TIAA Traditional at 3% or Fidelity TIPS Fund FIPDX?

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JustAnotherProf
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TIAA Traditional at 3% or Fidelity TIPS Fund FIPDX?

Post by JustAnotherProf »

Long time lurker. First time poster. Appreciate this community so much and thought I might reach out for advice once. A little nervous, actually.

I use TIAA Traditional, a stable value fund from a highly rated company, as the main fixed income piece of our IPS asset allocation targeting 30/70 overall. I am retired and my RMDs start in 2024. I have a younger wife, not working, who will be doing RMDs too someday on the inherited accounts. Inheritance to the kids is secondary and they don’t need our money, anyway. Most of the RMDs will just build a taxable account. I don’t see us changing our lifestyle to use them.

We have more assets than we need (well over 50x) and are not seeking return for its own sake. More of a saver than an investor by nature, as is the wife. We do not sell when things go down, just don’t like it when they do. Low cost funds and never trade. The 30% equity position is in a Fidelity Roth account. Yes, I’m doing conversions each year to build that up. All of this is just background in case it helps.

Now to our problem. I just learned that a large TIAA GSRA 403(b) account of ours that is invested in TIAA Traditional will pay exactly 3% (the minimum guarantee rate) perpetually because of contractual plan changes with the university from which I retired. It will not participate in interest rate increases. I am not happy about that, but it’s not my question. That account is about 30% of my total portfolio, I have another 30% in TIAA Traditional which participates in rate changes and we will keep, and then 10% in an IRA at Fidelity which holds their FIPDX TIPS fund also to be kept.

I can roll over the 403(b) account to join the IRA at Fidelity easily. Would you rather hold TIAA Traditional at 3% fixed or the Fidelity TIPS Fund FIPDX for, say, the next 30 years while taking RMDs? It seems obvious to me to directly hedge inflation over time, but this is a lot of money and, as I hope you caught, we prefer low volatility. I would note that TIAA Traditional account is up 1.5% and the TIPS fund is down 8% YTD. That difference is several years’ RMD. That can be alternately viewed as a warning sign, a buying opportunity, or an artifact of a short time period, I guess. Either way, not the main question, just an example.

The advice given on this forum is so constructive and thoughtful that I always learn something new. With that said, our asset allocation or tax advice or building bond ladders is not what I’m hoping to explore the most. I know no one can predict the future and that these tradeoffs are personal. Yet, the tradeoff between volatility and real return, when you have won the game and have a fixed rate in hand, is where I fear I might miss a key idea. Before I make a change (or not) to our investment portfolio shown below, I thought I would create an account and ask for guidance here. Thank you in advance. Sorry this got so long.

20% - Total Stock US (FSKAX)
10% - Total International (FTIHX)
30% - TIAA Traditional @ 4.55%
30% - TIAA Traditional @ 3.00%
10% - Intermediate TIPS (FIPDX)
tibbitts
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Re: TIAA Traditional at 3% or Fidelity TIPS Fund FIPDX?

Post by tibbitts »

JustAnotherProf wrote: Mon Jul 18, 2022 10:29 pm Now to our problem. I just learned that a large TIAA GSRA 403(b) account of ours that is invested in TIAA Traditional will pay exactly 3% (the minimum guarantee rate) perpetually because of contractual plan changes with the university from which I retired. It will not participate in interest rate increases. I am not happy about that, but it’s not my question. That account is about 30% of my total portfolio, I have another 30% in TIAA Traditional which participates in rate changes and we will keep, and then 10% in an IRA at Fidelity which holds their FIPDX TIPS fund also to be kept.
That's an interesting situation. My plan still allows for rate changes and new contributions pay more than the 3% my recent (2020/2021) contributions do, but I'm a little worried that something bad may happen if I pull out for the 120 days required before I can replace the funds at the higher rate.

For me I might move $150k from the fixed 3% account to TIAA Real Estate if an allowed option and I didn't already have any, then move at most half of the amount left in the fixed 3% to somewhere else.
anonenigma
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Re: TIAA Traditional at 3% or Fidelity TIPS Fund FIPDX?

Post by anonenigma »

Can you move funds from one account to the other? I did this - had TIAA Traditional in a 457(b) and a 403(b). After I retired I moved the money from the 457(b) into the 403(b). I saved the 457(b) plan charge (22 bp), and the TIAA Traditional was paying 25 bp more in the 403(b).
tibbitts
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Re: TIAA Traditional at 3% or Fidelity TIPS Fund FIPDX?

Post by tibbitts »

anonenigma wrote: Tue Jul 19, 2022 1:09 am Can you move funds from one account to the other? I did this - had TIAA Traditional in a 457(b) and a 403(b). After I retired I moved the money from the 457(b) into the 403(b). I saved the 457(b) plan charge (22 bp), and the TIAA Traditional was paying 25 bp more in the 403(b).
I'm not sure about the OP but for me I could move from one unrestricted account to another (so typically a 457 or 403b) but not to my restricted TIAA plan.
JohnDoh
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Re: TIAA Traditional at 3% or Fidelity TIPS Fund FIPDX?

Post by JohnDoh »

1) If you want TIPS and low volatility, you might consider a short-term TIPS fund such as VTIP. It's an ETF and can be held at any brokerage, including Fidelity IRA.

2) TIPS losses YTD are due to recent rapid rises in interest rates. Will that continue? Who knows? But there is a natural cap to real interest rates, unlike for nominal rates for which the sky is the limit. So there is some downside protection.

3) FWIW, TIPSwatch in a post of 7/13/22 (https://tipswatch.com/2022/07/13/june-i ... over-year/) said :
My conclusion: Take advantage of attractive short-term rates (about 2.2% on a 13-week Treasury) and continue to lock in attractive real yields on TIPS. Yes, rates are likely to go higher, but there is always the threat of the Fed backing off and intervening in a weakening economy. We’ve seen it before.
4) If it were me, I'd probably go VTIP. The only real downside is if real interest rates go negative again at some point in the future. Then what do you do? TIAA TRAD was great for that. But, once out you can never go back. It's a risk. OTOH, perhaps TRAD was the solution for the last 10+ years but isn't going to be for the next 10+ years. One needs a certain mental/emotional agility, I think.

P.S. There is a Vanguard white paper on the superiority of short-term TIPS. I don't have the reference offhand, but it's been a topic of conversation here (including recently). Some folks disagree with Vanguard's conclusion. I tend to agree with it. You can also check out the logic behind DFA's target date funds that (almost uniquely) use TIPS heavily in retirement (https://us.dimensional.com/target-date- ... come-funds).
student
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Re: TIAA Traditional at 3% or Fidelity TIPS Fund FIPDX?

Post by student »

I have never heard of a version that is fixed at 3% and I don't see such a version on its website. Of course, it may be a special contract with your university. I would also suggest investigating to see whether you can move it to your other TIAA Traditional account assuming that it is also liquid.
crefwatch
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Re: TIAA Traditional at 3% or Fidelity TIPS Fund FIPDX?

Post by crefwatch »

JustAnotherProf wrote: Mon Jul 18, 2022 10:29 pm I am retired and my RMDs start in 2024. I have a younger wife, not working, who will be doing RMDs too someday on the inherited accounts. Inheritance to the kids is secondary and they don’t need our money, anyway. Most of the RMDs will just build a taxable account. I don’t see us changing our lifestyle to use them.

Now to our problem. I just learned that a large TIAA GSRA 403(b) account of ours that is invested in TIAA Traditional will pay exactly 3% (the minimum guarantee rate) perpetually because of contractual plan changes with the university from which I retired. It will not participate in interest rate increases.
This is such an unusual statement that I urge you to make certain that your understanding is correct. It would be helpful if you could quote from the announcement, keeping whatever degree of privacy you prefer about the name of the institution. I'm simply suggesting that you might have misunderstood a word like "frozen" or "closed" to cover rates as well as principal. (In my case, the word "frozen" meant "against new additions", not that money could not be removed from that TIAA Traditional option. But it is true that my "old" IRA has not paid more than the 3% Minimum since they lowered the "new" Minimum to 1% - for ALL old-IRA holders.) It would also help if you could quote a statement that names ("RC/RCP" is one possible answer) the NEW plan at the school.

