteed. Better options?

Post by dknightd »

syc wrote: Tue May 14, 2024 9:06 pm Well that was an interesting exercise; glad you all suggested it:

TIAA lifetime using 221K non-liquid Traditional: 16589
TIAA lifetime using 150K liquid Traditional: 11331
=====
27920

MassMutual lifetime annuity for 150K: 9552
MassMutual lifetime with 3% COLA, for 150K: 6636

TIPS ladder to age 93 (max on tipsladder.com) for 150000: 6850
TIPS ladder for investing 150K and getting 11000 annually: to 2040 (age 79)

Thoughts?
These are similar results to what I found a few years ago.
You did not compare the "guaranteed" part of TIAA annuity to what MassMutual would pay.
I think you'll find that he "guaranteed" part is smaller.
Using TIAA for annuities is reasonable if you think the "additional amounts" will not decrease. I consider that a reasonable assumption, although it has happened in the past.

I think I would annuitize the non-liquid Traditional at TIAA on the day after I retired (or at least some of it).
I'd defer a decision on the liquid traditional. Maybe you will not need more annuity income. For now I'd consider it a tax advantaged savings account.
That is basically what I did. I'm using the liquid Traditional as my bridge to SS. You may not need to do that since you have a TIPS ladder.

Congratulations on your retirement :)
Retired 2019. So far, so good. I want to wake up every morning. But I want to die in my sleep. Just another conundrum. I think the solution might be afternoon naps ;)
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daleddm
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Re: TIAA "guaranteed" annuity is not all guaranteed. Better options?

Post by daleddm »

Anybody else notice the TWENTY full page advertisements by TIAA in the weekend NYT Magazine a few days ago?

That's pretty unusual. I don't know if it's good, bad, or of little consequence, but it was pretty hard not to notice. Yes, it more or less coincides with their recent NUVEEN adoption.

I am well into TIAA after 30 yrs in academic positions, but remain wary of their "just trust us" approach, especially after last month when they did indeed drop the crediting rates and then followed it up with the mass mailings and emails announcing it to be "an exciting time to be investing with TIAA." Whether or not to stay with them upon retirement is indeed a quandary.
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Re: TIAA "guaranteed" annuity is not all guaranteed. Better options?

Post by crefwatch »

If I am not mistaken, COLAs are not really available for open-market SPIA's. So it's not useful to introduce the option for discussion.

Each data sheet for a flavor of TIAA Traditional has a section describing the current Payout stage percentages, and they are currently all the same numbers, a combination of calendar vintage spans, and rough percentage payout rates. Note that two people with the same accumulation amounts are almost certain to have different payouts, because their dollars were accumulated at slightly different times.

RA
https://www.tiaa.org/public/investment- ... r=47933630
SRA
https://www.tiaa.org/public/investment- ... r=47933631
GSRA
https://www.tiaa.org/public/investment- ... r=47933633
GRA
https://www.tiaa.org/public/investment- ... r=47933632
IRA after 2010
https://www.tiaa.org/public/investment- ... r=47933634

It's unclear whether the OP means to think about issues other than guaranteed/additional amounts. For example, many other posters on this newsboard mull over the issue of giving up all your assets and leaving nothing for children, relatives, or charities, or what is the "break-even" date of their annuity. That's often abbreviated as "betting on your life with an insurance company." Nowadays, even more people ask whether a (roughly) fixed payout will allow them to retain their lifestyle if they live another 20 or 30 years of inflation. (On the other side, it seems clear that the OP would not tolerate the wide variability of the payout of an equity-linked annuity like, say, CREF Stock.)

One reason why TIAA wins the "comparison" to open-market SPIA's is that they only have to charge a microscopic amount for "mortality risk." I didn't do any research, but I think ER numbers like 0.6% and higher are quite normal, even at Vanguard. Unlike all of the regular "big, bad" insurance companies, the TIAA Traditional payout annuity has the Mortality Risk fall on the ... annuitants. That means TIAA does not care how long you live before they make off with your residue. Oh, wait, they don't make off with your residue, it goes to ... the other (living) annuitants!

