What to do with TIAA retirement annuity?

[A Bird In Hand]

From previous jobs my wife and I both have TIAA retirement annuity contracts. They make up about 1/3 of our retirement assets at the moment, though that will decrease over time due to continuing contributions elsewhere in our retirement accounts.

When forecasting our retirement income I've always just mentally grouped all our disparate accounts into one, imagining they were in a single IRA. It's obviously not as simple as that, and I'm trying to wrap my head around how an annuity fits into our retirement picture.

One consideration is whether an annuity is a good idea or not in the first place. According to TIAA's projections, our annuities would account for ~ $20k/year starting at age 60, and closer to ~$30k/year starting at age 70. Those figures are adjusted for inflation, and assume joint survivor with a 20 year guarantee.

So one way to think about this income is in a manner similar to SS. We could use SS + TIAA annuity as a floor for our retirement income, and together they should come close to meeting our projected expenses, at least from age 62 onward.

Another option would be to cash out our TIAA contracts, which looks to be a bit of a pain. As far as I can tell, we can choose to either take the money in 10 yearly installments, or pay a 2.5% surrender charge and take it all at once (and presumably roll it over into an IRA). I believe both would have to come after we retire and probably after some age like 55 or 59 1/2.

Does anyone have pertinent advice (or better yet, experience) relating to annuities in general, and especially TIAA retirement annuities?

 

[Animorph]

Always shop around and make sure you can't buy a better annuity if you cash out. That usually is not the case, but you never know.

Try running FIRECalc with your different options., with a reasonable (not to age 120) lifespan. Is there a clear winner?

Do you feel that you will likely outlive your average life expectancy? That will make the annuity look better.

Do you have enough in the portfolio to handle emergencies that might require large capital expenditures? I wouldn't want to place everything I had in annuities.

 

[pb4uski]

To begin with, TIAA is one of the better players in the industry.

What you describe sounds like a deferred annuity that at some later point in time can be surrendered for a lump sum or annuitized. If so, there the immediate question is what is the deferred annuity earning now? You can ask, or also get a sense by looking at the growth over the last calendar or policy year. My guess is you're probably earning 3-4.5%, which is pretty good for a safe fixed income investment with no interest rate risk. If the earnings rate is in the 3-4.5% range and it fits into your fixed income allocation then I would keep it.

Annuitizing is a separate decision that you can decide later and is a question of the psychological attraction of having lifetime income with minimal credit risk and how the benefits compare to the benefits if you were to take the surrender value and purchase a SPIA in the open market with the same benefit structure (joint life with a minimum of 20 years of benefits).

What do you mean by "those figures are adjusted for inflation"?

 

[A Bird In Hand]

Do you have enough in the portfolio to handle emergencies that might require large capital expenditures? I wouldn't want to place everything I had in annuities.

Yeah, I'm uncomfortable having a large % of my assets locked up in annuities. Currently it's ~ 30% of our retirement assets, but by the time we RE I estimate it will be ~ 20%. By the time we could actually start withdrawing, it may be only 10%.

 

[ERhoosier]

Like most on this forum, I'm generally not a big fan of annuities (hi sales charges, expense ratios, restrictions, etc.). Agree cashing out can be PITA. Since you already have TIAA employer-based annuities (among the best, IMHO) you might keep them as part of your overall "bond" asset allocation.
IMHO- Using TIAA + SS as retirement income base can be a sound plan. As you state, you can use your other retirement (& non-retirement) investments to achieve the overall AA you want (based on your specifics- ages, needs, expenses, risk tolerance, etc., etc.)

 

[A Bird In Hand]

What you describe sounds like a deferred annuity that at some later point in time can be surrendered for a lump sum or annuitized.

If so, there the immediate question is what is the deferred annuity earning now?

That sounds about right. TIAA calls it a "group supplemental retirement annuity", though I don't know that this nomenclature is standard. The specific fund that is earning a fixed return is something they call "TIAA Traditional". It's earning about 3.5%. Though the portion of our TIAA holdings that is currently in the Traditional fund is only about 20%. The remainder is in other funds like CREF Stock, CREF Growth, TIAA Real Estate, etc.

What do you mean by "those figures are adjusted for inflation"?

Sorry, I guess that wasn't very clear. According to TIAA's calculator, retirement income is "Shown as 'purchasing power' after inflation is included."

