annuitize TIAA-CREF, or take the money and run ?

[JohnEyles]

I am 53yo and newly ER'ed, and I'm trying to figure out the best way
to start receiving income. I have pondered immediate annuity (SPIA)
long and hard - let's NOT discuss that here (it's been thoroughly debated
on another, massive, thread).

I have about 20% of my nest-egg in a TIAA-CREF Retirement Account -
it's a 403(a), which I think is quite similar to a 403(b) - bonus points
to whoever can explain the difference !

I'm wondering if I want to annuitize my TIAA-CREF moneys, or just take
it as a lump sum and invest it elsewhere. Given my sore temptation by a
SPIA, I like the idea of putting some chunk of my nest-egg into a lifetime
annuity. Of course, although the TIAA-CREF annuity IS guaranteed for
life, the amount is NOT (like any variable annuity, I suppose) depending
instead on portfolio performance.

Unfortunately, noone at TIAA-CREF can really explain to me how the annuity
payments are determined. Apparently there is some "secret formula" that
transforms "accumulation units" into payout. The best one can do is to run
the spastic little calculator at their website. Doing that, the returns look ok.
For example, if I leave my allocation as it is (about 1/3 in TIAA and 2/3
in the CREF variable annuities), and assume modest RORs of 5% and 7.5%
respectively, I get a WR (with payout beginning NOW) of about 5.5%,
increasing at a rate that about matches 2.6% inflation.

On the other hand, if I do a spreadsheet with the lump-sum payout invested
at the same ROR and giving the same payout, it's exhausted in my late 80s,
well past my life expectancy.

So I'm tempted to do it. But I'm not sure how to think about whether it's a
good deal or not. It's complicated by the fact that there is what seems to be a
fairly amazing benefit, which is that if I'm receiving a monthly annuity, I get
free health insurance (same as offered to state employees), even NOW, well
in advance of "typical" retirement age, thus saving the costs of high-deductible
health insurance with an HSA, although eliminating the option of growing a
tax-deductible HSA to pay for future medical expenses. However, I believe
I can still take the 2/3 in CREF and run, and use an annuity from the TIAA
portion to qualify for health insurance.

Anyhow, I hope someone out there is in a similar boat and has pondered this -
thanks !

 

[Rich_by_the_Bay]

You might consider the lump sum; put it aside in the conservative investment of your choice, then invest it in a SPIA when you are older. The payouts are higher, you can shop among all the offering insurance companies, and in the meantime if your health suffers a setback you can scrap the idea of a SPIA altogether.

Just some additional ideas.

 

[brewer12345]

This is one of the few annuites out there that I think can be a good idea. Obviously you will have to get a better answer from TIAA-CREF before you would even think about signing on the dotted line, but the basic proposition here is that you would retain the investment risk (given the CREF investments), but you would be pooling your longevity risk with the other TIAA-CREF annuitants, and the whole thing would be backed by TIAA's capital. Since TIAA-CREF is a mutual with a long record of doing right by its customers, I think this is an attractive option for a chunk of your portfolio. Unfortunately, it is only open to the 403 participants with TIAA-CREF.

This company is also one of the few insurers I do not hesitate to deal with. IMO, they are a safe credit pretty much capable of surviving anything but the proverbial meteorite strike. Even then, they would probably be OK, since they have intentionally dispersed their operations geographicaly.

 

[d]

the health insurance benefit you refer to is truly "amazing". i'd suggest you very carefully double-check to see what might be required (re partial annuitization) ... there might be some "fine print" to help you decide the issues.

not that i can predict, but with interest rates as low as they are now i'd hate to lock-in the TIAA portion at this point.

