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

[FinanceDude]

How is it different?

Because with a "captive" audience, and many billions of dollars, their actuaries can customize payouts and options the average Joe can't get.....................

It's kind of like the pay increases the CEO's get from public companies that aren't making money, versus the non-existent bonuses the middle management gets when the company is not making money............

 

[bongo2]

OK, I understand that TIAA-CREF is different from AIG-Vanguard, but what are the differences in the product? I don't want to beat this to death, but the Vanguard product seems to be exactly what brewer mentioned: you keep the investment risk, and pool the mortality risk. I see from looking around the internet that variable payout annutities are offered by several life insurance companies, so what makes TIAA's so special? Is it the low fees and benevolent management, or is there something that makes it a "different animal?"

 

[brewer12345]

OK, I understand that TIAA-CREF is different from AIG-Vanguard, but what are the differences in the product? I don't want to beat this to death, but the Vanguard product seems to be exactly what brewer mentioned: you keep the investment risk, and pool the mortality risk. I see from looking around the internet that variable payout annutities are offered by several life insurance companies, so what makes TIAA's so special? Is it the low fees and benevolent management, or is there something that makes it a "different animal?"

No doubt there are some slight differences in the products, but probably nothing major. The difference is in the issuer. With TIAA-CREF, you are dealing with a mutual company where all policyholders share the risk and the rewards right down to the last dollar of capital. With AIG, you are dealing with a stock company that owns the capital and is in it to make a profit.

 

[bongo2]

Ah, now I understand what you're saying.

 

[bongo2]

Just out of curiosity, do you know of any mutual life insurers with a similar product available to everyone that you would recommend?

 

[brewer12345]

Just out of curiosity, do you know of any mutual life insurers with a similar product available to everyone that you would recommend?

There are mtual insurers who sell VAs out there but most of them are a LOT more expensive taht TIAA-CREF's offerings. VAs are also very much a scale business, as some of the smaller and mdsized players are finding out. So you have to choose carefully because most mutual companies don't consider VAs to be their core business, so you are potentially at risk of being in an "orphan" VA if they decide to get out of that business.

The only company that comes to mind that is both mutual and committed to the VA business is Pacific Life. They aren't as solid as TIAA-CREF, but almost nobody is. I think Pac Life is a good, well run company that I would be OK taking exposure to. Having said all that, I don't think they sell direct, and their offerings tend not to be the cheapest.

 

[FinanceDude]

There are mtual insurers who sell VAs out there but most of them are a LOT more expensive taht TIAA-CREF's offerings. VAs are also very much a scale business, as some of the smaller and mdsized players are finding out. So you have to choose carefully because most mutual companies don't consider VAs to be their core business, so you are potentially at risk of being in an "orphan" VA if they decide to get out of that business.

The only company that comes to mind that is both mutual and committed to the VA business is Pacific Life. They aren't as solid as TIAA-CREF, but almost nobody is. I think Pac Life is a good, well run company that I would be OK taking exposure to. Having said all that, I don't think they sell direct, and their offerings tend not to be the cheapest.

You are correct, they do not sell direct, and their total eexpense ratios inside are 2.40-2.85%, depending on if you take riders or whatnot................

American Legacy are VA's run by American Funds. Their expense ratios are about .50% less than Pacific Life or Hartford...............bottom line, VA's are expensive and unneccesary for a lot of folks, but have their place..................

 

[nun]

I have a current state retirement plan with TIAA-CREF and IRAs with another provider. The state plan is federal tax deferred, but after tax for state tax, so when I start taking money out I'll have to pay federal tax, but it will be free of state tax. I had considered rolling it over into an IRA, but I think that this would make my IRAs difficult wrt tracking the tax as I'd have comingled tax deferred and state after tax money. My question is this, is it simpler just to leave the money with TIAA-CREF, take money out and only pay federal tax unitl I've spent it down and then can tap the IRAs.

 

[d]

wow, that sure would seem complicate matters. complications aside, tiaa-cref is not a bad place to be ... any particular reason you're wanting to move out?

 

[nun]

wow, that sure would seem complicate matters. complications aside, tiaa-cref is not a bad place to be ... any particular reason you're wanting to move out?