 

[pb4uski]

Can you control how much is in each fund? If so, then it sounds similar to a variable annuity (the return varies with the performance of the funds (aka subaccounts)) and at some future time you can annuitize it or take the account balance.

If you can control how much is in each fund and the Traditional account pays 3.5% then I would keep it and use it for my fixed income allocation. It is effectively the same as having access to a stable value fund paying 3.5% in a 401k, which is just about unheard of. That all assumes that the other funds have reasonable ERs and performance history, which I would think is likely given they are TIAA-CREF.

 

[MikeTN]

I have TIAA-CREF retirement funds. I annuitized some at age 66 and some more this year at age 70. First, consider how much of your money is in the TIAA traditional account. If it is in TIAA supplemental or in other TIAA-CREF funds you can transfer easily to Vanguard without penalty. I had about 25 percent of my retirement funds in TIAA traditional. I annuitized some and for the rest took a 9 year payout. You are probably getting substantially more than the 3.75% paid on new money this year (because you invested in the past when interest rates were higher). So this is better than a bond fund because the interest rates paid are higher, the principal cannot decline, and even the interest rate had a fixed minimum -- 3 percent for most of us. So it is good to keep it as part of your safe money.
I'm happy with my decision to annuitize part and take the rest out over 9 years. I checked what I could get from the insurance company Vanguard uses for annuities. Their payout was only slightly higher. However TIAA is safer as it has the highest possible ratings, and has tended to increase payouts over time (slightly).
I had some TIAA-CREF stock and real estate funds as well. I transferred most to Vanguard. However, I left some at TIAA-CREF in the form of a variable annuity. At age 70 I get about 7.6 percent annually from this portion, and this is adjusted annually depending on the total returns of these funds. If returns exceed 4 percent my payout increases, if less than 4 percent it declines. I know most on this forum don't like annuities but if your health is average or better and you have TIAA retirement funds already, I think it makes sense to annuitize some to cover basic expenses in retirement no matter how long you live.

 

[Tadpole]

I had just a little of my savings at TIAA-CREF from a 403b in the 80s. A ten year payout option came in slightly lower than my age 62 reduced SS benefit. I am taking the payout and deferring the SS to age 70.

 

[A Bird In Hand]

Can you control how much is in each fund? If so, then it sounds similar to a variable annuity (the return varies with the performance of the funds (aka subaccounts)) and at some future time you can annuitize it or take the account balance.


If you can control how much is in each fund and the Traditional account pays 3.5% then I would keep it and use it for my fixed income allocation.

Yes, it looks like I can transfer between any of the funds in my account. So maybe view TIAA Traditional as the "bond" portion of our portfolio. And assuming I wanted a 1:2 ratio of bonds:equities in my portfolio, I could reallocate my non-TIAA retirement funds to be 100% equities (since TIAA currently amounts to ~ 1/3 our retirement holdings)?

 

[pb4uski]

Yes, it looks like I can transfer between any of the funds in my account. So maybe view TIAA Traditional as the "bond" portion of our portfolio. And assuming I wanted a 1:2 ratio of bonds:equities in my portfolio, I could reallocate my non-TIAA retirement funds to be 100% equities (since TIAA currently amounts to ~ 1/3 our retirement holdings)?

That's what I think I would do. Where else can you get that interest rate with no interest rate risk and minimal credit risk? Seems like a no-brainer to me.

Just be sure that 1) the attractive interest rate applies to money you put into the Traditional now (I suspect it does) and 2) be aware of any tax implications of your non-TIAA accounts (but if they are tax-deferred account that should be no problem) and 3) high ERs or poor performance of the equity options available to you.

 

[brewer12345]

About 3% of my portfolio is in a cash balance pension similar to the TIAA account you have. I can pull it out in a lump sum or elect to get an annuity in the further. Once I start receiving payments I have the option to use 401k money to buy more pension credit. Between the pension balance and the 401k funds its about 14% of my portfolio. I intend to leave the funds there and keep the option to annuitize in the future. Will I definitely annuitize? Who knows. But all the research I have seen fairly convincingly demonstrates better portfolio survivability with a pension-type income floor and the nature of the pension is that it has no default/carrier risk, so I will keep the option open. I would say that TIAA is one of the lowest risk insurers in the US, so I think your default risk is essentially nil.

 

[pb4uski]

Actually, now that I think of it, 10% of my nestegg is in a similar deferred comp plan that I can annuitize.