This is the current GSRA Fact Sheet:
https://www.tiaa.org/public/investment- ... r=47933632

You have made it clear that neither you nor your wife will be annuitizing ANY of this GSRA money, so the Payout table at the end of this Fact Sheet does not have any influence (?) on a potential decision to move out of the plan. You haven't mentioned if you care about potential withdrawal restrictions on many kinds of TIAA Traditional, although you indicate that you are buy-and-hold investors. "we prefer low volatility." To move on to your actual question:

Your OP shows that you understand that ANY bond fund has principal risk. TIAA Traditional does not. By my reading of your OP, you are not giving enough weight to that MAJOR difference. I would add that TIPS funds don't operate or behave precisely like ordinary bond funds, and may be unnerving or unsatisfactory to you. In your place, I would stay with the old TIAA Traditional plan. But you haven't told us enough about the "new" TIAA option.

You may also wish to check whether 403(b) account payouts are taxed differently in your state from IRAs, or if they have different lawsuit protection.
CloseEnough
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Re: TIAA Traditional at 3% or Fidelity TIPS Fund FIPDX?

Post by CloseEnough »

crefwatch wrote: Tue Jul 19, 2022 7:08 am

Your OP shows that you understand that ANY bond fund has principal risk. TIAA Traditional does not.
Is this really true? While the principal risk may be low on TIAA Traditional, I would think it still is subject to risk. Why is there no principal risk with TIAA Traditional?
tibbitts
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Re: TIAA Traditional at 3% or Fidelity TIPS Fund FIPDX?

Post by tibbitts »

CloseEnough wrote: Tue Jul 19, 2022 7:33 am
crefwatch wrote: Tue Jul 19, 2022 7:08 am

Your OP shows that you understand that ANY bond fund has principal risk. TIAA Traditional does not.
Is this really true? While the principal risk may be low on TIAA Traditional, I would think it still is subject to risk. Why is there no principal risk with TIAA Traditional?
Well, "no" principal risk" isn't what was intended; more like "almost no principal risk." Even if you look at a Treasury money market fund for example, the risk is low, but it's always there.
tibbitts
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Re: TIAA Traditional at 3% or Fidelity TIPS Fund FIPDX?

Post by tibbitts »

I wonder if locking the rate at 3% is a (new?) method TIAA might employ to encourage an institution to move to alternative plans that don't have the minimum 3% guarantee.
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House Blend
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Re: TIAA Traditional at 3% or Fidelity TIPS Fund FIPDX?

Post by House Blend »

JustAnotherProf wrote: Mon Jul 18, 2022 10:29 pm Would you rather hold TIAA Traditional at 3% fixed or the Fidelity TIPS Fund FIPDX for, say, the next 30 years while taking RMDs?
Because you have accumulated far more than you need, I think it won't matter either way. Do whatever you are most comfortable with.

That said, two considerations:

1. Those who have far more than they need should be factoring QCD's (qualified charitable distributions) into their planning. You are eligible once you reach
age 70.5, and they can be used to meet RMDs once those kick in.

HOWEVER, they can only be used with IRAs (yours or inherited ones), not 403(b)'s.

That's an argument for shifting some 403(b) dollars into trad IRAs.

2. Your GSRA is a 403(b). You didn't say, but perhaps your other holding of (RA or GRA?) Traditional is also in a 403(b). In that case, tax law allows using one 403(b) account to meet the RMDs of another 403(b) account. So once RMDs kick in, it would make sense to drain the GSRA first, and let the other 403(b) continue to grow and participate in possible rate hikes.

That's an argument for keeping some 403(b) dollars where they are.
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Re: TIAA Traditional at 3% or Fidelity TIPS Fund FIPDX?

Post by crefwatch »

CloseEnough wrote: Tue Jul 19, 2022 7:33 am
crefwatch wrote: Tue Jul 19, 2022 7:08 am

Your OP shows that you understand that ANY bond fund has principal risk. TIAA Traditional does not.
Is this really true? While the principal risk may be low on TIAA Traditional, I would think it still is subject to risk. Why is there no principal risk with TIAA Traditional?
Alas, I forgot for a moment that I was posting at ... ... Bogleheads ... and not at the TIAA section of Morningstar. I should have allowed for the astronomically small (but, nominally, non-zero) chance that an A++ rated insurance company, exclusively in the Retirement business for 100 years, and which averted a 1930's danger of not honoring an (outdated, today) over-3% guarantee, could possibly go belly-up.

If TIAA fails, you are going to be having more serious problems than the TIAA Traditional guaranteed rate. My thanks for the post that there is a microscopically small (but, nominally, non-zero) chance that a Treasury fund could fail to deliver! And my main point was [virtually] zero Interest Rate Risk to principal, not [microscopically] tiny Credit Risk to Principal. Since the OP is considering switching from a fund that promises no decrease in principal to a fund that is certain to follow prevailing interest rates and bond values, that is the real issue, not TEOTWAWKI.
Topic Author
JustAnotherProf
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Re: TIAA Traditional at 3% or Fidelity TIPS Fund FIPDX?

Post by JustAnotherProf »

tibbitts wrote: Tue Jul 19, 2022 12:02 am
JustAnotherProf wrote: Mon Jul 18, 2022 10:29 pm Now to our problem. I just learned that a large TIAA GSRA 403(b) account of ours that is invested in TIAA Traditional will pay exactly 3% (the minimum guarantee rate) perpetually because of contractual plan changes with the university from which I retired. It will not participate in interest rate increases. I am not happy about that, but it’s not my question. That account is about 30% of my total portfolio, I have another 30% in TIAA Traditional which participates in rate changes and we will keep, and then 10% in an IRA at Fidelity which holds their FIPDX TIPS fund also to be kept.
That's an interesting situation. My plan still allows for rate changes and new contributions pay more than the 3% my recent (2020/2021) contributions do, but I'm a little worried that something bad may happen if I pull out for the 120 days required before I can replace the funds at the higher rate.

For me I might move $150k from the fixed 3% account to TIAA Real Estate if an allowed option and I didn't already have any, then move at most half of the amount left in the fixed 3% to somewhere else.
I checked on their site. The only investment options for that account are TIAA Traditional paying 3.0% (although showing 4.5%), CREF Stock and MMs. No TREA. Moving half is certainly an option. I'd move it to add to the Fidelity TIPS fund. Is that your idea, too?
Topic Author
JustAnotherProf
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Re: TIAA Traditional at 3% or Fidelity TIPS Fund FIPDX?

Post by JustAnotherProf »

anonenigma wrote: Tue Jul 19, 2022 1:09 am Can you move funds from one account to the other? I did this - had TIAA Traditional in a 457(b) and a 403(b). After I retired I moved the money from the 457(b) into the 403(b). I saved the 457(b) plan charge (22 bp), and the TIAA Traditional was paying 25 bp more in the 403(b).
I'll look into that. The restricted account is a 403(b) GSRA. My other accounts are a 401(a) GRA, a 401(a) RA, and a 403(b) RA. I have no idea what TIAA will let me do in terms of transfers. Thank you for the suggestion.
Topic Author
JustAnotherProf
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Re: TIAA Traditional at 3% or Fidelity TIPS Fund FIPDX?

Post by JustAnotherProf »

JohnDoh wrote: Tue Jul 19, 2022 3:02 am 1) If you want TIPS and low volatility, you might consider a short-term TIPS fund such as VTIP. It's an ETF and can be held at any brokerage, including Fidelity IRA.

2) TIPS losses YTD are due to recent rapid rises in interest rates. Will that continue? Who knows? But there is a natural cap to real interest rates, unlike for nominal rates for which the sky is the limit. So there is some downside protection.

3) FWIW, TIPSwatch in a post of 7/13/22 (https://tipswatch.com/2022/07/13/june-i ... over-year/) said :
My conclusion: Take advantage of attractive short-term rates (about 2.2% on a 13-week Treasury) and continue to lock in attractive real yields on TIPS. Yes, rates are likely to go higher, but there is always the threat of the Fed backing off and intervening in a weakening economy. We’ve seen it before.
4) If it were me, I'd probably go VTIP. The only real downside is if real interest rates go negative again at some point in the future. Then what do you do? TIAA TRAD was great for that. But, once out you can never go back. It's a risk. OTOH, perhaps TRAD was the solution for the last 10+ years but isn't going to be for the next 10+ years. One needs a certain mental/emotional agility, I think.