No particular reason, just looking to "simplify" and get all my funds with a single company. It looks like the simple option is to leave the money in TIAA-CREF so the state fund and my IRAs are not co-mingled and its a simple matter to do the taxes.

 

[New Thinking]

I am surprised that you are even debating this when you get free health insurance for what could be 35-40 years..This is worth thousands a year. I have never even heard of this before.

 

[JohnEyles]

I am surprised that you are even debating this when you get free health insurance for what could be 35-40 years..This is worth thousands a year. I have never even heard of this before.

I think perhaps you are confusing 'nun' with me; I am NOT even debating it.
I think the state legislature came to their senses and now you have to have
20yrs of service (not 5yrs as I did), but I still think you are eligible after 5
but must pay a pro-rated cost between 5 and 20.

 

[JohnEyles]

As I mentioned a couple weeks ago (I'm keeping this in the same
thread), I am going to annuitize my TIAA (leave CREF for now) in
order to get health insurance.

But when I look at the payout for TIAA, it seems remarkably bad -
as compared to a SPIA for example; thus I'm thinking to annuitize
only a small amount (for the health insurance) and move the
remainder over to CREF.

I'm curious if my analysis makes sense. TIAA-CREFs "illustration"
says that my $64K in TIAA will yield a lifetime income of $336/mo.
This seems to be independent of anything I specify about TIAA's
ROR, since apparently it's all determined by their "vintage" system
(the ROR is determined by when the money was put IN to TIAA).

If I use the Vanguard/SPIA calculator, I get $364/month.

Brewer may argue if the extra 10% is worth the lower trustworthiness
of AIG as compared to TIAA-CREF. But that's not the point, since THIS
money can't be rolled to Vanguard anyhow. This point is, it says TIAA
is kinda a rotten deal and I oughta roll most of it to CREF, where payouts
are quite respectable (as compared to a SPIA).

Make sense ?

 

[ats5g]

As I mentioned a couple weeks ago (I'm keeping this in the same
thread), I am going to annuitize my TIAA (leave CREF for now) in
order to get health insurance.

But when I look at the payout for TIAA, it seems remarkably bad -
as compared to a SPIA for example; thus I'm thinking to annuitize
only a small amount (for the health insurance) and move the
remainder over to CREF.

I'm curious if my analysis makes sense. TIAA-CREFs "illustration"
says that my $64K in TIAA will yield a lifetime income of $336/mo.
This seems to be independent of anything I specify about TIAA's
ROR, since apparently it's all determined by their "vintage" system
(the ROR is determined by when the money was put IN to TIAA).

If I use the Vanguard/SPIA calculator, I get $364/month.

Brewer may argue if the extra 10% is worth the lower trustworthiness
of AIG as compared to TIAA-CREF. But that's not the point, since THIS
money can't be rolled to Vanguard anyhow. This point is, it says TIAA
is kinda a rotten deal and I oughta roll most of it to CREF, where payouts
are quite respectable (as compared to a SPIA).

Make sense ?

John,

I'm a little confused. Does the TIAA retirement income illustration you mention above [$336] use your actual vintage interest rates?

Could you elaborate more on how the CREF payouts are better than the TIAA payouts? Are you using the usual 4% AIR for the CREF payouts?

IIRC, to get the free health bennies, you have to start withdrawing money from your TC accounts [403(b)], right? So your choices are either systematic withdrawals, which you stated earlier that you didn't want to do b/c that runs the risk of depletion and cancellation of health bennies. Or you can annuitize some of your TC accumulation, which is either the 1) TIAA standard payment method, 2) TIAA graded payment method, or 3) variable payouts from the 4 CREF stock, 2 CREF bond, MM, or TIAA Real Estate accounts. Is this correct?

- Alec

 

[JohnEyles]

I'm a little confused. Does the TIAA retirement income illustration you mention above [$336] use your actual vintage interest rates?

I think it does, because (a) it HAS that information, and, (b) if I change the AIR for
TIAA it does not affect the payout (apparently it's ignoring what I put in).

Could you elaborate more on how the CREF payouts are better than the TIAA payouts? Are you using the usual 4% AIR for the CREF payouts?