 

[FinanceDude]

Cref is an ok mutual fund company, however, recent news to me sounds unsettling:

Back in August, we reported that TIAA-CREF was asking shareholders at 23 of its mutual funds to approve either large, very large, or obscene increases in the management fees that TIAA-CREF would be allowed to charge.....TIAA-CREF claimed that it had unintentionally low-balled the funds' management fees when they were first introduced, and the funds had been money-losers ever since.....To their immense credit, and to the surprise of almost everyone who watches mutual funds, shareholders at nine of the TIAA-CREF funds rejected the increased management fees, and now the fate of those funds is in question.....TIAA-CREF had threatened to liquidate or merge any fund that wasn't allowed to increase its fees, and that may yet happen.....We have a better idea, especially if TIAA-CREF tries to follow through with its liquidation threat: Let the funds' trustees (directors) step forward, and arrange for a merger of the rebellious TIAA-CREF funds with similar Vanguard offerings.....Fund expense ratios will probably go down, shareholders will finally get the quality company they thought they were getting with TIAA-CREF, and shareholders won't have to deal with the potentially undesirable consequences of a forced liquidation.....In fact, if push comes to shove, it's difficult to imagine how the trustees could properly do their job and not consider some kind of deal with Vanguard.

 

[brewer12345]

TIAA-CREF underwent a management change and there is now a clear separation between the haves (403 participants) and the have nots (general public investors in mutual funds and to a lesser extent annuities). If you are still one of the haves (as OP is), TIAA-CREF is among the best.

 

[FinanceDude]

TIAA-CREF underwent a management change and there is now a clear separation between the haves (403 participants) and the have nots (general public investors in mutual funds and to a lesser extent annuities). If you are still one of the haves (as OP is), TIAA-CREF is among the best.

Except when your sister dies, and they make you jump through hoops to try to force a conservatorship on you, even though you're the legal guardian of the beneficiaries...............

So far, no movement on their part......................

 

[brewer12345]

Except when your sister dies, and they make you jump through hoops to try to force a conservatorship on you, even though you're the legal guardian of the beneficiaries...............

So far, no movement on their part......................

I don't know what to tell you on that front.

 

[FinanceDude]

I don't know what to tell you on that front.

Makes it hard to "like them".........right now.............

 

[Coach]

JohnEyles, I presume you have another choice -- leave the money at TIAA-CREF and just make systematic withdrawals. Annuitizing might look a lot more attractive some years down the road.

Coach

 

[JohnEyles]

the health insurance benefit you refer to is truly "amazing". i'd suggest you very carefully double-check to see what might be required (re partial annuitization) ... there might be some "fine print" to help you decide the issues.

not that i can predict, but with interest rates as low as they are now i'd hate to lock-in the TIAA portion at this point.

No doubt about it, and it IS amazing. They also say the law simply says that
I must be receiving a monthly payment, that's it - doesn't say how big it has to
be. Oh well, think I'll annuitize the 1/3 or so that's in TIAA (I don't think this
locks in anything, the payment still depends on performance) so as to get the
free health insurance.

I can't take the CREF as a lump-sum now anyhow (without the 10% early
withdrawal penalty) since I'm too young, so I have about 5 years to decide
what to do with the CREF.

Coach, I don't see why the systematic withdrawals would be a better deal, and
I'm a little afraid to do that, because IF the money runs out, I no longer get a
payment and then lose my health insurance !!! Never mind that it's free, it
would also be kinda scary to shop for health insurance whenever that DOES
happen, since I guess I'd be well into my 60s. I guess it would not be primary
insurance since I'd probably be on Medicare, but I still don't really understand
how health insurance works after 65yo anyhow.

Thanks for all the ideas !

 

[FIRE'd@51]

For me, the free health insurance would tip the balance in favor of annuitizing as small a portion as I could. The present value of 12 years of free health insurance has got to be quite high. If this includes medigap after you go on medicare, it's even better.

 

[ats5g]

No doubt about it, and it IS amazing. They also say the law simply says that
I must be receiving a monthly payment, that's it - doesn't say how big it has to
be. Oh well, think I'll annuitize the 1/3 or so that's in TIAA (I don't think this
locks in anything, the payment still depends on performance) so as to get the
free health insurance.

I can't take the CREF as a lump-sum now anyhow (without the 10% early
withdrawal penalty) since I'm too young, so I have about 5 years to decide
what to do with the CREF.