P.S. There is a Vanguard white paper on the superiority of short-term TIPS. I don't have the reference offhand, but it's been a topic of conversation here (including recently). Some folks disagree with Vanguard's conclusion. I tend to agree with it. You can also check out the logic behind DFA's target date funds that (almost uniquely) use TIPS heavily in retirement (https://us.dimensional.com/target-date- ... come-funds).
I'm assuming that I can never get back into this particular TIAA account, not that it offers much, yet I am reluctant to pull the trigger. There may be a few years here where there is a negative real return but I've been in TIAA Traditional since 1984 and it's hard to beat for me for the fixed side.

I chose the intermediate TIPS fund with the idea that for the purposes of RMD use it represented a reasonable time match. Also it's a Fidelity fund where I have all our non-TIAA investments. Of course, I could still buy a short-term TIPS fund there. If I decide ultimately to move money, I'll think about the TIPS duration again.

Thank you for the ideas and resources.
Topic Author
JustAnotherProf
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Re: TIAA Traditional at 3% or Fidelity TIPS Fund FIPDX?

Post by JustAnotherProf »

crefwatch wrote: Tue Jul 19, 2022 7:08 am
JustAnotherProf wrote: Mon Jul 18, 2022 10:29 pm I am retired and my RMDs start in 2024. I have a younger wife, not working, who will be doing RMDs too someday on the inherited accounts. Inheritance to the kids is secondary and they don’t need our money, anyway. Most of the RMDs will just build a taxable account. I don’t see us changing our lifestyle to use them.

Now to our problem. I just learned that a large TIAA GSRA 403(b) account of ours that is invested in TIAA Traditional will pay exactly 3% (the minimum guarantee rate) perpetually because of contractual plan changes with the university from which I retired. It will not participate in interest rate increases.
This is such an unusual statement that I urge you to make certain that your understanding is correct. It would be helpful if you could quote from the announcement, keeping whatever degree of privacy you prefer about the name of the institution. I'm simply suggesting that you might have misunderstood a word like "frozen" or "closed" to cover rates as well as principal. (In my case, the word "frozen" meant "against new additions", not that money could not be removed from that TIAA Traditional option. But it is true that my "old" IRA has not paid more than the 3% Minimum since they lowered the "new" Minimum to 1% - for ALL old-IRA holders.) It would also help if you could quote a statement that names ("RC/RCP" is one possible answer) the NEW plan at the school.

This is the current GSRA Fact Sheet:
https://www.tiaa.org/public/investment- ... r=47933632

You have made it clear that neither you nor your wife will be annuitizing ANY of this GSRA money, so the Payout table at the end of this Fact Sheet does not have any influence (?) on a potential decision to move out of the plan. You haven't mentioned if you care about potential withdrawal restrictions on many kinds of TIAA Traditional, although you indicate that you are buy-and-hold investors. "we prefer low volatility." To move on to your actual question:

Your OP shows that you understand that ANY bond fund has principal risk. TIAA Traditional does not. By my reading of your OP, you are not giving enough weight to that MAJOR difference. I would add that TIPS funds don't operate or behave precisely like ordinary bond funds, and may be unnerving or unsatisfactory to you. In your place, I would stay with the old TIAA Traditional plan. But you haven't told us enough about the "new" TIAA option.

You may also wish to check whether 403(b) account payouts are taxed differently in your state from IRAs, or if they have different lawsuit protection.
It wasn't an announcement per se. When I saw the new annual rates online, I noticed that account's interest rate was not changed. I called TIAA directly. The representative did "background research" and found some type of "decision note" that the interest rate will be kept at 3.0% (which it has, in spite of the Fact Sheet) for that plan at Arizona State University. I asked why they hadn't informed me. I asked what I could do. No answer. I will ask again.

I love my TIAA Traditional at 4.55% and climbing including the option to annuitize part some time in the future (I have built up amazing rates). Not the frozen account at 3.00% forever as much, however. I agree with you that a bird in the hand is worth two in the bush in terms of principal risk, but there is so much discussion here about using TIPS (individual or funds) for much or all of the fixed income side, that I felt we needed a reading on our situation. As I noted in my post, we hold 10% of our portfolio in Fidelity's Intermediate TIPS fund. The losses are not, of course, like the stock side, but that experience is part of why I'm here.

Really appreciate your help.
Topic Author
JustAnotherProf
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Re: TIAA Traditional at 3% or Fidelity TIPS Fund FIPDX?

Post by JustAnotherProf »

House Blend wrote: Tue Jul 19, 2022 8:45 am
JustAnotherProf wrote: Mon Jul 18, 2022 10:29 pm Would you rather hold TIAA Traditional at 3% fixed or the Fidelity TIPS Fund FIPDX for, say, the next 30 years while taking RMDs?
Because you have accumulated far more than you need, I think it won't matter either way. Do whatever you are most comfortable with.

That said, two considerations:

1. Those who have far more than they need should be factoring QCD's (qualified charitable distributions) into their planning. You are eligible once you reach
age 70.5, and they can be used to meet RMDs once those kick in.

HOWEVER, they can only be used with IRAs (yours or inherited ones), not 403(b)'s.

That's an argument for shifting some 403(b) dollars into trad IRAs.

2. Your GSRA is a 403(b). You didn't say, but perhaps your other holding of (RA or GRA?) Traditional is also in a 403(b). In that case, tax law allows using one 403(b) account to meet the RMDs of another 403(b) account. So once RMDs kick in, it would make sense to drain the GSRA first, and let the other 403(b) continue to grow and participate in possible rate hikes.

That's an argument for keeping some 403(b) dollars where they are.
1. We plan to use our existing Fidelity IRA for QCDs both for the giving and the control of top end tax bracket. Of course, if we were to roll more in there, it would make more available down the road.
2. Sadly, our other TIAA 403(b) is tiny compared to the 3% fixed account (where we are talking seven figures), but draining one first is a good idea.

Thank you for taking the time to bring up these ideas.
tibbitts
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Re: TIAA Traditional at 3% or Fidelity TIPS Fund FIPDX?

Post by tibbitts »

JustAnotherProf wrote: Tue Jul 19, 2022 9:25 am
tibbitts wrote: Tue Jul 19, 2022 12:02 am
JustAnotherProf wrote: Mon Jul 18, 2022 10:29 pm Now to our problem. I just learned that a large TIAA GSRA 403(b) account of ours that is invested in TIAA Traditional will pay exactly 3% (the minimum guarantee rate) perpetually because of contractual plan changes with the university from which I retired. It will not participate in interest rate increases. I am not happy about that, but it’s not my question. That account is about 30% of my total portfolio, I have another 30% in TIAA Traditional which participates in rate changes and we will keep, and then 10% in an IRA at Fidelity which holds their FIPDX TIPS fund also to be kept.
That's an interesting situation. My plan still allows for rate changes and new contributions pay more than the 3% my recent (2020/2021) contributions do, but I'm a little worried that something bad may happen if I pull out for the 120 days required before I can replace the funds at the higher rate.

For me I might move $150k from the fixed 3% account to TIAA Real Estate if an allowed option and I didn't already have any, then move at most half of the amount left in the fixed 3% to somewhere else.
I checked on their site. The only investment options for that account are TIAA Traditional paying 3.0% (although showing 4.5%), CREF Stock and MMs. No TREA. Moving half is certainly an option. I'd move it to add to the Fidelity TIPS fund. Is that your idea, too?
Wow that is a very restrictive account - it sounds like TIAA and/or your employer is trying to get rid of it. Yes, with only those options I might take out half for now, and maybe divide that half into partly a short and partly an intermediate TIPS fund.
tibbitts
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Re: TIAA Traditional at 3% or Fidelity TIPS Fund FIPDX?