With the repeated caveat that such events are not promised or predictable (!), some press releases:

TIAA Traditional Increases Income Payments by 3% for 2023
https://www.tiaa.org/public/about-tiaa/ ... 2022/12-19

TIAA Traditional Payout Increases 5% for 2022
https://www.tiaa.org/public/about-tiaa/ ... 2021/12-16

Note that the following press release is about Additional Amounts, it is not strictly about "payouts."
https://www.tiaa.org/public/about-tiaa/ ... 2022/03-09
Last edited by crefwatch on Wed May 15, 2024 7:56 am, edited 1 time in total.
Rex66
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Re: TIAA "guaranteed" annuity is not all guaranteed. Better options?

Post by Rex66 »

All the companies selling these give mortality credits

That isn’t a unique thing
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Re: TIAA "guaranteed" annuity is not all guaranteed. Better options?

Post by crefwatch »

Rex66, are you saying that your established monthly payout from an open-market SPIA will increase due to the death of other annuitants? I don't think so. In any case, you are still paying a substantial mortality and expense risk ER, every day, except at TIAA.

At TIAA, periodic "unneeded reserves" are eventually returned to the annuitants, who "own" them. At an average insurance company, they are the property of the insurance company.
Last edited by crefwatch on Wed May 15, 2024 9:06 am, edited 1 time in total.
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jjustice
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Re: TIAA "guaranteed" annuity is not all guaranteed. Better options?

Post by jjustice »

Nahtanoj wrote: Tue May 14, 2024 9:50 pm Unless my math is wrong, the liquid and illiquid versions of TIAA seem to pay out at almost exactly the same rate, which is interesting.
This is correct. The liquid and illiquid versions pay different rates during accumulation, but there is no difference when they are annuitized. It's all illiquid when annuitized. My liquid and illiquid funds were combined into a single annuity.
John
Rex66
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Re: TIAA "guaranteed" annuity is not all guaranteed. Better options?

Post by Rex66 »

crefwatch wrote: Wed May 15, 2024 7:58 am Rex66, are you saying that your established monthly payout from an open-market SPIA will increase due to the death of other annuitants? I don't think so. In any case, you are still paying a substantial mortality and expense risk ER, every day, except at TIAA.

At TIAA, periodic "unneeded reserves" are eventually returned to the annuitants, who "own" them. At an average insurance company, they are the property of the insurance company.
Yes but it’s already incorporated based on their mortality experience. Remember “open market” ones are primarily strictly guaranteed with no “bonus”.

They adjust based on experience with new issues bc of a variety factors including mortality experience, interest rate, other costs which may increase or decrease your guaranteed payout. We talk here mostly about interest rate effects here.

You can Google up explanations of mortality credits if desired.

The bonus credit likely improve or get worse based on same factors up to the guarantee.
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Re: TIAA "guaranteed" annuity is not all guaranteed. Better options?

Post by bikechuck »

jjustice wrote: Wed May 15, 2024 8:08 am
Nahtanoj wrote: Tue May 14, 2024 9:50 pm Unless my math is wrong, the liquid and illiquid versions of TIAA seem to pay out at almost exactly the same rate, which is interesting.
This is correct. The liquid and illiquid versions pay different rates during accumulation, but there is no difference when they are annuitized. It's all illiquid when annuitized. My liquid and illiquid funds were combined into a single annuity.
John
In my case through historical accident (from a previous employer early in my career) TIAA Traditional accounted for 16% of my portfolio, half in an illiquid RA and half in a liquid SRA.

The RA had a larger loyalty bonus and a higher annuity payout so I annuitized my RA but not my SRA. This worked out well because the annuity in conjunction with SS is sufficient to fund all of our necessary expenses and some of our discretionary expenses. The SRA is part of our fixed allocation which is liquid and provides a decent return but does not fluctuate in value with interest rates.

TIAA Traditional has worked well for us during our accumulation and deaccumulation years.
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Re: TIAA "guaranteed" annuity is not all guaranteed. Better options?