Well, they are simply higher. No, for CREF I am using about 7%. I have about $130k
and if I start soon at 54yo the 3%-inflation adjusted payout is about $600/mo.
Vanguard/AIG SPIA gives about $500/mo.

IIRC, to get the free health bennies, you have to start withdrawing money from your TC accounts [403(b)], right? So your choices are either systematic withdrawals, which you stated earlier that you didn't want to do b/c that runs the risk of depletion and cancellation of health bennies. Or you can annuitize some of your TC accumulation, which is either the 1) TIAA standard payment method, 2) TIAA graded payment method, or 3) variable payouts from the 4 CREF stock, 2 CREF bond, MM, or TIAA Real Estate accounts. Is this correct

Sounds about right. The ORP-4 form which must be filled out says "in order to be eligible,
the ORP participant must be vested, that is, contributed for five or more years to the
ORP, ... and be in receipt of an ORP monthly retirement annuity benefit". That seems
a little indefinite about whether it must be a "lifetime annuity" or not; but I don't care,
I'm just gonna annuitize a small portion of TIAA and move the remainder over to CREF.

 

[Rob]

Your comments, JohnEyles, really hit home. I don't really understand all the lingo that you are using, but I do understand "annuitize or not annuitize" TIAA. I'm 59 1/2 yo , and since I was your age (54) I've been saying "this is my last year of teaching!!!!!!!" I'm still teaching and burned out! My insecurity and fear of retirement and not knowing what to do keeps me working! I've been with TIAA-CREF since 1977. I'm trying to decide on several options. 90% of my TIAA-CREF is in ATRA (after tax). If I were to do the interest only from my TIAA part, I'd get $32,000/year. If I annuitize all of my TIAA, I'd get $44,000/year. If I annuitize all my TIAA-CREF funds, I'd get $53,000/year. If I opt for the interest only TIAA, then my retirement pension increases the longer I delay the annuitization. If I annuitize, I'm not sure if I should annuitize all the TIAA or part of it. Any insights/suggestions on this?

As for the comments on the "Graded versus Ungraded" TIAA, I read that it takes about 15 years for the benefits of the graded to reach the level of the ungraded, and then and only then are the monthly annuity amounts received more than the ungraded. Is it worth waiting that long??

Your comment about "health insurance" really hit me! Do you mean that TIAA-CREF gives free health insurance when you retire? This I was not aware of. Last year I decided to buy private health insurance just to be sure that I was covered after I retire (when I get the courage). I sometime wonder why so many Americans feel they have to be with medical insurance companies based in America. I did an awful lot of research. I looked to Europe. The two pre-eminent insurance providers that give the best coverage are BUPA (from England) and a company BUPA recently purchased called IHI (International Health Insurance) from Denmark. Insurance brokers highly recommend both. I went with IHI. I have a $1400 deductable and covered for 2 million per year. It also covers outpatient treatment for cancer, and that was my concern. I pay $2,400/year. Not bad. It also covers me in the states.

I should mention that I live in Singapore. I teach at international schools here, and yes, I'm tired of the routine. I can live here forever if I want. I plan on this being my last semester, and hope I stick with that plan. However, in the back of my weak mind is a voice saying "just stick it out for a year more and think of how much more retirement you'll have".

Good to read what you had to say about TIAA-CREF.

 

[JohnEyles]

Your comment about "health insurance" really hit me! Do you mean that TIAA-CREF gives free health insurance when you retire? This I was not aware of.

No no no. Sorry I was misleading. It is my state's retirement system that
provides the free health insurance, for anyone with 5 years service who never
pulled their money out of the retirement system (be it the state plan or any of
the optional carriers including TIAA-CREF) and is receiving a monthly benefit.

They came to their senses and changed it to 20yrs, but I'm grandfathered in
because I began employment prior to 1989 or so.

 

[ats5g]

As for the comments on the "Graded versus Ungraded" TIAA, I read that it takes about 15 years for the benefits of the graded to reach the level of the ungraded, and then and only then are the monthly annuity amounts received more than the ungraded. Is it worth waiting that long??