Post by tibbitts »

JustAnotherProf wrote: Tue Jul 19, 2022 9:59 am I love my TIAA Traditional at 4.55% and climbing including the option to annuitize part some time in the future (I have built up amazing rates). Not the frozen account at 3.00% forever as much, however. I agree with you that a bird in the hand is worth two in the bush in terms of principal risk, but there is so much discussion here about using TIPS (individual or funds) for much or all of the fixed income side, that I felt we needed a reading on our situation. As I noted in my post, we hold 10% of our portfolio in Fidelity's Intermediate TIPS fund. The losses are not, of course, like the stock side, but that experience is part of why I'm here.
In fairness there has been almost zero discussion here about TIPS for all or even much of fixed income, at least until very recently. Like with the "why not 100% stocks???" discussions, many of us do tend to react more to which way the wind is blowing than we'd like to admit.
CloseEnough
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Re: TIAA Traditional at 3% or Fidelity TIPS Fund FIPDX?

Post by CloseEnough »

crefwatch wrote: Tue Jul 19, 2022 8:52 am
CloseEnough wrote: Tue Jul 19, 2022 7:33 am
crefwatch wrote: Tue Jul 19, 2022 7:08 am

Your OP shows that you understand that ANY bond fund has principal risk. TIAA Traditional does not.
Is this really true? While the principal risk may be low on TIAA Traditional, I would think it still is subject to risk. Why is there no principal risk with TIAA Traditional?
Alas, I forgot for a moment that I was posting at ... ... Bogleheads ... and not at the TIAA section of Morningstar. I should have allowed for the astronomically small (but, nominally, non-zero) chance that an A++ rated insurance company, exclusively in the Retirement business for 100 years, and which averted a 1930's danger of not honoring an (outdated, today) over-3% guarantee, could possibly go belly-up.

If TIAA fails, you are going to be having more serious problems than the TIAA Traditional guaranteed rate. My thanks for the post that there is a microscopically small (but, nominally, non-zero) chance that a Treasury fund could fail to deliver! And my main point was [virtually] zero Interest Rate Risk to principal, not [microscopically] tiny Credit Risk to Principal. Since the OP is considering switching from a fund that promises no decrease in principal to a fund that is certain to follow prevailing interest rates and bond values, that is the real issue, not TEOTWAWKI.
Well it was not that long ago that the largest insurance company in the world, with a AAA rating, also in business for 100 years, went bankrupt (and only survived with a government bailout, of which there may not be in the future). You can make all the arguments you want about how it is a small risk, virtually not worth mentioning, all I was doing was reading what you said, and asking whether it was true (it was not). I totally agree, btw, that the risk is so small as to perhaps not be a consideration (I am in TIAA Traditional, part of the reason for my question). I think the principal risk, over the long-haul, in a large core index bond fund is also small. Perhaps the bond fund has more risk than TIAA Traditional on that accord, but to me, not so much as you suggest to be a major factor in investment decisions.

The "astronomically" small chance that TIAA could go belly-up is enough reason for me to not have all my fixed income allocation in it. If the risk was zero, I would.
Last edited by CloseEnough on Tue Jul 19, 2022 10:48 am, edited 1 time in total.
Topic Author
JustAnotherProf
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Re: TIAA Traditional at 3% or Fidelity TIPS Fund FIPDX?

Post by JustAnotherProf »

tibbitts wrote: Tue Jul 19, 2022 8:12 am I wonder if locking the rate at 3% is a (new?) method TIAA might employ to encourage an institution to move to alternative plans that don't have the minimum 3% guarantee.
I got the impression that this type of account had just been left behind when Arizona State moved to new providers. It is actually labelled as an "Arizona University Voluntary 403(b)". My other TIAA accounts are named an "Arizona Board of Regents Optional Retirement Plan" whether 403(b) or 401(a). All of the latter are seeing rising crediting interest rates, but not the former. All of the plans have retained the guarantee minimum.

If TIAA is indeed trying anything, it seems that ASU is not fighting back. Your question does make me think that I need to contact ASU also about this situation and not just TIAA. Thanks!
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Re: TIAA Traditional at 3% or Fidelity TIPS Fund FIPDX?

Post by Garco »

I invested in TIAA and Trad for 39 years before I retired. The ins and outs of Trad were always difficult to assess. I was also concerned that both my spouse and my children would have to deal with those issues. I chose to solve the problem by eliminating it over time. I have been taking a TPA of the Trad funds within the account, reinvesting the annual returns in other funds (fixed income and equity funds) within my plan. In a couple more years, my Trad will be gone, and the "inheritors" of the 403b will have a nice sum and mix of investments -- but without the complexity of Trad to deal with. Of course, I am also taking RMD's from the plan, but the value of my 403b today far exceeds the nominal value when I retired.
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Re: TIAA Traditional at 3% or Fidelity TIPS Fund FIPDX?

Post by JustAnotherProf »

tibbitts wrote: Tue Jul 19, 2022 10:15 am
JustAnotherProf wrote: Tue Jul 19, 2022 9:59 am I love my TIAA Traditional at 4.55% and climbing including the option to annuitize part some time in the future (I have built up amazing rates). Not the frozen account at 3.00% forever as much, however. I agree with you that a bird in the hand is worth two in the bush in terms of principal risk, but there is so much discussion here about using TIPS (individual or funds) for much or all of the fixed income side, that I felt we needed a reading on our situation. As I noted in my post, we hold 10% of our portfolio in Fidelity's Intermediate TIPS fund. The losses are not, of course, like the stock side, but that experience is part of why I'm here.
In fairness there has been almost zero discussion here about TIPS for all or even much of fixed income, at least until very recently. Like with the "why not 100% stocks???" discussions, many of us do tend to react more to which way the wind is blowing than we'd like to admit.
My fault. Not my place to characterize the forum. Shouldn't have said "so much discussion".

The issue is how to deal with inflation, certainly, and not the vehicle, but I need to know what to do. If things stay the way they are with my interest-rate-fixed fund at 3%, I don't know if that is enough yield to hedge against inflation. So far, the folks who have chimed in on that suggest no more than half be moved out and I should look into shorter TIPS durations. That's helpful, if complicated.
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Re: TIAA Traditional at 3% or Fidelity TIPS Fund FIPDX?

Post by JustAnotherProf »

Garco wrote: Tue Jul 19, 2022 10:32 am I invested in TIAA and Trad for 39 years before I retired. The ins and outs of Trad were always difficult to assess. I was also concerned that both my spouse and my children would have to deal with those issues. I chose to solve the problem by eliminating it over time. I have been taking a TPA of the Trad funds within the account, reinvesting the annual returns in other funds (fixed income and equity funds) within my plan. In a couple more years, my Trad will be gone, and the "inheritors" of the 403b will have a nice sum and mix of investments -- but without the complexity of Trad to deal with. Of course, I am also taking RMD's from the plan, but the value of my 403b today far exceeds the nominal value when I retired.
May I ask what fixed income funds you chose over TIAA Traditional? Not that my 3% forever account has any such options, but if I were to move it within TIAA/CREF, I'd like to know your thoughts on the fixed side in terms of alternative funds. As you read, I have thought of moving outside TIAA/CREF altogether.
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Re: TIAA Traditional at 3% or Fidelity TIPS Fund FIPDX?

Post by student »

JustAnotherProf wrote: Tue Jul 19, 2022 9:59 am It wasn't an announcement per se. When I saw the new annual rates online, I noticed that account's interest rate was not changed. I called TIAA directly. The representative did "background research" and found some type of "decision note" that the interest rate will be kept at 3.0% (which it has, in spite of the Fact Sheet) for that plan at Arizona State University. I asked why they hadn't informed me. I asked what I could do. No answer. I will ask again.
This is interesting. Often a university has an assigned TIAA representative. I work at a much smaller university and we have one so I would imagine ASU has one too. So I suggest contacting the benefits office and ask whether ASU has an assigned TIAA representative. This person should have more accurate info.
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Re: TIAA Traditional at 3% or Fidelity TIPS Fund FIPDX?