Post by Scubadude »

Rex66 wrote: Wed May 15, 2024 8:20 am
crefwatch wrote: Wed May 15, 2024 7:58 am Rex66, are you saying that your established monthly payout from an open-market SPIA will increase due to the death of other annuitants? I don't think so. In any case, you are still paying a substantial mortality and expense risk ER, every day, except at TIAA.

At TIAA, periodic "unneeded reserves" are eventually returned to the annuitants, who "own" them. At an average insurance company, they are the property of the insurance company.
Yes but it’s already incorporated based on their mortality experience. Remember “open market” ones are primarily strictly guaranteed with no “bonus”.

They adjust based on experience with new issues bc of a variety factors including mortality experience, interest rate, other costs which may increase or decrease your guaranteed payout. We talk here mostly about interest rate effects here.

You can Google up explanations of mortality credits if desired.

The bonus credit likely improve or get worse based on same factors up to the guarantee.
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syc
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Re: TIAA "guaranteed" annuity is not all guaranteed. Better options?

Post by syc »

I edited my math post above, adding a table in which I attempt to break down the guaranteed vs non-guaranteed, across the two flavors, liquid and non-liquid. This assumes that the proportion guaranteed is the same in both flavors--I don't know that for a fact.

So guaranteed income from MassMutual (i.e. all of it) on the 150K principal is about 50% higher than the income that TIAA guarantees. Income from a nearly-lifetime all-guaranteedTIPS ladder is also higher than TIAA, although less of a difference. Whereas, total income from TIAA is higher--if the "additional amounts" don't get reduced.

So I suppose it's like anything else: risk vs reward. I have envisioned these annuities and my existing TIPS ladder bridge to SocSec as being a solid floor covering most of my spending needs, with anything I get from my non-insubstantial equities being "extra." I have no objection to "turning over" some of my savings to a life insurance company irreversibly. I'm not averse to risk in my equity portfolio. It's just that if need by I can respond to perceived worsening risk in equities by adjusting AA. I can't respond to a reduction in payout from TIAA after I've annuitized--if they reduce or cancel those "additional amounts," I'm stuck with it.
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syc
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Re: TIAA "guaranteed" annuity is not all guaranteed. Better options?

Post by syc »

dknightd wrote: Wed May 15, 2024 5:34 am For now I'd consider it a tax advantaged savings account.
Hmm, that's a productive way to think about it.
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Re: TIAA "guaranteed" annuity is not all guaranteed. Better options?

Post by syc »

daleddm wrote: Wed May 15, 2024 7:30 am . . . especially after last month when they did indeed drop the crediting rates and then followed it up with the mass mailings and emails announcing it to be "an exciting time to be investing with TIAA." Whether or not to stay with them upon retirement is indeed a quandary.
Could you expand on what "drop the crediting rates" means? I've never really understood what "crediting rates" at TIAA are. Do you mean new contributions to Traditional would earn less interest than before? Existing contributions? Or that the monthly checks to retirees who had previously annuitized some Traditional decreased? Or something else? Thanks.
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Re: TIAA "guaranteed" annuity is not all guaranteed. Better options?

Post by crefwatch »

syc, you will get better responses if you provide the alpha codes for your accounts, like RA or RC, rather than just saying liquid and illiquid.
syc wrote: Wed May 15, 2024 11:24 am I edited my math post above, adding a table in which I attempt to break down the guaranteed vs non-guaranteed, across the two flavors, liquid and non-liquid. This assumes that the proportion guaranteed is the same in both flavors--I don't know that for a fact.

So I suppose it's like anything else: risk vs reward.
As I said before, your skepticism is sensible and appropriate. But you need to quantify and qualify terms like "risk." There are a variety of "risks".

*10-Year Treasury rates may fall during my retirement years.
*Inflation may fall and decrease TIPS returns.
*Inflation may rise and improve TIPS returns.
*TIAA may decrease new-money accumulation-period rates in response to falling prevailing rates, probably with no change in existing payouts.
*TIAA might decrease Additional Amounts for annuitized payout streams.
*TIAA might go bankrupt.

Not all of those risks are of comparable magnitude. I am not in a position to make promises, but TIAA has tried, for 100 years, to keep annuitized payouts close to level. You cannot take my word for that. That's why I suggested that you contact recent retirees at your school.

