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Re: annuitize TIAA-CREF, or take the money and run ?
Old 10-28-2006, 07:32 PM   #41
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Re: annuitize TIAA-CREF, or take the money and run ?

Your comments, JohnEyles, really hit home. I don't really understand all the lingo that you are using, but I do understand "annuitize or not annuitize" TIAA. I'm 59 1/2 yo , and since I was your age (54) I've been saying "this is my last year of teaching!!!!!!!" I'm still teaching and burned out! My insecurity and fear of retirement and not knowing what to do keeps me working! I've been with TIAA-CREF since 1977. I'm trying to decide on several options. 90% of my TIAA-CREF is in ATRA (after tax). If I were to do the interest only from my TIAA part, I'd get $32,000/year. If I annuitize all of my TIAA, I'd get $44,000/year. If I annuitize all my TIAA-CREF funds, I'd get $53,000/year. If I opt for the interest only TIAA, then my retirement pension increases the longer I delay the annuitization. If I annuitize, I'm not sure if I should annuitize all the TIAA or part of it. Any insights/suggestions on this?

As for the comments on the "Graded versus Ungraded" TIAA, I read that it takes about 15 years for the benefits of the graded to reach the level of the ungraded, and then and only then are the monthly annuity amounts received more than the ungraded. Is it worth waiting that long??

Your comment about "health insurance" really hit me! Do you mean that TIAA-CREF gives free health insurance when you retire? This I was not aware of. Last year I decided to buy private health insurance just to be sure that I was covered after I retire (when I get the courage). I sometime wonder why so many Americans feel they have to be with medical insurance companies based in America. I did an awful lot of research. I looked to Europe. The two pre-eminent insurance providers that give the best coverage are BUPA (from England) and a company BUPA recently purchased called IHI (International Health Insurance) from Denmark. Insurance brokers highly recommend both. I went with IHI. I have a $1400 deductable and covered for 2 million per year. It also covers outpatient treatment for cancer, and that was my concern. I pay $2,400/year. Not bad. It also covers me in the states.

I should mention that I live in Singapore. I teach at international schools here, and yes, I'm tired of the routine. I can live here forever if I want. I plan on this being my last semester, and hope I stick with that plan. However, in the back of my weak mind is a voice saying "just stick it out for a year more and think of how much more retirement you'll have".

Good to read what you had to say about TIAA-CREF.



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Re: annuitize TIAA-CREF, or take the money and run ?
Old 10-28-2006, 07:54 PM   #42
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Re: annuitize TIAA-CREF, or take the money and run ?

Quote:
Originally Posted by Rob
Your comment about "health insurance" really hit me! Do you mean that TIAA-CREF gives free health insurance when you retire? This I was not aware of.
No no no. Sorry I was misleading. It is my state's retirement system that
provides the free health insurance, for anyone with 5 years service who never
pulled their money out of the retirement system (be it the state plan or any of
the optional carriers including TIAA-CREF) and is receiving a monthly benefit.

They came to their senses and changed it to 20yrs, but I'm grandfathered in
because I began employment prior to 1989 or so.

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Re: annuitize TIAA-CREF, or take the money and run ?
Old 10-29-2006, 07:43 AM   #43
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Re: annuitize TIAA-CREF, or take the money and run ?

Quote:
As for the comments on the "Graded versus Ungraded" TIAA, I read that it takes about 15 years for the benefits of the graded to reach the level of the ungraded, and then and only then are the monthly annuity amounts received more than the ungraded. Is it worth waiting that long??
Rob,

If you have good reason to believe that you'll live a long time, then the graded payment method may be something to look into, as it may not get ravaged by inflation as much as the standard payment method. Note, however that the adjustments to the graded method are based on the interest rate from the traditional account being over 4% [which is the AIR that TIAA usually assumes for annuitizing every account accept the standard method in TIAA]. So, if TIAA's interest rates remain around 4-6%, your payment may only increase b/w 1-2% yearly.

