TIAA Interest Only surprise

[FinallyRetired]

Toay I received my monthly Interest Only payment from my TIAA Traditional amount, and I was shocked to find a 30% drop in interest from my average of 5.5% to 3.89%. TIAA "guarantees" 3% but pays above that depending on their investments. The 5.5% was my personal average from accumulations over 20+ years, during which interest was pretty high. Some years I only made the minimum, other years I made much more, so on average I earned 5.5%, which was the amount that was credited to my money during the accumulation phase.

I realized that their interest payments change every quarter, but my understanding is that the new rate is applied to new money or money that has matured in whatever instrument the Traditional had invested in. In fact, I had asked TIAA that very question before I began Interest Only payments, and was reassured that becuase of the length of my accumulation, my interest payments may fluctuate a little bit but any decrease would be slow. So I wasn't ready for a sudden 30% decrease.

I called TIAA and was told that they had reset everyone's interest payments, and I guess they must have gone pretty much all the way back to day 1. They reset it every year on 1 April (April Fool's) and it remains at this level for the next year. I can move out of Interest Only into other investments but not for a year.

TIAA is extremely conservative, but one problem with their Traditional account is that it's not very transparent as to the specific instruments one's money is invested in, particularly with long term accumulations. So I really don't know what portion of my investment has matured in, say, bonds, or other investments. If they reset it all, I have little control over that.

I realize we're getting a lot of financial surprises, but I didn't expect one from TIAA.

 

[LOL!]

FWIW, my TIAA traditional annuity increased by (5.4% / 4) in the first quarter of 2009. I have not made a contribution since 1994.

 

[FinanceDude]

Toay I received my monthly Interest Only payment from my TIAA Traditional amount, and I was shocked to find a 30% drop in interest from my average of 5.5% to 3.89%. TIAA "guarantees" 3% but pays above that depending on their investments. The 5.5% was my personal average from accumulations over 20+ years, during which interest was pretty high. Some years I only made the minimum, other years I made much more, so on average I earned 5.5%, which was the amount that was credited to my money during the accumulation phase.

I realized that their interest payments change every quarter, but my understanding is that the new rate is applied to new money or money that has matured in whatever instrument the Traditional had invested in. In fact, I had asked TIAA that very question before I began Interest Only payments, and was reassured that becuase of the length of my accumulation, my interest payments may fluctuate a little bit but any decrease would be slow. So I wasn't ready for a sudden 30% decrease.

I called TIAA and was told that they had reset everyone's interest payments, and I guess they must have gone pretty much all the way back to day 1. They reset it every year on 1 April (April Fool's) and it remains at this level for the next year. I can move out of Interest Only into other investments but not for a year.

TIAA is extremely conservative, but one problem with their Traditional account is that it's not very transparent as to the specific instruments one's money is invested in, particularly with long term accumulations. So I really don't know what portion of my investment has matured in, say, bonds, or other investments. If they reset it all, I have little control over that.

I realize we're getting a lot of financial surprises, but I didn't expect one from TIAA.

TIAA-Cef doesn't have to pay you 5% or more when they know 3.5% shortterm CDs are about the best rate........

 

[FinallyRetired]

TIAA-Cef doesn't have to pay you 5% or more when they know 3.5% shortterm CDs are about the best rate........

True, but what has me confused is that TIAA uses vintages for money accumulated prior to retirement. They say these vintages are buckets of money that accumulate at whatever rate is effect during the time the money was accumulated. What I didn't realize is that they can retroactively reset the rate older vintages earn. I found the following on their site:

"... if you're receiving income under the Interest-Only Option, also referred to as the Interest Payment Retirement Option (IPRO), TIAA Transfer Payout Annuity (TPA), or a fixed period annuity that was issued after March 1991, the current rates (that go into effect on March 1) will decrease the amount of your payment. Your payment will also be affected by any interest rate changes in effect for accumulations in older vintages." (my italics).

It also bothers me that their couselors didn't tell me this, in fact, they told me the opposite.

So it appears they went back and reset all the older vintages, with the result that my payment dropped by 30%. I suppose I should be happy that (1) at least I earned high rates during accumulation and (2) I'm still earning higher than the average CD (though if I had known this I would have gotten more of those 5% PENFED CDs.)

FWIW, my TIAA traditional annuity increased by (5.4% / 4) in the first quarter of 2009. I have not made a contribution since 1994.

LOL: I don't know if your money is just sitting there or if you are withdrawing it, but if the latter, get ready for a much lower rate starting today. Actually, get ready for a lower rate anyway, starting this quarter.

 

[ziggy29]

It may not be of much solace, but in this environment as long as they are financially sound, a minimum guaranteed 3% seems pretty good.