I was trying to avoid posting this link because it opens so many other issues. But since you have no one to talk to with real payout experience, I have to offer you my deceased mother. She DID experience a decline in her TIAA Traditional payout, but very few posters on this newsboard have reported anything similar. She was very happy with her retirement payout decisions, despite not being a sophisticated investor:

viewtopic.php?p=5413297#p5413297

But, I have to say the same thing TIAA, Vanguard, or Mass Mutual would say: "Past performance is no guarantee of future results." Even I have to use conditional tenses to speak to you, making my data ... ... suspect.
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Re: TIAA "guaranteed" annuity is not all guaranteed. Better options?

Post by crefwatch »

Rex66 wrote: Wed May 15, 2024 8:20 am
crefwatch wrote: Wed May 15, 2024 7:58 am Rex66, are you saying that your established monthly payout from an open-market SPIA will increase due to the death of other annuitants? I don't think so. In any case, you are still paying a substantial mortality and expense risk ER, every day, except at TIAA.

At TIAA, periodic "unneeded reserves" are eventually returned to the annuitants, who "own" them. At an average insurance company, they are the property of the insurance company.
Yes but it’s already incorporated based on their mortality experience. Remember “open market” ones are primarily strictly guaranteed with no “bonus”.
I think you are saying that the pricing (yield) for new payout applications is adjusted based on experience and offsetting corporate income.

I am asking whether any SPIA payout customer at a too-big-to-fail for-profit insurer ever woke up to find that their previously $1,000 per month payment is going to be $1050 starting next month, and for the rest of their life? That is what happened to TIAA annuitants in 2022.
student
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Re: TIAA "guaranteed" annuity is not all guaranteed. Better options?

Post by student »

syc wrote: Wed May 15, 2024 11:29 am
daleddm wrote: Wed May 15, 2024 7:30 am . . . especially after last month when they did indeed drop the crediting rates and then followed it up with the mass mailings and emails announcing it to be "an exciting time to be investing with TIAA." Whether or not to stay with them upon retirement is indeed a quandary.
Could you expand on what "drop the crediting rates" means? I've never really understood what "crediting rates" at TIAA are. Do you mean new contributions to Traditional would earn less interest than before? Existing contributions? Or that the monthly checks to retirees who had previously annuitized some Traditional decreased? Or something else? Thanks.
I assume daleddm is referring to the interest rate for new money that is guaranteed until it resets next March.
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Re: TIAA "guaranteed" annuity is not all guaranteed. Better options?

Post by Rex66 »

crefwatch wrote: Wed May 15, 2024 12:56 pm
Rex66 wrote: Wed May 15, 2024 8:20 am
crefwatch wrote: Wed May 15, 2024 7:58 am Rex66, are you saying that your established monthly payout from an open-market SPIA will increase due to the death of other annuitants? I don't think so. In any case, you are still paying a substantial mortality and expense risk ER, every day, except at TIAA.

At TIAA, periodic "unneeded reserves" are eventually returned to the annuitants, who "own" them. At an average insurance company, they are the property of the insurance company.
Yes but it’s already incorporated based on their mortality experience. Remember “open market” ones are primarily strictly guaranteed with no “bonus”.
I think you are saying that the pricing (yield) for new payout applications is adjusted based on experience and offsetting corporate income.

I am asking whether any SPIA payout customer at a too-big-to-fail for-profit insurer ever woke up to find that their previously $1,000 per month payment is going to be $1050 starting next month, and for the rest of their life? That is what happened to TIAA annuitants in 2022.
That’s why it’s got a guaranteed and non guaranteed component.

This is not unusual at all in the insurance industry. WL and many deferred annuities have both guaranteed and the potential for non guaranteed increases. The vast majority of these products then once annuitized go with a strictly guaranteed value (which is routinely higher than the guaranteed value in contracts that have variability)

There are also very few individuals who had strictly guaranteed amounts that ever saw a decrease which can happen with tiaa.

There is no magic.
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syc
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Re: TIAA "guaranteed" annuity is not all guaranteed. Better options?

