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TIAA-Traditional instead of CDs
Old 01-16-2014, 08:56 PM   #1
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TIAA-Traditional instead of CDs

TIAA-Traditional is s deferred annuity that pays a minimum of 3% and my account is currently accumulating at 4.413%. The trick with TIAA-Traditional is that there are several ways to take income that preserve yours and you heirs access to the principal, although you can buy an annuity if you want.

One option is just to take the interest and if you want to get at the principal you can pay out the entire balance in equal amounts over 10 years. So it's sort of like a 10 year CD paying 4.413%. Also if rates go up so will the interest rate that TIAA-Traditional pays. It looks like a good option for fixed income as long as you don't need fast access to principal.
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Old 01-16-2014, 09:01 PM   #2
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What is the advantage of an annuity paying a minimum of 3% vs a CD paying 3%?
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Old 01-17-2014, 12:34 AM   #3
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I bought a couple of small deferred annuities last year but they work differently from what you explain below. Do you have a link you could share with us that explains this TIAA Traditional deferred annuity?


Quote:
Originally Posted by nun View Post
TIAA-Traditional is s deferred annuity that pays a minimum of 3% and my account is currently accumulating at 4.413%. The trick with TIAA-Traditional is that there are several ways to take income that preserve yours and you heirs access to the principal, although you can buy an annuity if you want.

One option is just to take the interest and if you want to get at the principal you can pay out the entire balance in equal amounts over 10 years. So it's sort of like a 10 year CD paying 4.413%. Also if rates go up so will the interest rate that TIAA-Traditional pays. It looks like a good option for fixed income as long as you don't need fast access to principal.
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Old 01-17-2014, 06:38 AM   #4
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Originally Posted by Ready View Post
What is the advantage of an annuity paying a minimum of 3% vs a CD paying 3%?
TIAA-Traditional is a lot more flexible than most annuities as it has various income options....one is a true annuity, but If you take the "interest only" withdrawal option you keep control over your principal and just take interest out every year. Right now that rate is 4.413% and will track interest rates as they go up or down.....so that will probably go up as everyone expects interest rates to increase soon...... With the interest only option when you die your principal is inherited by your heirs and you can also get at your principal, but only by taking equal amounts out over a period of 10 years.

So the "interest only" income option's advantages over a CD are higher interest rates that will probably increase. The disadvantage is that it takes 10 years for you to withdraw your entire principal.

Here are some links

Basic explanation and discussion of TIAA-Traditional

http://www.mymoneyblog.com/dads-reti...l-annuity.html

Income options

https://www.tiaa-cref.org/public/pro...onsored/option
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Old 01-17-2014, 06:56 AM   #5
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Quote:
Originally Posted by nun View Post
TIAA-Traditional is s deferred annuity that pays a minimum of 3% and my account is currently accumulating at 4.413%.
This is not available to anyone today. Only folks who paid into TIAA traditional annuity years ago are guaranteed the 3% minimum. And that minimum of 3% was when other things were paying much more. So over the long-term TIAA traditional was not the best fixed income investment one could have made.

I have TIAA TA from the 1980s. It is paying me at 4.45% annually. That's all it has ever paid. That seems good now, but only because bond yields have dropped. In contrast, the 10-year performance of a Total US Bond fund is about the same: 4.5% annually.

I think the guaranteed rate for new money is just 1%. See the TIAA web site and this discussion at Bogleheads: Bogleheads • View topic - TIAA Traditional in IRA - PAYING just 1%


Also note that the yield or rate depends on when one made the contributions to TIAA TA. My personal rate of 4.45% is not nun's personal rate of 4.413% and will probably not be your rate as well. My contributions started almost 30 years ago.
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Old 01-17-2014, 08:58 AM   #6
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I'm new here so take anything I say with a "grain of salt"...

I see two possible advantages of this sort of annuity:

1. My understanding is that these annuities can defer the "interest" until maturity. This means that instead of paying my current 25% or 28% Federal Income tax on the "interest", I can pay something like 15% after I am retired in a few years and the annuity "matures" and pays then.

2. I am considering retiring early at age 62 or 63 and purchasing my health insurance for a couple of years with the help of the subsidy of the Affordable Care Act. The amount of my subsidy depends on my income, including interest... A CD from a typical bank pays yearly interest, thus raising my Gross Income and thus lowering the subsidy I would qualify for... An annuity held to maturity would pay me after I'm on Medicare...

Is my understanding of this correct?

