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Either an amazing pension or a good pension.
Old 01-06-2016, 12:28 PM   #1
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Either an amazing pension or a good pension.

Well it looks like my buy in to my state pension might not be the amazing deal that I thought I had once engineered. Because of some poorly conceived legislation and accounting issues I found a loophole in the buy in and after a large volume of emails with the pension administrators I was assured that I'd be able to purchase the following state pension

Cost: $183k
Start date: 2016 at age 55
Amount: $20k / year
COLA: 2%

Doing the maths and assuming an 83 year life span that works out to a 12% interest rate and an initial 11% payout rate.

Obviously this is stupidly generous and while it's good for me it's bad for the state and tax payer so I contacted my state senator to look into the loophole and ask what the retirement board was going to do about it. I frankly didn't believe it and wanted some cover in case the retirement board came back at a later date and said they'd made a mistake and if a large number of people qualified for the loophole it really had to be closed.

After 9 months it's still under discussion and it might be that for the very small number of people that can take advantage of the loophole the administrative and legislative burden of closing it won't be worth it....if it does get closed the pension will cost me $282k......that's a 7% interest rate and a 7% starting payout rate. That's still pretty good, my wallet will be lighter, but at least my pointing out the loophole might help the politicians to craft better pension legislation in the future.
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Old 01-06-2016, 12:29 PM   #2
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Bravo! Even if you aren't in my state, thanks for following that up.
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Old 01-06-2016, 04:22 PM   #3
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Even at the higher cost it seems much better than any annuity that I am aware of.
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Old 01-06-2016, 05:55 PM   #4
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Why didn't you buy it and then once your benefits started contact your legislators?
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Old 01-06-2016, 06:01 PM   #5
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Interesting...

Maybe they computed this in years way past, when life expectancy was less and inflation was a lot higher relative to the 2% COLA?
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Old 01-06-2016, 07:04 PM   #6
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Cost: $183k
Start date: 2016 at age 55
Amount: $20k / year
COLA: 2%
Awesome! Your state must have money to burn.
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Old 01-06-2016, 08:52 PM   #7
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Awesome! Your state must have money to burn.
Massachusetts IIRC. Of course our state has money to burn! Always more where that came from.

If I read this correctly Nun contacted his/her state rep and might end up with a worse deal as a result.

Again, here in Mass, the state motto is "take the money and run; ask questions later". Having been intimate with the inner workings of our state legislature I find the comment "my pointing out the loophole might help the politicians to craft better pension legislation in the future" sadly naive.

I'm quite sure it was deliberate to accommodate some individual's situation.
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Old 01-07-2016, 06:58 AM   #8
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So, did you take the deal? Sounds good either way. And, once granted, legislative changes would likely grandfather people who already accepted unless the administrators could demonstrate some sort of obvious administrative error that anyone accepting the deal should have seen and expected to be corrected - like getting a check with the decimal three places to the right. You, of course, may have documented such a problem.
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Old 01-07-2016, 10:19 AM   #9
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I hope you are able to benefit from the plan design. I was able to transfer previous government service into my state pension plan when I began my current role at an actuarial "equivalent" value using an 8% return. As far as I was concerned, that was a steal. 12% would be orgasmic!

TIAA payout rates have improved. a big chunk of my contributions from years ago are now in the oldest (and most richly rewarded) vintages. I am pulling the plug this month and after much modelling, decided to begin receiving my Traditional life annuity. Starting next month , I will receive a payout of ~7%
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Old 01-07-2016, 10:56 AM   #10
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Originally Posted by pb4uski View Post
Why didn't you buy it and then once your benefits started contact your legislators?
My inner daemon and wanting to know if the loophole was real.
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Old 01-07-2016, 11:04 AM   #11
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Originally Posted by robertf57 View Post

TIAA payout rates have improved. a big chunk of my contributions from years ago are now in the oldest (and most richly rewarded) vintages. I am pulling the plug this month and after much modelling, decided to begin receiving my Traditional life annuity. Starting next month , I will receive a payout of ~7%
I assume that's with the variable annuity or you have some old TIAA-Traditional vintages that are pushing up your interest rate. For the fixed lifetime annuity the payments are calculated using the current crediting rate of TIAA-Traditional. For me that would be 4% and my payout rate would be 6%
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Current AA: 65% Equity Funds / 20% Bonds / 7% Stable Value /3% Cash / 5% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
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Old 01-07-2016, 11:26 AM   #12
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Originally Posted by nun View Post
I assume that's with the variable annuity or you have some old TIAA-Traditional vintages that are pushing up your interest rate. For the fixed lifetime annuity the payments are calculated using the current crediting rate of TIAA-Traditional. For me that would be 4% and my payout rate would be 6%
So the overwhelming bulk of my vintages are in the oldest trounch. However, payout rate are different that accumulation or "crediting" rates! Here is the table:

Payout Stage Interest Rates for Lifetime Annuities Issued During January 2016
For Benefits Arising From
Interest Rates
2014 - 2016 vintages 3.25%
2012 - 2013 vintages 3.50%
2000 - 2011 vintages 4.75%
Pre-2000 vintages 6.75%
As of 01/01/2016

and the URLhttp://https://www.tiaa-cref.org/pub...ymbol=47933632. The payout exceeds the interest rate, of course, because of return of principal and mortality expectations. You payout rate is likely significantly greater that you have been estimating if you are using accumulation rates.
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Old 01-07-2016, 11:34 AM   #13
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So the overwhelming bulk of my vintages are in the oldest trounch. However, payout rate are different that accumulation or "crediting" rates! Here is the table:
Yes I understand that, my crediting rate is 4% and the payout would be 6%. I have a lot of low interest rate vintages. So your 7% payout must come from a variable annuity estimate or (as in your case) because you have lots of old vintages.
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Old 01-07-2016, 11:51 AM   #14
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Originally Posted by nun View Post
Yes I understand that, my crediting rate is 4% and the payout would be 6%. I have a lot of low interest rate vintages. So your 7% payout must come from a variable annuity estimate or (as in your case) because you have lots of old vintages.
Yes, I have a lot of old vintage stuff which is why my payout rate is high . I apologize if I misunderstood your previous post. I just didn't want anyone thinking interest rates during the pay-out of TIAA-Traditional were the same as the current crediting interest rates or confusing interest rate paid during payout as being synonymous with what is commonly called the "payout rate" (payment/account value).

Good luck with the pension purchase!
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Old 01-07-2016, 01:42 PM   #15
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Originally Posted by robertf57 View Post
Yes, I have a lot of old vintage stuff which is why my payout rate is high . I apologize if I misunderstood your previous post. I just didn't want anyone thinking interest rates during the pay-out of TIAA-Traditional were the same as the current crediting interest rates or confusing interest rate paid during payout as being synonymous with what is commonly called the "payout rate" (payment/account value).

Good luck with the pension purchase!
Yes it's a vital distinction. It's good that TIAA shows the crediting rate and the payout rates for all it's vintages.
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Retired Mar 2014 at age 52, target WR: 0.0%,
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Old 01-07-2016, 02:41 PM   #16
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How secure it the pension system? How well is it funded?
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Old 01-07-2016, 02:53 PM   #17
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How secure it the pension system? How well is it funded?
70% with a commitment to get to 100% by 2030. There have been recent reforms to reduce costs and the system is secure.
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Current AA: 65% Equity Funds / 20% Bonds / 7% Stable Value /3% Cash / 5% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
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