Post by JustAnotherProf »

student wrote: Tue Jul 19, 2022 11:02 am
JustAnotherProf wrote: Tue Jul 19, 2022 9:59 am It wasn't an announcement per se. When I saw the new annual rates online, I noticed that account's interest rate was not changed. I called TIAA directly. The representative did "background research" and found some type of "decision note" that the interest rate will be kept at 3.0% (which it has, in spite of the Fact Sheet) for that plan at Arizona State University. I asked why they hadn't informed me. I asked what I could do. No answer. I will ask again.
This is interesting. Often a university has an assigned TIAA representative. I work at a much smaller university and we have one so I would imagine ASU has one too. So I suggest contacting the benefits office and ask whether ASU has an assigned TIAA representative. This person should have more accurate info.
Right after I contact TIAA again, I will do that. Thanks for "assigned TIAA representative". Great way to work my way through HR asking.
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Re: TIAA Traditional at 3% or Fidelity TIPS Fund FIPDX?

Post by ResearchMed »

JustAnotherProf wrote: Tue Jul 19, 2022 10:19 am
tibbitts wrote: Tue Jul 19, 2022 8:12 am I wonder if locking the rate at 3% is a (new?) method TIAA might employ to encourage an institution to move to alternative plans that don't have the minimum 3% guarantee.
I got the impression that this type of account had just been left behind when Arizona State moved to new providers. It is actually labelled as an "Arizona University Voluntary 403(b)". My other TIAA accounts are named an "Arizona Board of Regents Optional Retirement Plan" whether 403(b) or 401(a). All of the latter are seeing rising crediting interest rates, but not the former. All of the plans have retained the guarantee minimum.

If TIAA is indeed trying anything, it seems that ASU is not fighting back. Your question does make me think that I need to contact ASU also about this situation and not just TIAA. Thanks!

More than 10 years ago, our entire 403b plan moved from TIAA, and only the Trad Ann and some CREF funds were left behind. I was told it was because those contractual agreements were with the investor (rather than with the Employer), so they couldn't be forced to map into something elsewhere; the illiquid Trad Ann couldn't "move" anyway.
[The entire 403b plan moved back to TIAA a couple of years ago anyway...!]

Anyway, although they could restrict the terms of *new* money into that TIAA plan, can they really alter the terms of those types of existing accounts/contracts?

RM
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Re: TIAA Traditional at 3% or Fidelity TIPS Fund FIPDX?

Post by JustAnotherProf »

ResearchMed wrote: Tue Jul 19, 2022 12:53 pm
JustAnotherProf wrote: Tue Jul 19, 2022 10:19 am
tibbitts wrote: Tue Jul 19, 2022 8:12 am I wonder if locking the rate at 3% is a (new?) method TIAA might employ to encourage an institution to move to alternative plans that don't have the minimum 3% guarantee.
I got the impression that this type of account had just been left behind when Arizona State moved to new providers. It is actually labelled as an "Arizona University Voluntary 403(b)". My other TIAA accounts are named an "Arizona Board of Regents Optional Retirement Plan" whether 403(b) or 401(a). All of the latter are seeing rising crediting interest rates, but not the former. All of the plans have retained the guarantee minimum.

If TIAA is indeed trying anything, it seems that ASU is not fighting back. Your question does make me think that I need to contact ASU also about this situation and not just TIAA. Thanks!
More than 10 years ago, our entire 403b plan moved from TIAA, and only the Trad Ann and some CREF funds were left behind. I was told it was because those contractual agreements were with the investor (rather than with the Employer), so they couldn't be forced to map into something elsewhere; the illiquid Trad Ann couldn't "move" anyway.
[The entire 403b plan moved back to TIAA a couple of years ago anyway...!]

Anyway, although they could restrict the terms of *new* money into that TIAA plan, can they really alter the terms of those types of existing accounts/contracts?

RM
Just finished almost two hours on the phone with TIAA. Worked my way through two different representatives to actually get my questions answered. You ask a key question so let me please put my update here.
1. The original representative (not today's) was wrong (I am being generous there). There is no "special rule" on the ASU plan. There is nothing to document and ASU's assigned TIAA representative would have heard nothing.
2. My rate of 3% is the correct rate for when I put the funds in. Just unlucky enough to pick the lowest time bin in history.
3. The rate on the Fact sheet applies only to new money. This works in two ways (this is for the other TRAD owners out there):
3a. Contribution in a time window from your paycheck and employer matching earns that rate.
3b. Income in a time window earns the current rate only for the additional amount (percent above the minimum). The rest stays in the bucket when it was contributed.
Therefore, all my money will earn 3% forever unless TIAA adds some additional amount for the March 2020 window when I transferred to that account.
4. No, I cannot move my TIAA GSRA to my TIAA RA even though they are both 403(b) plans.
5. No, I cannot use the TIAA Retirement Choice Plan's not-bad stable value fund as representative #1 today suggested. That transfer has to be explicitly set up by my university (which has not).
6. They would be happy to hook me up with an advisor who could discuss things with me.

Two options left - my original question in the title of this stream and the 120 Day Rule (which I brought up - not volunteered by either representative). Since it is a GSRA, I have no 10 year rule to worry about and two of the whopping four investment options in that account are money market funds. The Vanguard MM fund is not bad. Although this whole thing has soured me on TIAA, I'm looking into that. Giving up 4 months of interest difference to move from 3.0% to 4.5% at TIAA with no principal volatility and very little credit risk. Or that TIPS fund ...

Thank you everyone for input so far. I may have missed some folks but tried to hit all the issues.
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Re: TIAA Traditional at 3% or Fidelity TIPS Fund FIPDX?

Post by student »

JustAnotherProf wrote: Tue Jul 19, 2022 2:18 pm
ResearchMed wrote: Tue Jul 19, 2022 12:53 pm
JustAnotherProf wrote: Tue Jul 19, 2022 10:19 am
tibbitts wrote: Tue Jul 19, 2022 8:12 am I wonder if locking the rate at 3% is a (new?) method TIAA might employ to encourage an institution to move to alternative plans that don't have the minimum 3% guarantee.
I got the impression that this type of account had just been left behind when Arizona State moved to new providers. It is actually labelled as an "Arizona University Voluntary 403(b)". My other TIAA accounts are named an "Arizona Board of Regents Optional Retirement Plan" whether 403(b) or 401(a). All of the latter are seeing rising crediting interest rates, but not the former. All of the plans have retained the guarantee minimum.

If TIAA is indeed trying anything, it seems that ASU is not fighting back. Your question does make me think that I need to contact ASU also about this situation and not just TIAA. Thanks!
More than 10 years ago, our entire 403b plan moved from TIAA, and only the Trad Ann and some CREF funds were left behind. I was told it was because those contractual agreements were with the investor (rather than with the Employer), so they couldn't be forced to map into something elsewhere; the illiquid Trad Ann couldn't "move" anyway.
[The entire 403b plan moved back to TIAA a couple of years ago anyway...!]

Anyway, although they could restrict the terms of *new* money into that TIAA plan, can they really alter the terms of those types of existing accounts/contracts?

RM
Just finished almost two hours on the phone with TIAA. Worked my way through two different representatives to actually get my questions answered. You ask a key question so let me please put my update here.
1. The original representative (not today's) was wrong (I am being generous there). There is no "special rule" on the ASU plan. There is nothing to document and ASU's assigned TIAA representative would have heard nothing.
2. My rate of 3% is the correct rate for when I put the funds in. Just unlucky enough to pick the lowest time bin in history.
3. The rate on the Fact sheet applies only to new money. This works in two ways (this is for the other TRAD owners out there):
3a. Contribution in a time window from your paycheck and employer matching earns that rate.
3b. Income in a time window earns the current rate only for the additional amount (percent above the minimum). The rest stays in the bucket when it was contributed.
Therefore, all my money will earn 3% forever unless TIAA adds some additional amount for the March 2020 window when I transferred to that account.
4. No, I cannot move my TIAA GSRA to my TIAA RA even though they are both 403(b) plans.
5. No, I cannot use the TIAA Retirement Choice Plan's not-bad stable value fund as representative #1 today suggested. That transfer has to be explicitly set up by my university (which has not).
6. They would be happy to hook me up with an advisor who could discuss things with me.