Coach, I don't see why the systematic withdrawals would be a better deal, and
I'm a little afraid to do that, because IF the money runs out, I no longer get a
payment and then lose my health insurance !!! Never mind that it's free, it
would also be kinda scary to shop for health insurance whenever that DOES
happen, since I guess I'd be well into my 60s. I guess it would not be primary
insurance since I'd probably be on Medicare, but I still don't really understand
how health insurance works after 65yo anyhow.

Thanks for all the ideas !

John,

AFAIK, only TIAA traditional and TIAA real estate held in Retirement Annuities [RA] or Group Retirement Annuities [GRA] have the 10% withdrawal per year restriction. Hence, TIAA in RA's pay a higher interest rate. I don't believe the CREF accounts have any transfer restriction at all. Does your 403(b) have some plan specific rules that prohibit moving the CREF money?

Given that the CREF accounts are more or less index hugging quant funds, you could consider moving the CREF money to Vanguard or some other low cost index provider to lower your expense ratios, especially if you can qualify for Vanguard’s admiral shares.

The difference between the 401(a) and 403(b) plans are usually that only the employer/university contributes to the 401(a) plan while the employee and employer can both contribute both to the 403(b) plan. At my father's university, they have the "Basic Plan" [401(a)] in which only the employer contributes a % of your salary depending on how old you are. They also have a 403(b) in which the University matches a % of your contributions.

They are generally two types of "annuitizations" in the TIAA traditional account, which is the general acccount of the insurance company TIAA. The first is what TIAA calls "the standard method," which is comparable to an SPIA, and the second is the "the graded method.” You’ve probably read about them, but just in case, this is a good summary of TC’s Income options.

- Alec

 

[Tadpole]

Anyhow, I hope someone out there is in a similar boat and has pondered this -
thanks !

I am in the same situation. When I retire about 10-20% of my portfolio will be in a plan like yours. I am also seriously considering the options including the annuity. The choice will depend on the TIAA only guaranteed rate at that time.

I was surprised to hear you say that the calculator was so bad. I find, as such sites go, that TIAA-CREF really tries to give you projections under many scenarios with a default assumption and any number of alternate assumptions that you want. They clearly explain the TIAA-only annuity. It is based on a guaranteed rate plus an amount that fluctuates with up years and down years.

They also let you run the constant withdrawal scenario, the minimum distribution assumptions, transfer out and interest payment options. Naturally you have to set the assumed rate of the portfolio assumption or accept their assumption of 6% which, for TIAA, is too high.

I am seriously considering the graded TIAA annuity at this point. This sounds predictable if I understand it. You get the guarantee rate and the excess earned funds the increases in the future. Their default shows the inflation effect. For mine, the grade does not keep up with inflation but doesn't lose value as much as the non-graded does. For me the question for an annuity is whether I might as well take the non-graded since I will reach minimum distribution with my larger TSP account before a TIAA annuity would lose much value to inflation. If you set the custom folio to 100% TIAA and 0% all else, you can see how much of the income is due to the TIAA guaranteed plus part of their calculation. The difference in this and the 100% “all” is the equity and real estate contribution, which is only as good as your assumption of future earnings.

The choice I am not attracted to at this point is the systematic withdrawal from the TIAA. (I intend to learn more about taxes and the like before I reach these decisions.) Taxes are the rub. Minimum withdrawal appears great but the numbers are before taxes and, if the taxes rise in the future as I think they must, I would be poor on the front and taxed poor on the back if all my savings were delayed to that point. Something tells me that retirement tax experts are fixing to get rich as the boomers retire.


The default assumptions are ridiculous in my case since it is not joint. If I am only telling you what you already know, please forgive. I don't find the calculators to be any better or worse than most.

 

[JohnEyles]

I am in the same situation. When I retire about 10-20% of my portfolio will be in a plan like yours. I am also seriously considering the options including the annuity. The choice will depend on the TIAA only guaranteed rate at that time.

I was surprised to hear you say that the calculator was so bad ...

