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About to Tap into my TIAA-CREF. Decision Time!
Old 03-09-2007, 08:15 PM   #1
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About to Tap into my TIAA-CREF. Decision Time!

I have made a couple of posts the last couple years, and received some very good and helpful responses. I have also read many of your poll results and see that a fair number of you have retired with well over one million dollars, and it is no wonder that you are able to retire. It’s quite an enviable goal, but at times it intimidates those with less and still wanting to live a less stressful and enjoyable life.
At any rate, as I am about to turn 60, I’ve decided effective September 2007 to tap into my TIAA-CREF after putting money into it for more than 30 years as a high school school teacher. Whether I continue to teach part-time or just relax and do volunteer work, I don’t know. However, I am set on September as the time to get my first retirement money.
I’ve read a few complaints about TIAA-CREF, and while most people agree that their service needs some improvement, it is still a rock solid financial institution. As one who is rather (or very) naïve about where to channel money to make it work for me, I usually opt for the less confusing route. As I got into my 50’s, I moved most of my money into the TIAA Traditional annuity, and now have about $700,000 in the annuity. I have another $150,000 in CREF Stock and TIAA Real Estate. I also have about $80,000 in an annuity in Singapore (where I live), and at 62 years of age can either take that money with me if I leave the country for the US, or that annuity company will start giving me a whopping $450/month for 21 years. My US Social Security will be about $320/year at age 62 (according to the estimates). I’m happy though that I will get Medicare. At the moment I have my own private international health insurance, and I’m happy with that, also.
I’ve talked to a couple “Wealth Management Advisors” from TIAA-CREF, and some others. I’ve received some encouragement on annuitizing the $700,000 traditional annuity. The good thing is that 90% of this annuity is after-tax! People will say, however, that when you annuitize, you really do lose control of all your money, and in exchange, you receive a promise you’ll get a steady stream of income for the rest of you life. In my case, I will get about $47,000 per year from the “Standard Traditional Annuity”, and if I do the “Graded” approach, I start with $42,500 per year, and it goes up every year, so that 25 years later it is almost $53,000/year. However, it is estimated that it take about 10 to 13 years for the “graded” to catch up to the “standard” income, and then it surpasses it. Is it worth doing the graded approach?
The rest of my money ($150,000) in the CREF Stock/TIAA Real Estate I would not touch until I was 70, and I even plan on adding to that consistently, but smaller amounts than I am now. That will increase my retirement income by more than $20,000 when I hit 70 years of age.
There is the option of taking the “Transfer Payout Annuity”, in which I can get my $700,000 out through 10 equal yearly payments of about $84,000/year, and then I could re-invest that money. I have been told that I can put no more than $5,000 in a Roth IRA per year, but at the age of 60, maybe that is not the best thing. Having Roth IRA’s at a much younger age is far better. I look for the route that involves less complexity, which is annuitizing the TIAA Traditional and then adding to the other part of my investments until I’m 70. Maybe, however, what I view as complex and confusing really is not.
Do all of you trust an annuity? When you place your trust in receiving a life time annuity but you lose control of all that money, it is a cause for losing a little sleep. I know that TIAA has the highest ratings by Moodys, and other financial accrediting agencies for being rock solid, but I still have my concerns.
If you have any comments about my ideas and suggestions for some of my concerns, it's always appreciated.

Regards,
Rob
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Re: About to Tap into my TIAA-CREF. Decision Time!
Old 03-09-2007, 08:31 PM   #2
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Re: About to Tap into my TIAA-CREF. Decision Time!

Rob, I have good news and bad news for you. The good news is that you seem to have saved up a solid hunk of money that will likely carry you to the end of your days. The bad news is that you will have to learn enough to make an educated decision on this stuff.

I take it you are single? How much $$$ annually will you need to live the life you want? It looks to me like you will get roughly $10k annually from your offshore annuity and social security. You will need to comeup with a budget that will include some provision for medical insurance costs between retirement and when you are eligible for medicare. The budget will help you figure out how much annual income you need so that you can make an informed decision on how to tap your accumulated savings.

The big risk with any annuity is that the value of the payments is eroded over time by inflation. The graded payment annuity is designed to help mitigate that problem by steppingthe annuity payments up over time to help offset inflation. But its not indexed to inflation, so you could get hurt if we go into an inflationary spiral. You could use the $150k in the CREF account to help offset this risk by investing in something that would do well in inflationary times (like real estate, natural resource producers, gold, etc.).

The other risk is that you croak shortly after annuitizing and you don't collect much of your money. Presumably you would have other concerns (or none) at that point, but it is something to consider if you have a spouse or wish to leave an estate to someone. This may not be much of a concern.

As for your concerns about TIAA-CREF: You should do whatever makes you comfy, since it is your money. However, I used to work for a rating agency and my job was to produce, maintain and publish credit ratings on life insurers. I generally had "insider" access to the companies I rated and I would typically have more-or-less ready access to anyone in the company, up to and including the CEO. As an employee of a major rating agency, I had the ability to effectively put a company out of business via a downgrade, so I generally got honest, thorough information, presuming I was smart enough to ask the right questions. After doing this for years, I became very, very picky about who I would buy insurance from. I tell you this so that you understand that when I say that I bought my life insurance policy (that would keep my wife and kids from the poorhouse if I took the dirt nap prematurely) from TIAA-CREF, you would understand what that means.