Two options left - my original question in the title of this stream and the 120 Day Rule (which I brought up - not volunteered by either representative). Since it is a GSRA, I have no 10 year rule to worry about and two of the whopping four investment options in that account are money market funds. The Vanguard MM fund is not bad. Although this whole thing has soured me on TIAA, I'm looking into that. Giving up 4 months of interest difference to move from 3.0% to 4.5% at TIAA with no principal volatility and very little credit risk. Or that TIPS fund ...

Thank you everyone for input so far. I may have missed some folks but tried to hit all the issues.
It is good that you got things sorted out. I guess you got caught in the vintage system. The only vintage that is earning 3% is 2020-2021 https://www.tiaa.org/public/investment- ... r=47933633

Overall, I think TIAA is fine once you understand the rule. Of course, the first representative who gave you the incorrect information is a different story.
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Re: TIAA Traditional at 3% or Fidelity TIPS Fund FIPDX?

Post by tibbitts »

JustAnotherProf wrote: Tue Jul 19, 2022 2:18 pm Two options left - my original question in the title of this stream and the 120 Day Rule (which I brought up - not volunteered by either representative). Since it is a GSRA, I have no 10 year rule to worry about and two of the whopping four investment options in that account are money market funds. The Vanguard MM fund is not bad. Although this whole thing has soured me on TIAA, I'm looking into that. Giving up 4 months of interest difference to move from 3.0% to 4.5% at TIAA with no principal volatility and very little credit risk. Or that TIPS fund ...
I've got that vintage too and probably should have done my 120 thing already, although it's annoying to have only the .4% R1 money market as an alternative. I'll probably do it this week. Given that's what you have available there zero reason to look at the TIPS alternative because my understanding is you already have TIPS elsewhere, although the thread has gone on long enough that I've lost track.
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Re: TIAA Traditional at 3% or Fidelity TIPS Fund FIPDX?

Post by anonenigma »

[/quote]

Just finished almost two hours on the phone with TIAA. Worked my way through two different representatives to actually get my questions answered. You ask a key question so let me please put my update here.

4. No, I cannot move my TIAA GSRA to my TIAA RA even though they are both 403(b) plans.

[/quote]

Sorry to hear that. My 403(b) is a GSRA with full liquidity and the 3% minimum guarantee. My 457(b) was a little more complicated because my district changed plan providers - from TIAA to Voya - when TIAA decided not to bid to renew its contract. The only investment lineup change was from TIAA Traditional to Voya's stable value fund. We were permitted to keep accumulated funds in TIAA Traditional but new contributions could only go into the Voya stable value fund.

As I mentioned in my earlier response, after I retired I decided to transfer assets from the 457(b) to the 403(b). The TIAA Traditional funds transferred immediately. Unfortunately, TIAA messed up the transfer from Voya (used TIAA's form, not Voya's - they never thought to ask), and by the time the funds transferred, the rate on new deposits to TIAA Trad had gone down 25 bp. Bummer.

I'd ask the again just to be sure the person you spoke with today was correct.
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Re: TIAA Traditional at 3% or Fidelity TIPS Fund FIPDX?

Post by JustAnotherProf »

tibbitts wrote: Tue Jul 19, 2022 3:06 pm
JustAnotherProf wrote: Tue Jul 19, 2022 2:18 pm Two options left - my original question in the title of this stream and the 120 Day Rule (which I brought up - not volunteered by either representative). Since it is a GSRA, I have no 10 year rule to worry about and two of the whopping four investment options in that account are money market funds. The Vanguard MM fund is not bad. Although this whole thing has soured me on TIAA, I'm looking into that. Giving up 4 months of interest difference to move from 3.0% to 4.5% at TIAA with no principal volatility and very little credit risk. Or that TIPS fund ...
I've got that vintage too and probably should have done my 120 thing already, although it's annoying to have only the .4% R1 money market as an alternative. I'll probably do it this week. Given that's what you have available there zero reason to look at the TIPS alternative because my understanding is you already have TIPS elsewhere, although the thread has gone on long enough that I've lost track.
So, for that vintage, we lose about 3/365*120 = 1% with some help, though, from the MM fund in the 120 days. Gaining 1.5% in yield (the current spread), it will take us no more than 1/1.5*12 = 8 months to make it back. So a little less than a year to move from 3.0% to 4.5% in a AAA stable value fund with no early withdrawal penalty. I guess this flexibility is why we get typically 0.75% lower yield. Furthermore, that extra 1.5% yield will throw off income that will be filled in later (perhaps higher) vintages. It's the path I think I'll take, too, particularly given the relative lack of enthusiasm for a TIPS fund as the alternative. Leaving my 10% stake there.

Let me thank you particularly for how much time you put into my meandering here. And everybody else. Appreciate it.
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Re: TIAA Traditional at 3% or Fidelity TIPS Fund FIPDX?

Post by JustAnotherProf »

anonenigma wrote: Tue Jul 19, 2022 3:07 pm
Just finished almost two hours on the phone with TIAA. Worked my way through two different representatives to actually get my questions answered. You ask a key question so let me please put my update here.

4. No, I cannot move my TIAA GSRA to my TIAA RA even though they are both 403(b) plans.

[/quote]

Sorry to hear that. My 403(b) is a GSRA with full liquidity and the 3% minimum guarantee. My 457(b) was a little more complicated because my district changed plan providers - from TIAA to Voya - when TIAA decided not to bid to renew its contract. The only investment lineup change was from TIAA Traditional to Voya's stable value fund. We were permitted to keep accumulated funds in TIAA Traditional but new contributions could only go into the Voya stable value fund.

As I mentioned in my earlier response, after I retired I decided to transfer assets from the 457(b) to the 403(b). The TIAA Traditional funds transferred immediately. Unfortunately, TIAA messed up the transfer from Voya (used TIAA's form, not Voya's - they never thought to ask), and by the time the funds transferred, the rate on new deposits to TIAA Trad had gone down 25 bp. Bummer.

I'd ask the again just to be sure the person you spoke with today was correct.
[/quote]

You're a wise man. That's one of the reasons I spoke to two different TIAA representatives today. To verify the options (none). Too bad you missed the higher rate vintage. Time for me to take my shot.
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Re: TIAA Traditional at 3% or Fidelity TIPS Fund FIPDX?

Post by tibbitts »

JustAnotherProf wrote: Tue Jul 19, 2022 3:46 pm You're a wise man. That's one of the reasons I spoke to two different TIAA representatives today. To verify the options (none). Too bad you missed the higher rate vintage. Time for me to take my shot.
That's a good point, given the complexity of TIAA. I called TIAA just now to confirm there would be no issues moving to the money market and back after 120 days but I'm going to talk to another rep on Wednesday just to confirm the terms, given my exact situation and contracts, and probably move then.
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Re: TIAA Traditional at 3% or Fidelity TIPS Fund FIPDX?

Post by McQ »

JustAnotherProf wrote: Tue Jul 19, 2022 2:18 pm ...
2. My rate of 3% is the correct rate for when I put the funds in. Just unlucky enough to pick the lowest time bin in history.
3. The rate on the Fact sheet applies only to new money. This works in two ways (this is for the other TRAD owners out there):
3a. Contribution in a time window from your paycheck and employer matching earns that rate.
3b. Income in a time window earns the current rate only for the additional amount (percent above the minimum). The rest stays in the bucket when it was contributed.
Therefore, all my money will earn 3% forever unless TIAA adds some additional amount for the March 2020 window when I transferred to that account.
...
Kudos on one of the more concise (and to my eye accurate) explanations of TIAA's peculiar vintage system.

FWIW, I have buckets going back to 1998. I've monitored changes in the crediting rate for the last dozen years or so. Here is my prediction:

The money in that account will NOT "earn 3% forever." By 2025 the rate will be higher. It may not ever be as high as what you could have got with more favorable timing, but it will be higher.

Rationale: as buckets get older the crediting rate changes in a relatively predictable way with the movement of interest rates. My 1998 RA bucket initially earned 8%; that was down to 3+% by last year. Other SRA buckets dating to 2012, when crediting rates first plummeted, had rates that at first rose and then fell back.