I am seriously considering the graded TIAA annuity at this point. This sounds predictable if I understand it. You get the guarantee rate and the excess earned funds the increases in the future. Their default shows the inflation effect. For mine, the grade does not keep up with inflation but doesn't lose value as much as the non-graded does. For me the question for an annuity is whether I might as well take the non-graded since I will reach minimum distribution with my larger TSP account before a TIAA annuity would lose much value to inflation. If you set the custom folio to 100% TIAA and 0% all else, you can see how much of the income is due to the TIAA guaranteed plus part of their calculation. The difference in this and the 100% “all” is the equity and real estate contribution, which is only as good as your assumption of future earnings.

I do not understand why you say you will convert all to TIAA (I think that's what
you said). If I run a plan converting all my money to TIAA and starting a lifetime
annuity soon (at 54yo), using the standard method, assuming 5% ROR, the payout
is about 6% of my initial amount, staying flat. If I go to the SPIA (immediate
annuity) calculator at Vanguard, the flat-rate payout is 6.6% - guaranteed !

Sure the CREF will fluctuate with markets, but so will any other higher-return
investment.

Ok, I guess the calculator isn't that bad. But it IS clumsy. Think about how many
mouse-clicks it takes to run a different scenario in FIRECalc, versus how many in
the TIAA-CREF calculator ! And it NEVER saves my "Custom Folio", no matter how
nicely I ask.

What REALLY riles me, and it's a general complaint, is that none (of the many
websites I'm logged-in to when I'm thinking about this stuff) allows you to set the
time-out period to be longer than the default. I'm on a computer in my home.
I'm willing to sign away my right if someone breaks into my home and gets on
my computer and moves all my money - and anyhow, I lock my screen when I'm
done !!! Does anybody know how to defeat this timeout period thing - on OSX ?

 

[Tadpole]

I do not understand why you say you will convert all to TIAA (I think that's what
you said).

I can see how you thought I said this but I haven't decided anything yet. If the guaranteed rate were high enough when I retired, I'd certainly consider it. Right now, you are right, they are not high. My suggestion was mainly to separate the two components by first running the TIAA portion and then running the entire amount. That was to give a picture of the difference that the CREF part made.

If I run a plan converting all my money to TIAA and starting a lifetime
annuity soon (at 54yo), using the standard method, assuming 5% ROR, the payout
is about 6% of my initial amount, staying flat. If I go to the SPIA (immediate
annuity) calculator at Vanguard, the flat-rate payout is 6.6% - guaranteed !

That is interesting since TIAA-CREF is always championed as the one annuity that is an exception by the anti-annuity crowd. Maybe it is not as good as in the past.

Ok, I guess the calculator isn't that bad. But it IS clumsy. Think about how many
mouse-clicks it takes to run a different scenario in FIRECalc, versus how many in
the TIAA-CREF calculator ! And it NEVER saves my "Custom Folio", no matter how
nicely I ask.

Agreed. I noticed that their new software addressed "sales" more than "investors".

What REALLY riles me, and it's a general complaint, is that none (of the many
websites I'm logged-in to when I'm thinking about this stuff) allows you to set the
time-out period to be longer than the default. I'm on a computer in my home.
I'm willing to sign away my right if someone breaks into my home and gets on
my computer and moves all my money - and anyhow, I lock my screen when I'm
done !!! Does anybody know how to defeat this timeout period thing - on OSX ?

Again I agree. It is annoying. I have two like this, TIAA-CREF and Fidelity. Fidelity is even shorter. It opens many things in a new window then times out the logged in window while you are reading the new window. It doesn't pay attention to your activity in the pop-up windows even when you are busy using them. TIAA-CREF timed me out twice last night when I was writing my first response to you.

I guess my comparison was to other places I have money (TSP, Fidelity). I cannot get a projection on as many optional withdrawals as I can at TIAA-CREF (or at least have not found such an option that is tied to my account.)

 

[brewer12345]

That is interesting since TIAA-CREF is always championed as the one annuity that is an exception by the anti-annuity crowd. Maybe it is not as good as in the past.