If TIAA-CREF defaults on annuity payouts, we will all be living under bridges and catching squirrels for dinner.
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Re: About to Tap into my TIAA-CREF. Decision Time!
Old 03-09-2007, 08:50 PM   #3
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Re: About to Tap into my TIAA-CREF. Decision Time!

To Brewer-
If I annuitize all my TIAA-CREF, I'd have a comfortable $57,000 per year now. By annuitizing thhe TIAA Traditional only, I believe the $150,000 after ten years will bring my retirement income up near $70,000 per year. I think this will be my hedge against inflation. Emergency money could actually come from the $80,000 annuity from Singapore. I can withdraw it if I really need to.
Suppose I live for qnother 25 years. That $700,000 annuity will have given me almost 1.2 million. That's what I look at! 1.2 million versus the 700,000 I have in the TIAA Traditional now. Again though- I could pass away a lot earlier.
As for health insurance, I got it last year. It will take $2,400 out of my budget every year. It's actually a pretty good policy, and it covers me internationally.
It's GREAT to hear of youtr faith in TIAA-CREF.

Regards,
Rob
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Re: About to Tap into my TIAA-CREF. Decision Time!
Old 03-09-2007, 08:57 PM   #4
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Re: About to Tap into my TIAA-CREF. Decision Time!

if might be wise to consider partial annuitization ... some now, some later ...
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Re: About to Tap into my TIAA-CREF. Decision Time!
Old 03-09-2007, 09:14 PM   #5
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Re: About to Tap into my TIAA-CREF. Decision Time!

To d-
By annuitizing the $700,000 in my TIAA Traditional now, and adding to and not touching (hopefully) the CREF stock/TIAA Real Estate part until I am 70, that is partial annuitization. I am concerned about the inflation, so will go with the graded approach, and probably add a lot more to the TIAA Real Estate than the CREF stock over the coming years to alleviate my concern about inflation.

I hope this sounds like a viable plan.

Regards,
Rob
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Re: About to Tap into my TIAA-CREF. Decision Time!
Old 03-10-2007, 09:09 AM   #6
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Re: About to Tap into my TIAA-CREF. Decision Time!

Quote:
Originally Posted by Rob
To Brewer-
If I annuitize all my TIAA-CREF, I'd have a comfortable $57,000 per year now. By annuitizing thhe TIAA Traditional only, I believe the $150,000 after ten years will bring my retirement income up near $70,000 per year. I think this will be my hedge against inflation. Emergency money could actually come from the $80,000 annuity from Singapore. I can withdraw it if I really need to.
Suppose I live for qnother 25 years. That $700,000 annuity will have given me almost 1.2 million. That's what I look at! 1.2 million versus the 700,000 I have in the TIAA Traditional now. Again though- I could pass away a lot earlier.
As for health insurance, I got it last year. It will take $2,400 out of my budget every year. It's actually a pretty good policy, and it covers me internationally.
It's GREAT to hear of youtr faith in TIAA-CREF.

Regards,
Rob
Hold on there, cowboy. You are looking at things ina very simplistic, nominal dollar way, which is dangerous. After 10 years, $70k a year is equal to a bit less than $50k in today's dollars if inflation rises 3.5% a year. I think that you need to build a spreadsheet and play with the numbers before you do any of this. You also have to have a pretty good idea of what your actual budget will be so that you know how much income you need to generate to make it.

So what do you thnk your expenses will be?
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Re: About to Tap into my TIAA-CREF. Decision Time!
Old 03-10-2007, 09:24 AM   #7
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Re: About to Tap into my TIAA-CREF. Decision Time!

Rob,

It reads like you will continue working quite a bit after you intend to start withdrawals. I surmise that because you write that you will continue to add to a Roth IRA and "probably add a lot more to the [403(b)] over the coming years ...."

If you are still working, why withdraw so much? If you are not working, then you have no earned income and cannot make contributions.
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Re: About to Tap into my TIAA-CREF. Decision Time!
Old 03-10-2007, 05:56 PM   #8
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Re: About to Tap into my TIAA-CREF. Decision Time!

You know we all have a tendency to obsess over finances and constantly fret if we have enough. Most of us have this fear about whether enough is enough.
I'm happy with a $57,000/year annuity rising to $66,000 when I am 70 years old. Inflation at 4% will still give me a doable retirement. I even want to begin my pension at $44,000 per year and hold off on the rest of it till much later. Brewer, I have gone through the numbers, and inflation hits us all, but I'm please with my retirement income. I can travel, maintain my health insurance and live comfortably. If my $57,000 per year is $40,000 per year in ten years, that is still bettter than most pensions I hear of in the States.
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Re: About to Tap into my TIAA-CREF. Decision Time!
Old 03-10-2007, 06:14 PM   #9
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Re: About to Tap into my TIAA-CREF. Decision Time!