What will more specifically happen in your case is that 2020 will get merged with 2019 and 2021, and maybe later, with 2018 & 2022 & 2023. A single crediting rate will apply to the merged bucket, and it will be 3.25%, 3.50%, maybe more by 2028 or so, depending on how the current Fed tightening and its aftermath play out, and how well TIAA did on its yield curve management circa 2020.

This prediction will fail if the Fed gets spooked in the next few months and rapidly cuts rates back to the floor seen in 2020. Since inflation seems unlikely to go away so easily, then you might be better off in TIPS of some kind.
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Re: TIAA Traditional at 3% or Fidelity TIPS Fund FIPDX?

Post by tibbitts »

McQ wrote: Tue Jul 19, 2022 4:13 pm
JustAnotherProf wrote: Tue Jul 19, 2022 2:18 pm ...
2. My rate of 3% is the correct rate for when I put the funds in. Just unlucky enough to pick the lowest time bin in history.
3. The rate on the Fact sheet applies only to new money. This works in two ways (this is for the other TRAD owners out there):
3a. Contribution in a time window from your paycheck and employer matching earns that rate.
3b. Income in a time window earns the current rate only for the additional amount (percent above the minimum). The rest stays in the bucket when it was contributed.
Therefore, all my money will earn 3% forever unless TIAA adds some additional amount for the March 2020 window when I transferred to that account.
...
Kudos on one of the more concise (and to my eye accurate) explanations of TIAA's peculiar vintage system.

FWIW, I have buckets going back to 1998. I've monitored changes in the crediting rate for the last dozen years or so. Here is my prediction:

The money in that account will NOT "earn 3% forever." By 2025 the rate will be higher. It may not ever be as high as what you could have got with more favorable timing, but it will be higher.

Rationale: as buckets get older the crediting rate changes in a relatively predictable way with the movement of interest rates. My 1998 RA bucket initially earned 8%; that was down to 3+% by last year. Other SRA buckets dating to 2012, when crediting rates first plummeted, had rates that at first rose and then fell back.

What will more specifically happen in your case is that 2020 will get merged with 2019 and 2021, and maybe later, with 2018 & 2022 & 2023. A single crediting rate will apply to the merged bucket, and it will be 3.25%, 3.50%, maybe more by 2028 or so, depending on how the current Fed tightening and its aftermath play out, and how well TIAA did on its yield curve management circa 2020.

This prediction will fail if the Fed gets spooked in the next few months and rapidly cuts rates back to the floor seen in 2020. Since inflation seems unlikely to go away so easily, then you might be better off in TIPS of some kind.
And that's what makes timing difficult. You can't hedge your bets by "DCAing" your rate adjustment strategy due to how TIAA pulls from all vintages when doing transfers. The 120-day earnings hit of nearly 1% (not annualized, actually 1%) is more or less baked in once you move, but you almost surely won't get the 1.5% (even assuming it's still 1.5% after the 120 days) spread after that forever. Maybe a year, three, five... but almost surely not forever.
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Re: TIAA Traditional at 3% or Fidelity TIPS Fund FIPDX?

Post by JustAnotherProf »

McQ wrote: Tue Jul 19, 2022 4:13 pm
JustAnotherProf wrote: Tue Jul 19, 2022 2:18 pm ...
2. My rate of 3% is the correct rate for when I put the funds in. Just unlucky enough to pick the lowest time bin in history.
3. The rate on the Fact sheet applies only to new money. This works in two ways (this is for the other TRAD owners out there):
3a. Contribution in a time window from your paycheck and employer matching earns that rate.
3b. Income in a time window earns the current rate only for the additional amount (percent above the minimum). The rest stays in the bucket when it was contributed.
Therefore, all my money will earn 3% forever unless TIAA adds some additional amount for the March 2020 window when I transferred to that account.
...
Kudos on one of the more concise (and to my eye accurate) explanations of TIAA's peculiar vintage system.

FWIW, I have buckets going back to 1998. I've monitored changes in the crediting rate for the last dozen years or so. Here is my prediction:

The money in that account will NOT "earn 3% forever." By 2025 the rate will be higher. It may not ever be as high as what you could have got with more favorable timing, but it will be higher.

Rationale: as buckets get older the crediting rate changes in a relatively predictable way with the movement of interest rates. My 1998 RA bucket initially earned 8%; that was down to 3+% by last year. Other SRA buckets dating to 2012, when crediting rates first plummeted, had rates that at first rose and then fell back.

What will more specifically happen in your case is that 2020 will get merged with 2019 and 2021, and maybe later, with 2018 & 2022 & 2023. A single crediting rate will apply to the merged bucket, and it will be 3.25%, 3.50%, maybe more by 2028 or so, depending on how the current Fed tightening and its aftermath play out, and how well TIAA did on its yield curve management circa 2020.

This prediction will fail if the Fed gets spooked in the next few months and rapidly cuts rates back to the floor seen in 2020. Since inflation seems unlikely to go away so easily, then you might be better off in TIPS of some kind.
Thanks for this. A lot of insight.

I've got buckets going back to cough 1984 cough. I agree with your assessment about vintage rates and combinations and seen it in action. In fact, I brought up this idea to representative #2 today (very helpful - he got the bucket details to me), but he said "that doesn't happen very often". Of course, historically with falling rates he was mostly right. And starting at the minimum rate, there's a long wait to get the 'excess' working. What I really like about your observation is that it also applies to my upcoming 120 day transfer into a new higher yielding vintage. I think the uncertainties about the TIPS option are making me put it to the side (outside of the piece I already own).
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Re: TIAA Traditional at 3% or Fidelity TIPS Fund FIPDX?

Post by McQ »

crefwatch wrote: Tue Jul 19, 2022 8:52 am
CloseEnough wrote: Tue Jul 19, 2022 7:33 am ...
Is this really true? While the principal risk may be low on TIAA Traditional, I would think it still is subject to risk. Why is there no principal risk with TIAA Traditional?
Alas, I forgot for a moment that I was posting at ... ... Bogleheads ... and not at the TIAA section of Morningstar. I should have allowed for the astronomically small (but, nominally, non-zero) chance ...

If TIAA fails, you are going to be having more serious problems than the TIAA Traditional guaranteed rate.
That gave me a chuckle, crefwatch :sharebeer

Doubtless you've seen this thread at WhiteCoatInvestor, "10 things that drive me nuts about Bogleheads" (my title not his): https://www.whitecoatinvestor.com/bogleheads/

If not, hope it gives you a chuckle back.
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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Re: TIAA Traditional at 3% or Fidelity TIPS Fund FIPDX?

Post by McQ »

JustAnotherProf wrote: Tue Jul 19, 2022 4:30 pm ...

I've got buckets going back to cough 1984 cough.
...
If I had been smart enough--if I knew then what I know now--I'd have TIAA buckets back to 1986. So, ahem ... no coughing please :wink:
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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Re: TIAA Traditional at 3% or Fidelity TIPS Fund FIPDX?

Post by dknightd »

It is possible that at some point your 2020 vintages will be combined with 2022 vintages. And so earn the same rate. So you might have done the 120 day thing for no net affect.
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 ;)
student
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Re: TIAA Traditional at 3% or Fidelity TIPS Fund FIPDX?

Post by student »

tibbitts wrote: Tue Jul 19, 2022 3:53 pm
JustAnotherProf wrote: Tue Jul 19, 2022 3:46 pm You're a wise man. That's one of the reasons I spoke to two different TIAA representatives today. To verify the options (none). Too bad you missed the higher rate vintage. Time for me to take my shot.
That's a good point, given the complexity of TIAA. I called TIAA just now to confirm there would be no issues moving to the money market and back after 120 days but I'm going to talk to another rep on Wednesday just to confirm the terms, given my exact situation and contracts, and probably move then.
I assume you are going to move everything as I don't think you can move from just one vintage. Also this will make you a "new" investor which may affect the interest rate during the payout stage.
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JustAnotherProf
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Re: TIAA Traditional at 3% or Fidelity TIPS Fund FIPDX?