Thanks,

Jerry.
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Old 01-17-2014, 09:07 AM   #7
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Originally Posted by LOL! View Post
This is not available to anyone today. Only folks who paid into TIAA traditional annuity years ago are guaranteed the 3% minimum. And that minimum of 3% was when other things were paying much more. So over the long-term TIAA traditional was not the best fixed income investment one could have made.

I have TIAA TA from the 1980s. It is paying me at 4.45% annually. That's all it has ever paid. That seems good now, but only because bond yields have dropped. In contrast, the 10-year performance of a Total US Bond fund is about the same: 4.5% annually.

I think the guaranteed rate for new money is just 1%. See the TIAA web site and this discussion at Bogleheads: Bogleheads • View topic - TIAA Traditional in IRA - PAYING just 1%


Also note that the yield or rate depends on when one made the contributions to TIAA TA. My personal rate of 4.45% is not nun's personal rate of 4.413% and will probably not be your rate as well. My contributions started almost 30 years ago.
All true and good points. I've had TIAA-Traditional for 22 years and it certainly wasn't my best fixed income investment, it was boring and predictable, but those actually look like positives going into retirement.As an alternative to a CD or bond fund going I think it looks pretty good.

Unfortunately this investment is only available if you have access to it through your 403b etc and new contracts don't get the 3% guaranteed minimum, but existing contracts continue to get that guarantee.

I would not advocate a 100% allocation to TIAA-Traditional, but it is a way of getting a good interest rate in lean times and has none of the price fluctuation of bond funds. You pay for the interest rate in a loss of liquidity, but you don't give liquidity up entirely, you just have to be willing to plan over a 10 year period.
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Old 01-17-2014, 09:17 AM   #8
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Quote:
Originally Posted by JerryinPA View Post
I'm new here so take anything I say with a "grain of salt"...

I see two possible advantages of this sort of annuity:
Be careful. TIAA-Traditional is very different from most annuities which are often expensive and inflexible. I started this thread because the various income options, the possibility of keeping and passing on principal and combination of interest rate and lack of price fluctuation make it an interesting option for fixed income rather than CDs and bonds.
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Retired Mar 2014 at age 52, target WR: 0.0%,
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Old 01-17-2014, 12:21 PM   #9
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Quote:
Originally Posted by LOL! View Post
This is not available to anyone today. Only folks who paid into TIAA traditional annuity years ago are guaranteed the 3% minimum. And that minimum of 3% was when other things were paying much more. So over the long-term TIAA traditional was not the best fixed income investment one could have made.

I have TIAA TA from the 1980s. It is paying me at 4.45% annually. That's all it has ever paid. That seems good now, but only because bond yields have dropped. In contrast, the 10-year performance of a Total US Bond fund is about the same: 4.5% annually.

I think the guaranteed rate for new money is just 1%. See the TIAA web site and this discussion at Bogleheads: Bogleheads • View topic - TIAA Traditional in IRA - PAYING just 1%


Also note that the yield or rate depends on when one made the contributions to TIAA TA. My personal rate of 4.45% is not nun's personal rate of 4.413% and will probably not be your rate as well. My contributions started almost 30 years ago.
Mostly agree. Individual contract interest rates will vary by account deposit histories & type of annuity account. IIRC the 3% min was for employer contracts issued ~10+ yrs ago, and min was only 1.5% in 2012. TIAA has long history of giving better returns to teachers' employer-funded annuities vs supplemental or IRA contracts. Returns for active teachers' (employers) TA have been substantially better than 10 yr bond index (inc rates >5.5% for deposits 06-09), but I suspect supplemental/IRA returns would be more in-line with that index.
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Old 01-17-2014, 12:26 PM   #10
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Originally Posted by ERhoosier View Post
Mostly agree. Individual contract interest rates will vary by account deposit histories & type of annuity account. IIRC the 3% min was for employer contracts issued ~10+ yrs ago, and min was only 1.5% in 2012. TIAA has long history of giving better returns to teachers' employer-funded annuities vs supplemental or IRA contracts. Returns for active teachers' (employers) TA have been substantially better than 10 yr bond index (inc rates >5.5% for deposits 06-09), but I suspect supplemental/IRA returns would be more in-line with that index.
Once again I agree. But for the folks who do have access to TIAA-Traditional I think it makes a great fixed income choice. If I can get at least 4.4% a year on my money and access to the principal over 10 years it sounds as good or better than CDs and bond funds.
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Current AA: 65% Equity Funds / 20% Bonds / 7% Stable Value /3% Cash / 5% TIAA Traditional
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