If you are happy with it, that is the point. Just make sure you are really sure, since you only get to make the choice once.
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Re: About to Tap into my TIAA-CREF. Decision Time!
Old 03-11-2007, 10:33 AM   #10
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Re: About to Tap into my TIAA-CREF. Decision Time!

Quote:
Originally Posted by brewer12345
If you are happy with it, that is the point. Just make sure you are really sure, since you only get to make the choice once.
Rob, Brewer makes two good points here. You need to make the choice that makes you happiest, and I can see the attractiveness of the guaranteed income. On the other hand, annuitization is an irrevocable decision. I believe you can change your mind on the TPA as long as there are funds left in Traditional. Another possibility would be an interest-only payout, also a revocable decision.

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Re: About to Tap into my TIAA-CREF. Decision Time!
Old 03-11-2007, 10:55 AM   #11
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Re: About to Tap into my TIAA-CREF. Decision Time!

I take it you are a US citizen. Your earned income overseas was probably not taxed by the US. But I'm not sure about your annuity income. This is something to consider when you come up with a retirement budget, since the US (unlike most countries) taxes worldwide income for citizens and permanent residents. Also, if you continue to live overseas, be aware that Medicare does not cover treatments outside the US, so you'll need to continue your private coverage indefinitely.

I suppose your very low SS payment is because you have hardly worked in the US. If you move back to the US, even a small amount of part-time work for a couple years could add significantly to the SS amount.
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Re: About to Tap into my TIAA-CREF. Decision Time!
Old 03-11-2007, 11:43 AM   #12
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Re: About to Tap into my TIAA-CREF. Decision Time!

Quote:
Originally Posted by brewer12345
If TIAA-CREF defaults on annuity payouts, we will all be living under bridges and catching squirrels for dinner.

Brewdude --- If one chose to purchase an immediate annuity does it make sense to purchase contracts with several companies an cap each contract @ $100k due to the NOLHGA limit? I know this limit can vary state by state... but all else equal, If I had 300K to purchase a fixed annuity why wouldn't I purchase it in 100k contract with three AAA rated companies?

http://www.nolhga.com/policyholderin...olvencyprocess
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Re: About to Tap into my TIAA-CREF. Decision Time!
Old 03-11-2007, 02:22 PM   #13
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Re: About to Tap into my TIAA-CREF. Decision Time!

Quote:
Originally Posted by chinaco

Brewdude --- If one chose to purchase an immediate annuity does it make sense to purchase contracts with several companies an cap each contract @ $100k due to the NOLHGA limit? I know this limit can vary state by state... but all else equal, If I had 300K to purchase a fixed annuity why wouldn't I purchase it in 100k contract with three AAA rated companies?

http://www.nolhga.com/policyholderin...olvencyprocess
I would not depend on the state guaranty associations. They are generally untested and guaranteed by nobody. A far, far cry from FDIC insurance. I think you would be better off buying annuities or insurance from a company or companies that are and will remain financially sound rather than doing stuff with an eye toward what the guaranty funds might or might not cover.

I personally would be happy taking $300k exposure to any one of TIAA-CREF, Northwestern Mutual, MassMutual and maybe USAA. But that is something that is up to you. Generally if you buy one large policy vs. three smaller ones you will get a better deal because ofthe economies of scale the single policy offers.
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Re: About to Tap into my TIAA-CREF. Decision Time!
Old 03-11-2007, 06:01 PM   #14
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Re: About to Tap into my TIAA-CREF. Decision Time!

Good comments- all of them. I might add that I really am only partially annuitizing. I would annuitize my $700,000 TIAA Traditional Annuity and start with $44,000 per year and get up to about $53,000 twenty five years later. Add to that Social Security and Singapore "Social Security" and that adds about $8,000 more at 62. I realize that is not indexed to inflation, but it is steady and makes me feel good. I say "partially" annuitize, because I still have $200,000 in my CREF/TIAA Real Estate that I will add to. That is my hedge against the inflation. That can also be used for emergencies if my rather hefty savings in Singapore is not enough. I expect to add conservatively $20,000 more to my retirement when I am 70 years old.

95% of alll my money is after-tax. I am taxed only on the earnings. That's a really good thing. As for the Transfer Payout Annuity (TPA), that is irrevocable. I've been told by my Wealth Management Advisor that an After Tax Account cannot be rolled over to Roth IRA's without being taxed first, so I'm somewhat limited. Also, I can only contibute a maximum of $5000 per year anyway. I really am looking into the TPA, as it would give me almost $89,000 per year for 10 years, but I am limited on rollovers with my "After Tax" account with them. It's still a possibility though. As for the Interest only, I would only do that if I wanted more time to think. It really does not add much to delay receiving annuity income a year or 2 when the principal is frozen. Also, I want the freedom NOT to work.

Got to get to work now. This time in 3 months I will happily enter my retirment/semi-retirment pahse of life. As for Medicare, I will return to N. America at or before I am 65. I'll still be living in Singapore for part of the year where the food is cheap and good, transportation is efficient and also inexpensive, and I know the culture.

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