Of course, if you do choose the graded method and feel that you've made a mistake, you can always switch over to the standard method, but not back again.

b/w here's how Vanguard defines AIR:

Quote:
Assumed investment return

Your assumed investment return (AIR) determines the amount of your first variable income payment. The first payment will be higher if you choose the 5% AIR than if you choose the 3-1/2% AIR. If your portfolios return more than your AIR in any given payment period, your next payment will be higher. If the return is lower, your payment will be lower.
- Alec
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Re: annuitize TIAA-CREF, or take the money and run ?
Old 10-29-2006, 11:58 AM   #44
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Re: annuitize TIAA-CREF, or take the money and run ?

Quote:
So, if TIAA's interest rates remain around 4-6%, your payment may only increase b/w 1-2% yearly.
I'm interested in this topic, as I'm thinking of annuitizing some of the money I have in TIAA-CREF. If I do this, one major decision is between their standard annuity and their graded annuity. How sure are you of the values you cite above? Boy, a 1-2% gain per year is very unlikely to match inflation over the long run...which is what TIAA advertises as the value of the graded annuity. Sounds like I'd be better of taking the traditional and putting the excess in an equity/bond mix.
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Re: annuitize TIAA-CREF, or take the money and run ?
Old 10-29-2006, 01:46 PM   #45
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Re: annuitize TIAA-CREF, or take the money and run ?

Quote:
Originally Posted by gw
I'm interested in this topic, as I'm thinking of annuitizing some of the money I have in TIAA-CREF. If I do this, one major decision is between their standard annuity and their graded annuity. How sure are you of the values you cite above? Boy, a 1-2% gain per year is very unlikely to match inflation over the long run...which is what TIAA advertises as the value of the graded annuity. Sounds like I'd be better of taking the traditional and putting the excess in an equity/bond mix.
From TIAA-CREF's Receiving Your Retirement Income from TIAA-CREF, on the graded payment method:

Quote:
THE GRADED PAYMENT METHOD initial income is based on a 4% interest rate (21⁄2% guaranteed plus 11⁄2% from additional amounts). If the total payout interest rate exceeds 4%, any remaining additional amounts, over and above the amount needed to bring initial income to a level based on a 4% interest rate, are reinvested and used to buy you additional future income. The result is that your payments are likely to increase throughout your retirement to help protect you against inflation. You receive the initial amount from your retirement start date through December of that year. Your income changes are effective on January 1. As long as the guaranteed interest plus the additional amount exceed 4%, your income will increase the following year. If the guaranteed interest plus the additional amounts is less than 4%, your income could decrease.
and from page 4:

Quote:
The lower the total interest rate, the longer it will take the Graded Method to surpass the Standard Method and the longer it will take for the cumulative payments to become equal.
The standard vs. graded chart on page 4:

Year Standard Graded

1993 $810.86 $583.30
1994 $810.86 $605.73
1995 $810.86 $629.03
1996 $810.86 $653.22
1997 $810.86 $678.34
1998 $810.86 $704.43
1999 $810.86 $731.52
2000 $810.86 $759.66
2001 $816.49 $788.88
2002 $821.03 $824.91
2003 $821.03 $861.40
2004 $821.03 $894.53
2005 $821.03 $928.94

In their real life example, the graded increased at around 3.8%-4% each year. However, note that this time frame is when interest rates on intermediate and long term bonds where higher than they are now, and that TIAA is invested in mostly longer term bonds, loans, mortgages, etc.

So, if interest rates on these types of investment are lower going forward than before, like 5%, you'd only be reinvesting around 1% to increase the payout in the graded method.

This might be a good question for the TC rep at your school, or a Wealth Management Advisor at TC. i.e. "What would the graded payment method look like if interest rates on TIAA going forward are lower than it the past?"

- Alec
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Re: annuitize TIAA-CREF, or take the money and run ?
Old 10-29-2006, 02:12 PM   #46
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Re: annuitize TIAA-CREF, or take the money and run ?

Thanks. I guess I was mislead by not focussing closely enough on the historical example and the decline in interest rates since then. I remember reading somewhere that predicting interest rates is a more futile exercise than even predicting stock prices. As always, nothing in life is guaranteed. On reflection, I don't think this will be a big issue for me, as I will probably annuitize only about 22% of my portfolio and should be able to cover inflationary problems in other ways.

Still, as you say, this would be a good question to ask our TIAA-CREF representative. I'm going to do that.

Again, thanks for the help.
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