Post by syc »

crefwatch wrote: Wed May 15, 2024 12:56 pm
I am asking whether any SPIA payout customer at a too-big-to-fail for-profit insurer ever woke up to find that their previously $1,000 per month payment is going to be $1050 starting next month, and for the rest of their life? That is what happened to TIAA annuitants in 2022.
Ah, but there's the rub---is it really "for the rest of their life"? If those are increases in the "additional amounts," then they can be reduced or rescinded just as easily at some unknown time in the future, no? Could it not end up being $975 a month some day?
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Re: TIAA "guaranteed" annuity is not all guaranteed. Better options?

Post by crefwatch »

Rex66 wrote: Wed May 15, 2024 1:04 pm WL and many deferred annuities have both guaranteed and the potential for non guaranteed increases.
...
There is no magic.
Thank you for your prompt and precise reply. My point was that (going back to the first few posts), we are not attempting to compare the payouts of a lifetime investment (accumulation and then annuitization) in TIAA Traditional against a lifetime investment in (say, because my union had a Mass Mutual deferred annuity option, ER's near 0.85%) Mass Mutual.

The OP question was about the options a TIAA Traditional Participant (customer) has at retirement time. Those three choices are to leave it alone, annuitize it from various options, or (if liquid) cash it out and BUY a NEW SPIA. (Your most recent answer presents deferred annuities, not SPIAs.)
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Re: TIAA "guaranteed" annuity is not all guaranteed. Better options?

Post by crefwatch »

syc wrote: Wed May 15, 2024 1:09 pm
crefwatch wrote: Wed May 15, 2024 12:56 pm
I am asking whether any SPIA payout customer at a too-big-to-fail for-profit insurer ever woke up to find that their previously $1,000 per month payment is going to be $1050 starting next month, and for the rest of their life? That is what happened to TIAA annuitants in 2022.
Ah, but there's the rub---is it really "for the rest of their life"? If those are increases in the "additional amounts," then they can be reduced or rescinded just as easily at some unknown time in the future, no? Could it not end up being $975 a month some day?
Yes, that is possible. It is possible that TIAA will go bankrupt, or that a government entity will default on its debt.

Or as Prokofiev's grandfather character said, "What ... ... if Peter had NOT caught the wolf?"
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Re: TIAA "guaranteed" annuity is not all guaranteed. Better options?

Post by bikechuck »

If I had the level of concern that the OP has expressed in more than one comment in this thread and if I wanted an annuity I would purchase a SPIA from a different but highly rated insurance co.

In their case a lower payout might be worth it to avoid unnecessary anxiety.
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Re: TIAA "guaranteed" annuity is not all guaranteed. Better options?

Post by Rex66 »

crefwatch wrote: Wed May 15, 2024 2:19 pm
Rex66 wrote: Wed May 15, 2024 1:04 pm WL and many deferred annuities have both guaranteed and the potential for non guaranteed increases.
...
There is no magic.
Thank you for your prompt and precise reply. My point was that (going back to the first few posts), we are not attempting to compare the payouts of a lifetime investment (accumulation and then annuitization) in TIAA Traditional against a lifetime investment in (say, because my union had a Mass Mutual deferred annuity option, ER's near 0.85%) Mass Mutual.

The OP question was about the options a TIAA Traditional Participant (customer) has at retirement time. Those three choices are to leave it alone, annuitize it from various options, or (if liquid) cash it out and BUY a NEW SPIA. (Your most recent answer presents deferred annuities, not SPIAs.)
Those are just other examples of the same issue

You either go with straight guarantees or you take some guarantees with a variable component.

When you take the latter, the insurance company is less on the hook. The good of that possibly is that they will have less regulatory requirements. They can invest more freely and this might work out to your benefit. It has for most it appears for Tiaa but that doesn’t mean it will continue. As an example and again this isn’t a spia bc I don’t off hand have an example in my head that is spia specific, Ohio national had a WL product they marketed as providing more cash value than other mutuals. The guaranteed values were poor but the illustrated better. A few years ago and without advanced notice, they dropped everything to the guaranteed levels as they sold/exited the business. Like a spia, WL is pretty much an indefinite commitment without crazy costs. Those people who were happy previously wish they had chosen another company or product with better guarantees. I actually don’t think this will happen with tiaa but insurance companies are very opaque.
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Re: TIAA "guaranteed" annuity is not all guaranteed. Better options?