I wasn't even aware of the annuitization benefit until after I retired and was looking over my rollover options. The annuity benefit was significantly better than what SPIAs were paying at the time so I decided to keep it with my former employer rather than roll it over into my tIRA. I am just letting it grow and will decide later whether to annuitize it or take it as a lump sum and roll it into my IRA

But alas, my plan doesn't have a sweet stable value fund or no interest rate risk investment paying 3.5% available to it. I wish it did.

 

[nun]

I have TIAA-Traditional and I just include it as part of my fixed income. Where else could I get 4.43% interest with a guaranteed minimum of 3% so there's no way I would give it up.

The decision to annuitize or just do systematic withdrawals will depend on your circumstances, but I would certainly keep the TIAA-Traditional as part of your asset allocation. If you don't annuitize you can access all the principal in TIAA-Traditional by doing systematic withdrawals over 10 years....that's the price you pay for that nice interest rate. Also TIAA-Traditional will be nice to have as part of your fixed income/bond allocation when interest rates go up.

 

[ERhoosier]

I have TIAA-Traditional and I just include it as part of my fixed income. Where else could I get 4.43% interest with a guaranteed minimum of 3% so there's no way I would give it up. ...

Agree 100%, but those rates are only for older existing accounts. In current FI market they are worth holding on to, for sure. Buying into a new TIAA Traditional Annuity-IRA only yields 1% (according to TIAA-CREF website).

 

[nun]

Agree 100%, but those rates are only for older existing accounts. In current FI market they are worth holding on to, for sure. Buying into a new TIAA Traditional Annuity-IRA only yields 1% (according to TIAA-CREF website).

Agreed, new TIAA-Traditional accounts are nowhere near as good as existing ones.

 

[Coach]

Most of my retirement assets are in 403(b) accounts at TIAA-CREF. In my case I've decided against annuitizing and just do periodic withdrawals. If I had I wanted to annuitize, though, I would have been happy to do so at TIAA-CREF.

Coach

 

[jbsbdb]

Sorry, I guess that wasn't very clear. According to TIAA's calculator, retirement income is "Shown as 'purchasing power' after inflation is included."[/QUOTE]


When I run my account through TIAA's calculator it also says "Shown as 'purchasing power' after inflation is included." However, when you look at the table they provide along with the results, the monthly/annual income amount drops as the years go by to show you that you are losing purchasing power.
At least that's what mine shows.

 

[A Bird In Hand]

Agree 100%, but those rates are only for older existing accounts. In current FI market they are worth holding on to, for sure. Buying into a new TIAA Traditional Annuity-IRA only yields 1% (according to TIAA-CREF website).

Well then I'll make sure I understand what interest rate I'm getting when transferring existing holdings (CREF Stock, etc.) into my existing Traditional account. Hopefully it will still have the same 3% guarantee.

I really don't understand how interest rates work in Traditional. It seems that the rate depends on the "vintage" of the deposit, which suggests that the interest rate is fixed at the moment of deposit. In that case I probably want to wait for the interest rate to increase before transferring potentially higher-earning holdings like CREF Stock. Eh, I'll have to do more research to find out how this really works.

 

[A Bird In Hand]

When I run my account through TIAA's calculator it also says "Shown as 'purchasing power' after inflation is included." However, when you look at the table they provide along with the results, the monthly/annual income amount drops as the years go by to show you that you are losing purchasing power.

Right, makes sense to me. Purchasing power (shown in today's dollars) will decrease every year due to inflation. The actual dollar amount withdrawn in each period will be the same, but will be worth less over time.

 

[jasg]

Most of my retirement assets are in 403(b) accounts at TIAA-CREF. In my case I've decided against annuitizing and just do periodic withdrawals. If I had I wanted to annuitize, though, I would have been happy to do so at TIAA-CREF.

Coach

Same here (and I am moving my IRA soon). I am in a T/C plan that allows me access to VG index funds as well as T/C annuities & funds, so I feel I have maximum flexibility going forward.

 

[nun]

Same here (and I am moving my IRA soon). I am in a T/C plan that allows me access to VG index funds as well as T/C annuities & funds, so I feel I have maximum flexibility going forward.

That's a nice combo as you can get the low fees of Vanguard. I don't have VG funds in my T/C retirement account and so I have to take the ~0.4% expenses on the CREF variable annuity accounts like CREF Equity Index. Also I can't roll the funds over to an IRA because if I do I lose my retiree health benefits, still it's definitely worth it.