I think that is mostly in regards to their variable annuities. But the payout annuities spit out a little less than some other SPIA offerings for a good reason: You are unlikely to find a safer, lower risk insurer from which to buy a payout annuity. I think they are lower risk than Berkshire Hathaway.

 

[FinanceDude]

I think that is mostly in regards to their variable annuities. But the payout annuities spit out a little less than some other SPIA offerings for a good reason: You are unlikely to find a safer, lower risk insurer from which to buy a payout annuity. I think they are lower risk than Berkshire Hathaway.

I agree, but their VA's are nothing to write home about...........and of course I'm currently biased against TIAA-CREF for their horrible customer service.............

 

[brewer12345]

I agree, but their VA's are nothing to write home about...........and of course I'm currently biased against TIAA-CREF for their horrible customer service.............

Yeah, their VAs used to be a great deal. Now, not so much, since they decided to split the haves from the have nots.

 

[JohnEyles]

Yeah, their VAs used to be a great deal. Now, not so much...

But still, if I run their calculator, and make the very conservative assumptions
of 4% and 7% ROR on TIAA and CREF respectively (I'm split 1/3 and 2/3),
I get a payment which starts at 5.25% of my current accumulation, and keeps
pace with 2.5% inflation. That's starting soon (when I turn 54yo).

And I'm impressed by Brewer's faith in their continued solvency.

 

[brewer12345]

But still, if I run their calculator, and make the very conservative assumptions
of 4% and 7% ROR on TIAA and CREF respectively (I'm split 1/3 and 2/3),
I get a payment which starts at 5.25% of my current accumulation, and keeps
pace with 2.5% inflation. That's starting soon (when I turn 54yo).

And I'm impressed by Brewer's faith in their continued solvency.

The 403 annuity you have is far superior in many respects to the ones that members of the general public can buy from TIAA-CREF.

TIAA-CREF is one of the largest, most solvent mutual insurers in the country. They have their faults (less so if they flush the current CEO, IMO), but they are on a par with about 3 or 4 other large mutual life companies as far as their credit quality goes (IMO, of course).

 

[FinanceDude]

The 403 annuity you have is far superior in many respects to the ones that members of the general public can buy from TIAA-CREF.

TIAA-CREF is one of the largest, most solvent mutual insurers in the country. They have their faults (less so if they flush the current CEO, IMO), but they are on a par with about 3 or 4 other large mutual life companies as far as their credit quality goes (IMO, of course).

Never said CREF has no money.............they got all the doctors and professors and teachers in the US...............

But, STILL WAITING on the customer service..............I'm beginning to think they know I am going to move the funds, and are stalling............

 

[bongo2]

This is one of the few annuites out there that I think can be a good idea.. . the basic proposition here is that you would retain the investment risk (given the CREF investments), but you would be pooling your longevity risk with the other TIAA-CREF annuitants, and the whole thing would be backed by TIAA's capital.. .Unfortunately, it is only open to the 403 participants with TIAA-CREF.

While AIG is no TIAA, and it doesn't have the fantastic health benefit, Vanguard does offer a similar variable payout annuity. You can get a quote if you select "Variable income payment" on their website:

http://www.aigretirementgold.com/vlip/VLIPController?page=RequestaQuote

From what mortality assumptions I can tease out of their quotes, it looks like it does not make much sense for a 54 year old to annuitize since the expenses are eating up their mortality benefit for the first few years.

 

[brewer12345]

While AIG is no TIAA, and it doesn't have the fantastic health benefit, Vanguard does offer a similar variable payout annuity. You can get a quote if you select "Variable income payment" on their website:

http://www.aigretirementgold.com/vlip/VLIPController?page=RequestaQuote

From what mortality assumptions I can tease out of their quotes, it looks like it does not make much sense for a 54 year old to annuitize since the expenses are eating up their mortality benefit for the first few years.

AIG is a much less solid credit, IMO, and the payout annuities they offer (fixed and variable) are different animals from the ones offered by TIAA-CREf to 403 plan participants.

 

[bongo2]

How is it different?