Post by McQ »

OP, I don’t think you are being fair and balanced in your evaluation of TIAA’s “guarantee” versus other “guarantees” on offer from other parties.

My stance, on this mortal coil, is that all financial products whatsoever constitute human constructions, necessarily finite and fallible.

Guarantee, sensu stricto, is infinite and eternal—not mortal, human, fallible, finite. Therefore, no human construction can ever be guaranteed, full stop.

Case in point: have you considered all the ways that a future Treasury secretary could mess with the “guarantee” that your TIPS will pay out as agreed?

Here are two simple examples from an imagined future in which the world is in sufficiently dire straits to put TIAA under severe financial pressure.

“The Treasury announced today that TIPS maturing after the current year will have the inflation adjustment to principal paid out in ten equal nominal installments over the ten years following the bond’s maturity.”

OR

“The Treasury announced that henceforth, a smoothed measure of inflation will be used to determine the reference CPI for TIPS. The smoothing will commence immediately, and cover the trailing twenty years, so that reference CPI each month for TIPS will be the geometric mean monthly inflation over the prior 240 months.”

In this regard, whenever I hear that government bonds and bills are a “risk-free” instrument, I always prepend “Argentine,” as in “Argentine Treasury bills provide the risk-free rate...”

There are no guarantees in the human world. (Death and taxes come close, but …)

I’d ask you to compare TIAA’s not-quite-guaranteed product to all the other less than guaranteed products on offer—a very different comparison than assuming that TIAA is not fully guaranteed, while other offerings are completely and perfectly guaranteed.

PS: for the record, I have a low 7 figure TIAA balance I intend to annuitize in my mid-70s, and half a million in TIPS as well. Those aren’t part of my risk portfolio, which is entirely in stocks.

I accept that there is no guarantee; I still choose to own these as the cleanest dirty shirt in the laundry.
You can take the academic out of the classroom by retirement, but you can't ever take the classroom out of his tone, style, and manner of approach.
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syc
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Re: TIAA "guaranteed" annuity is not all guaranteed. Better options?

Post by syc »

McQ, what's unfair? TIAA says, "As long as we are a viable business and you are alive, we will pay you 0.56*D dollars every year, and will probably also pay you 0.44*D dollars too." Other companies say, "As long as we are a viable business and you are alive, we will pay you E dollars every year." Isn't that accurate? Nothing fair or unfair about it--it's reality.

Perhaps D = E. Perhaps D > E (most likely scenario). Perhaps D < E (not likely). But even if D > E, 0.56*D is very likely to be < E.

The "viable business" part varies from insurer to insurer. Governments included here. And yes, extreme events happen. No quibble there.

We both understand that nothing in life is guaranteed, by its denotative definition. And we agree there is risk in *every* investment decision (or the failure to make one.) Risk and reward go hand in hand. To weigh those risks, however, one must first understand them, and TIAA makes that very difficult. It's easier with TIPS or with, eg. MassMutual, NYLife, etc.
bd7
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Re: TIAA "guaranteed" annuity is not all guaranteed. Better options?

Post by bd7 »

syc wrote: Wed May 15, 2024 10:50 pm McQ, what's unfair? TIAA says, "As long as we are a viable business and you are alive, we will pay you 0.56*D dollars every year, and will probably also pay you 0.44*D dollars too." Other companies say, "As long as we are a viable business and you are alive, we will pay you E dollars every year." Isn't that accurate? Nothing fair or unfair about it--it's reality.
TIAA's financial model is to provide very modest guarantees so that the chances of them staying alive are greatly increased if there are times of great financial distress. They also plow their profits back into the TIAA Traditional product so it is common to see increases above and beyond the baseline.
(and yes, occasionally decreases below the baseline amount early in the payout period)

Some state retirement systems work like this--the payouts are actually not fixed and can decrease as well as increase, but the plan is fully funded and the risk of it folding or requiring taxpayer bailout is nil.
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