CD ladder vs TIAA Traditional Annuity

[nun]

Is there any reason to have a CD ladder as a buffer against market downturns if you have a TIAA Traditional Annuity that covers basic living expenses?

Additionally with the guarantee of income from TIAA traditional what would your AA be? 100% equities? or would there be a place for bonds and TIPs?

 

[Alan]

It all depends on the time horizon of when you want to draw down money from your savings.

I'll have a pension to cover my basic expenses and want to draw on my nest egg for extras, particularly travel. So I do feel it is necessary to have a 5 year cash cushion because I want to do all the extras while we are still fit and healthy, and don't want to have to put my aging life on hold because of a market downturn.

 

[nun]

It all depends on the time horizon of when you want to draw down money from your savings.

I'll have a pension to cover my basic expenses and want to draw on my nest egg for extras, particularly travel. So I do feel it is necessary to have a 5 year cash cushion because I want to do all the extras while we are still fit and healthy, and don't want to have to put my aging life on hold because of a market downturn.

Even in a bad downturn, like now, if basic living expenses are covered by a pension or fixed annuity and you have say a one year emergency fund in a MM I don't see the need for a CD ladder as your "extras" could probably be paid for with dividends from the rest of your portfolio. That's why I asked the second part of my question ie what would your non pension/annuity AA be?

The TIAA fixed annuity replaces the CD ladder with the proviso that you don't get access to your capital

 

[Alan]

Even in a bad downturn, like now, if basic living expenses are covered by a pension or fixed annuity and you have say a one year emergency fund in a MM I don't see the need for a CD ladder as your "extras" could probably be paid for with dividends from the rest of your portfolio. That's why I asked the second part of my question ie what would your non pension/annuity AA be?

The TIAA fixed annuity replaces the CD ladder with the proviso that you don't get access to your capital

My allocation is 40/50/10 The 10% cash is mostly in I-Bonds plus ~ $40K in MMF and FDIC MM savings. I don't have a CD Ladder.

Dividends from the bonds will cover most of the "extras" plus my pension is non-COLA so will start losing value once I start taking it.

With pensions (another one due age 65) and SS I don't have the need for another fixed income vehicle such as an annuity.

 

[nun]

My allocation is 40/50/10 I don't have a CD Ladder......

With pensions (another one due age 65) and SS I don't have the need for another fixed income vehicle such as an annuity.

Right, what I'm asking is that with the fixed income of a TIAA annuity covering basic expenses what would be a good AA. Does it replace a CD ladder? I suppose you'd just include the annuity in the bonds/fixed income part of your portfolio when you come up with an appropriate AA. However, I'm also interested how having the fixed annuity would effect the choice of your bonds and fixed income investments?

 

[Alan]

The bond portion of my egg is 50% and made up as follows:

VG Wellseley in my IRA and in our after tax account
Fidelity Total Bond in DW's IRA
Schwab Total Bond in my 401(k) - when I retire in 16 months I will roll this into a VG IRA and put it in VG Total Bond

Excluding my penion annuity, my allocation is 40/50/10 as I still believe you need stocks in the long run for growth but I am conservative enough to have many years of cash and bonds to avoid having to be forced to sell stocks when I don't want to.

I'm sure there plenty of other opinions out there on suitable AA's and YMMV. You need to have an AA that will help you sleep at night.

 

[SteveL]

When you die, the annuity stops, but the CD ladder remains for your heirs unless you are spending the CD's down.....

 

[nun]

When you die, the annuity stops, but the CD ladder remains for your heirs unless you are spending the CD's down.....

But if I buy the annuity with 20% of my savings and live on it, the rest of my portfolio will grow. If I die young TIAA wins, if I live to be 100 I'm way ahead as I would have spent a CD ladder well before that and would have been spending the rest of my portfolio