Post by JustAnotherProf »

dknightd wrote: Tue Jul 19, 2022 6:54 pm It is possible that at some point your 2020 vintages will be combined with 2022 vintages. And so earn the same rate. So you might have done the 120 day thing for no net affect.
They definitely might combine those vintages someday, as you say. 2012-2019 is currently the most recent TIAA Traditional mega-vintage. And 2020-2021 is a single vintage. With that said, there are a couple of specific reasons I think that it will be more time than the breakeven point (about a year under the current rate structure for a 120 day rollover). Past history would suggest more years than that before such a merger of the current six vintages. Too many. More importantly, the difference in crediting rate between my 2020 vintage and the most recent 2022 one is quite high at 1.55%. Haven't seen that wide a range combined before in a short time. They usually don't pull vintages down very far when they merge. Too different.

Honestly, it wouldn't break my heart if they did merge. Yields have to go up from where I'm sitting - with both contribution and return pegged at the guaranteed minimum of 3%. Sitting here doing nothing seems riskier than moving up to the 2022 level and seeing what happens.

Thanks for your input. It's an important point. I agree that the yield differential is in no way permanent.
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Re: TIAA Traditional at 3% or Fidelity TIPS Fund FIPDX?

Post by tibbitts »

student wrote: Tue Jul 19, 2022 7:02 pm
tibbitts wrote: Tue Jul 19, 2022 3:53 pm
JustAnotherProf wrote: Tue Jul 19, 2022 3:46 pm You're a wise man. That's one of the reasons I spoke to two different TIAA representatives today. To verify the options (none). Too bad you missed the higher rate vintage. Time for me to take my shot.
That's a good point, given the complexity of TIAA. I called TIAA just now to confirm there would be no issues moving to the money market and back after 120 days but I'm going to talk to another rep on Wednesday just to confirm the terms, given my exact situation and contracts, and probably move then.
I assume you are going to move everything as I don't think you can move from just one vintage. Also this will make you a "new" investor which may affect the interest rate during the payout stage.
Neither the vintages nor loyalty bonus should matter since 98% of the contributions were in the 2020-2021 timeframe.
CloseEnough
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Re: TIAA Traditional at 3% or Fidelity TIPS Fund FIPDX?

Post by CloseEnough »

McQ wrote: Tue Jul 19, 2022 4:33 pm
crefwatch wrote: Tue Jul 19, 2022 8:52 am
CloseEnough wrote: Tue Jul 19, 2022 7:33 am ...
Is this really true? While the principal risk may be low on TIAA Traditional, I would think it still is subject to risk. Why is there no principal risk with TIAA Traditional?
Alas, I forgot for a moment that I was posting at ... ... Bogleheads ... and not at the TIAA section of Morningstar. I should have allowed for the astronomically small (but, nominally, non-zero) chance ...

If TIAA fails, you are going to be having more serious problems than the TIAA Traditional guaranteed rate.
That gave me a chuckle, crefwatch :sharebeer

Doubtless you've seen this thread at WhiteCoatInvestor, "10 things that drive me nuts about Bogleheads" (my title not his): https://www.whitecoatinvestor.com/bogleheads/

If not, hope it gives you a chuckle back.
Well I guess that's at my expense! I had not seen the WhiteCoat thread - pretty funny. Also makes the accurate statement:

"There are two issues with risk tolerance that are far more nuanced than many Bogleheads recognize:

It is essentially impossible to measure accurately until it matters most
It is not static."

Funny!
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ResearchMed
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Re: TIAA Traditional at 3% or Fidelity TIPS Fund FIPDX?

Post by ResearchMed »

student wrote: Tue Jul 19, 2022 7:02 pm
tibbitts wrote: Tue Jul 19, 2022 3:53 pm
JustAnotherProf wrote: Tue Jul 19, 2022 3:46 pm You're a wise man. That's one of the reasons I spoke to two different TIAA representatives today. To verify the options (none). Too bad you missed the higher rate vintage. Time for me to take my shot.
That's a good point, given the complexity of TIAA. I called TIAA just now to confirm there would be no issues moving to the money market and back after 120 days but I'm going to talk to another rep on Wednesday just to confirm the terms, given my exact situation and contracts, and probably move then.
I assume you are going to move everything as I don't think you can move from just one vintage. Also this will make you a "new" investor which may affect the interest rate during the payout stage.

I don't think "everything" needs to be moved, but it is correct that one can't move from just one vintage. My understanding is that if one specifies less than 100%, then the total is taken proportionally from each vintage.

RM
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student
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Re: TIAA Traditional at 3% or Fidelity TIPS Fund FIPDX?

Post by student »

tibbitts wrote: Tue Jul 19, 2022 7:44 pm
student wrote: Tue Jul 19, 2022 7:02 pm
tibbitts wrote: Tue Jul 19, 2022 3:53 pm
JustAnotherProf wrote: Tue Jul 19, 2022 3:46 pm You're a wise man. That's one of the reasons I spoke to two different TIAA representatives today. To verify the options (none). Too bad you missed the higher rate vintage. Time for me to take my shot.
That's a good point, given the complexity of TIAA. I called TIAA just now to confirm there would be no issues moving to the money market and back after 120 days but I'm going to talk to another rep on Wednesday just to confirm the terms, given my exact situation and contracts, and probably move then.
I assume you are going to move everything as I don't think you can move from just one vintage. Also this will make you a "new" investor which may affect the interest rate during the payout stage.
Neither the vintages nor loyalty bonus should matter since 98% of the contributions were in the 2020-2021 timeframe.
Then you are all set.
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Re: TIAA Traditional at 3% or Fidelity TIPS Fund FIPDX?

Post by student »

ResearchMed wrote: Tue Jul 19, 2022 7:49 pm
student wrote: Tue Jul 19, 2022 7:02 pm
tibbitts wrote: Tue Jul 19, 2022 3:53 pm
JustAnotherProf wrote: Tue Jul 19, 2022 3:46 pm You're a wise man. That's one of the reasons I spoke to two different TIAA representatives today. To verify the options (none). Too bad you missed the higher rate vintage. Time for me to take my shot.
That's a good point, given the complexity of TIAA. I called TIAA just now to confirm there would be no issues moving to the money market and back after 120 days but I'm going to talk to another rep on Wednesday just to confirm the terms, given my exact situation and contracts, and probably move then.
I assume you are going to move everything as I don't think you can move from just one vintage. Also this will make you a "new" investor which may affect the interest rate during the payout stage.

I don't think "everything" needs to be moved, but it is correct that one can't move from just one vintage. My understanding is that if one specifies less than 100%, then the total is taken proportionally from each vintage.

RM
That's my understanding too.
tibbitts
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Re: TIAA Traditional at 3% or Fidelity TIPS Fund FIPDX?

Post by tibbitts »

Here's a thought: instead of the R1 money market at .5% for 120 days , what about rolling to a TIAA Traditional IRA 1.5%? Then rolling back to the 457/403b or whatever of course. Would that work? I've never tried rolling intra-TIAA so I don't know what would be involved.
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ResearchMed
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Re: TIAA Traditional at 3% or Fidelity TIPS Fund FIPDX?

Post by ResearchMed »

tibbitts wrote: Tue Jul 19, 2022 9:59 pm Here's a thought: instead of the R1 money market at .5% for 120 days , what about rolling to a TIAA Traditional IRA 1.5%? Then rolling back to the 457/403b or whatever of course. Would that work? I've never tried rolling intra-TIAA so I don't know what would be involved.

Interesting question. Thanks.
I've already asked our WMA to set up a call tomorrow so we can discuss this particular issue, temporarily moving Trad Ann money out and the back in at higher rates.

And I remember he had told us that we could move outside TIRA money into the "EmployEE-contributed portion of our 403b", and that's exactly what we are dealing with here.
So... why couldn't we move money from our TIAA TIRA back? If we could do it this way, yup, we'd get that 1.5% for the duration.
:happy

RM
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student
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Re: TIAA Traditional at 3% or Fidelity TIPS Fund FIPDX?

Post by student »

tibbitts wrote: Tue Jul 19, 2022 9:59 pm Here's a thought: instead of the R1 money market at .5% for 120 days , what about rolling to a TIAA Traditional IRA 1.5%? Then rolling back to the 457/403b or whatever of course. Would that work? I've never tried rolling intra-TIAA so I don't know what would be involved.
That's a good trick.
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