Rob,

If you have good reason to believe that you'll live a long time, then the graded payment method may be something to look into, as it may not get ravaged by inflation as much as the standard payment method. Note, however that the adjustments to the graded method are based on the interest rate from the traditional account being over 4% [which is the AIR that TIAA usually assumes for annuitizing every account accept the standard method in TIAA]. So, if TIAA's interest rates remain around 4-6%, your payment may only increase b/w 1-2% yearly.

Of course, if you do choose the graded method and feel that you've made a mistake, you can always switch over to the standard method, but not back again.

b/w here's how Vanguard defines AIR:

Assumed investment return

Your assumed investment return (AIR) determines the amount of your first variable income payment. The first payment will be higher if you choose the 5% AIR than if you choose the 3-1/2% AIR. If your portfolios return more than your AIR in any given payment period, your next payment will be higher. If the return is lower, your payment will be lower.

- Alec

 

[DW]

So, if TIAA's interest rates remain around 4-6%, your payment may only increase b/w 1-2% yearly.

I'm interested in this topic, as I'm thinking of annuitizing some of the money I have in TIAA-CREF. If I do this, one major decision is between their standard annuity and their graded annuity. How sure are you of the values you cite above? Boy, a 1-2% gain per year is very unlikely to match inflation over the long run...which is what TIAA advertises as the value of the graded annuity. Sounds like I'd be better of taking the traditional and putting the excess in an equity/bond mix.

 

[ats5g]

I'm interested in this topic, as I'm thinking of annuitizing some of the money I have in TIAA-CREF. If I do this, one major decision is between their standard annuity and their graded annuity. How sure are you of the values you cite above? Boy, a 1-2% gain per year is very unlikely to match inflation over the long run...which is what TIAA advertises as the value of the graded annuity. Sounds like I'd be better of taking the traditional and putting the excess in an equity/bond mix.

From TIAA-CREF's Receiving Your Retirement Income from TIAA-CREF, on the graded payment method:

THE GRADED PAYMENT METHOD – initial income is based on a 4% interest rate (21⁄2% guaranteed plus 11⁄2% from additional amounts). If the total payout interest rate exceeds 4%, any remaining additional amounts, over and above the amount needed to bring initial income to a level based on a 4% interest rate, are reinvested and used to buy you additional future income. The result is that your payments are likely to increase throughout your retirement to help protect you against inflation. You receive the initial amount from your retirement start date through December of that year. Your income changes are effective on January 1. As long as the guaranteed interest plus the additional amount exceed 4%, your income will increase the following year. If the guaranteed interest plus the additional amounts is less than 4%, your income could decrease.

and from page 4:

The lower the total interest rate, the longer it will take the Graded Method to surpass the Standard Method and the longer it will take for the cumulative payments to become equal.

The standard vs. graded chart on page 4:

Year Standard Graded

1993 $810.86 $583.30
1994 $810.86 $605.73
1995 $810.86 $629.03
1996 $810.86 $653.22
1997 $810.86 $678.34
1998 $810.86 $704.43
1999 $810.86 $731.52
2000 $810.86 $759.66
2001 $816.49 $788.88
2002 $821.03 $824.91
2003 $821.03 $861.40
2004 $821.03 $894.53
2005 $821.03 $928.94

In their real life example, the graded increased at around 3.8%-4% each year. However, note that this time frame is when interest rates on intermediate and long term bonds where higher than they are now, and that TIAA is invested in mostly longer term bonds, loans, mortgages, etc.

So, if interest rates on these types of investment are lower going forward than before, like 5%, you'd only be reinvesting around 1% to increase the payout in the graded method.

This might be a good question for the TC rep at your school, or a Wealth Management Advisor at TC. i.e. "What would the graded payment method look like if interest rates on TIAA going forward are lower than it the past?"

- Alec

 

[DW]

Thanks. I guess I was mislead by not focussing closely enough on the historical example and the decline in interest rates since then. I remember reading somewhere that predicting interest rates is a more futile exercise than even predicting stock prices. As always, nothing in life is guaranteed. On reflection, I don't think this will be a big issue for me, as I will probably annuitize only about 22% of my portfolio and should be able to cover inflationary problems in other ways.

Still, as you say, this would be a good question to ask our TIAA-CREF representative. I'm going to do that.

Again, thanks for the help.