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I know, I know, annuity is a bad word but...
Old 05-19-2015, 08:47 AM   #1
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I know, I know, annuity is a bad word but...

I have a self-directed retirement account with TIAA-CREF of approximately $150k that I can either start an annuity payout or roll into an IRA. If I go the annuity route the payout will be around 7-8k/yr and I will go from a 15% to the next higher tax bracket. If I roll into an IRA it will be subject to RMD at 70.5 which will be in 3 years but it will be earning interest (lets say 4%) which would be close to the RMD. At that time I will also be in a higher tax bracket because of other IRA money.



I don’t need the money for living expenses so it would be fun money, donations, and inheritance. Either way I could always invest the money in a taxable fund. Once I “buy the farm” the annuity will go up in smoke but the IRA and taxable fund will still be there.


It sounds to me like I would be ahead of the game to roll the money into an IRA. Did I give enough information? What is your opinion?


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Old 05-19-2015, 08:51 AM   #2
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Given it is "fun" money I agree... what if you annuitize it and you pass on sooner rather than later? In that case you wishes for fun money, donations and inheritance go poof and other TIAA-CREF annuitants get the benefit.
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Old 05-19-2015, 08:57 AM   #3
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You have another option. You could roll the money into an IRA and then annuitize it in whole or in part at a later date.
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Old 05-19-2015, 09:03 AM   #4
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Not sure what type of annuity you're looking at but for someone 67 years old $150K in a basic immediate annuity should yield a little over $10K/year. I would likely stick with the IRA with todays low interest rates.
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Old 05-19-2015, 09:11 AM   #5
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You have another option. You could roll the money into an IRA and then annuitize it in whole or in part at a later date.
Bruce
+1. Seems like having your cake and eating it to by comparison.
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Not sure what type of annuity you're looking at but for someone 67 years old $150K in a basic immediate annuity should yield a little over $10K/year. I would likely stick with the IRA with todays low interest rates.
+1. At the very least, the OP should get an independent quote for an annuity to compare payouts with the TIAA-CREF offering.
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Old 05-19-2015, 09:13 AM   #6
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I had a legacy retirement account of about the same size ($158K). I moved the CREF to TIAA and took a 10 year payout annuity. (About $18-20K/year for ten years at 4%). At the time I did it, I was replacing my deferred Social Security. It turned out I didn't need the money. This was in 2011 and I don't know if the date of legacy shares plays into the rate at payout or not but you might call and get an estimate on your account.


If it is not a RMD, have you looked into paying the tax and converting it to Roth?
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Old 05-19-2015, 10:44 AM   #7
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Hmm,

Something doesn't seem to add up. Is this in TIAA traditional (in which case you can't roll it out as a lump sum usually)? Your payout seems awfully low... Was this money just recently added to TIAA? Did you get an official payout projection from TIAA? (I am a decade younger than you and my payout if I annuitized now would be significantly higher than what you have indicated)...
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Old 05-19-2015, 10:59 AM   #8
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robert57,
Yes, that is what it is and I did get a estimate of the yearly payout. As for the shares - They are from the 80s. I don't know the original allocation between TIAA and CREF but I would guess that it originally was half and half. So the really good legacy shares were probably about $6000 in each when I left that job. I haven't added new money to this fund since 1983/84. I never really looked at it until I was in my 50s. I moved most of the money to TIAA when the high rates were over. I received a 4% on the payout account meaning that if $100,000 were left after a dump, then it would earn $4000 by the next dump. And it has. My best guess is that you have continuously added to TIAA rather than just move CREF to TIAA at the end. That might increase the payout for you. Considering the lack of attention I've given this orphan, I am satisfied with what I am getting.
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Old 05-19-2015, 01:11 PM   #9
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And then there are those of us who think Annuity is a great word and what I find on other sites it usually it is individuals who own them. (I have three and if I could go back in time I would buy more) I
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Old 05-19-2015, 04:18 PM   #10
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If it is not a RMD, have you looked into paying the tax and converting it to Roth?
I've been doing this for the past 4-5 years with my IRA accounts up to the maximum in the 15% bracket. I have 3 years left to convert before RMD.

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Old 05-19-2015, 05:31 PM   #11
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robert57,
Yes, that is what it is and I did get a estimate of the yearly payout. As for the shares - They are from the 80s. I don't know the original allocation between TIAA and CREF but I would guess that it originally was half and half. So the really good legacy shares were probably about $6000 in each when I left that job. I haven't added new money to this fund since 1983/84. I never really looked at it until I was in my 50s. I moved most of the money to TIAA when the high rates were over. I received a 4% on the payout account meaning that if $100,000 were left after a dump, then it would earn $4000 by the next dump. And it has. My best guess is that you have continuously added to TIAA rather than just move CREF to TIAA at the end. That might increase the payout for you. Considering the lack of attention I've given this orphan, I am satisfied with what I am getting.
I am fortunate to have significant sums in TIAA-Traditional from the 80'S-90'S. My current accumulation interest rate is just shy of 5% and I ran a projection today that would have a payout of just shy of 7%. The "vintage" (year during which the contribution entered the traditional account) makes a huge difference. Still, try and find a guaranteed 4% today!

From your description above, I wonder if you are doing a Payout Transfer Annuity (perhaps to a mutual fund IRA) rather than annuitizing the TIAA-tradition directly to generate an income stream? That would make more sense as you are just moving rolling the funds out over time rather than really annuitizing the balance, and 4% would be about right.
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Old 05-19-2015, 05:55 PM   #12
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From your description above, I wonder if you are doing a Payout Transfer Annuity (perhaps to a mutual fund IRA) rather than annuitizing the TIAA-tradition directly to generate an income stream? That would make more sense as you are just moving rolling the funds out over time rather than really annuitizing the balance, and 4% would be about right.
I think I determined that a life annuity would not replace my SS. The payout annuity was almost the same value as my reduced SS at 62 (a little less but not significant). If I had known I would not need the money I would considered other options. Hindsight is 20-20. Also, dumping it and paying taxes took it out of RMD until I turn 70. It will still be dumping for 2 years during RMD. But I was too ignorant. I though I could apply the full amount to RMD in the two year overlap but the rules separating 403 from 401 from 457 would seem to prevent me from applying the full amount during those two years to the RMD owed from the larger retirement accounts. Ignorance can be costly especially when that ignorance is so great you don't know to ask the right questions. I will face a goodly tax hit in those two years if I understand this right. As I said - I'm satisfied. Right now we aren't spending the TIAA, aren't collecting my SS, and are ending up with a bit money to invest from our pensions and my husband's SS.
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