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Old 04-12-2020, 01:37 PM   #41
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Here is an excellent resource if one wishes to build a TIPS ladder:
Bob Hinkley Downloads
In particular:
TIPS Ladder Builder
Thanks. It will take me a while to figure out that spreadsheet. They are always intuitive to the person that built them.
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Old 04-12-2020, 01:45 PM   #42
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Not sure who "she" is Mike... the OP is a he... .......
I think post #31 was a hijack, throwing confusion into the discussion.
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Old 04-12-2020, 01:53 PM   #43
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I think post #31 was a hijack, throwing confusion into the discussion.
Ah... I see... and when Mike referred to the she hijacker as the "OP" it added to the confusion.... or at least it confused me.

Carry on.
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Old 04-12-2020, 02:33 PM   #44
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Op is not proposing to purchase an annuity from an insurance company. She has been placing part of her paycheck with TIAA for the past 40 years.

TIAA (Teachers Insurance and Annuity Association of America) isn't an insurance company?
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Old 04-12-2020, 02:36 PM   #45
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I interpreted that Mike meant that the person would be annuitizing their existing deferred annuity balance rather than purchasing an annuity from another insurer... but I might be wrong about what he meant.
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Old 04-12-2020, 03:20 PM   #46
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That said, if the OP is a male in Indiana as profile indicates, then 6.5% payout with 10 years guaranteed is a pretty good payout rate....

OP needs to provide more details for more specific advice, but the main point is that the 6.5% is not a "return" because it includes both return of capital and return on capital.

The OP seems to think that they can withdraw their balance whereas you think they can't... it could be that he has a different TIAA product than you do or the OP doesn't know he can't take it out.
Thanks for clearing up the identity issue! ;-) I actually have both kinds of TIAA Traditional in my account - one that can be drawn out at 10%/year for 10 years (which has been growing at a higher interest rate), and the other is "liquid", and can be withdrawn as a lump sum at any time (and is currently growing at a much lower interest rate). I believe the proposed annuity was going to tap BOTH of those accounts. I turn it ALL back over to TIAA, and they in turn start sending me monthly checks.

I'm happy to provide more details if you can tell me specifically what I need to find out?

Again, thanks to all for taking the time to help me work through this.
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Old 04-12-2020, 03:43 PM   #47
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Thanks. It will take me a while to figure out that spreadsheet. They are always intuitive to the person that built them.
You know, I really should have thought to include the BH thread that describes it a bit more. Sorry!

https://www.bogleheads.org/forum/vie...20346#p1820346
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Old 04-12-2020, 04:18 PM   #48
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My "break-even" point for the annuity (the point at which I'll get back the lump sum I annuitize) is about 15 years. There's a guarantee pay-out period of 10 years, so if I were to die before that, the rest of the payments up to 10 years goes to my estate (I'm not married, and have no dependents, so that's not much of a concern).

I always thought I could probably do much better than 6.5% on my own,
I agree with the above comments. This is not "fixed" in terms of purchasing power. It decreases at the rate of inflation, and I'm concerned about that inflation rate.

It is not a 6.5% "return", as shown above.

OTOH, the bold is important. An SPIA lets you spend money that other people want to keep for their spouses or kids.

You haven't said anything about your Long Term Care plan. Some people want to keep assets to cover LTC. As a single person, you might figure you've got enough just by using your house (if you own one) and the stocks. I don't know, just think about that.

You're doing the right thing by deferring SS. In terms of "buying lifetime income", I'd always defer SS first, then think about the SPIA.

When SS starts, the SPIA plus SS may be more income than you "want".
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Old 04-13-2020, 08:15 AM   #49
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You haven't said anything about your Long Term Care plan. Some people want to keep assets to cover LTC. As a single person, you might figure you've got enough just by using your house (if you own one) and the stocks. I don't know, just think about that.
Thanks. I actually do have a separate LTC policy. I chose one from Genworth that, at the time, was offering a policy starting at $5500/month, with 5% annual compounding, UNLIMITED payout period, that qualifies under the Indiana Long Term Care Program for Medicaid Asset Protection. I opted for the 10-year premium option, meaning I pay premiums for 10 years, and then I'm done with the payments ... and the yearly payment I make this year (next month, actually), will be my 10th and final payment. They raised my annual premium one time over the past 10 years, so this will be their "last chance" to try and squeeze a bit more out of me! But I'm within the 45 day window they have to notify me of a premium increase, so I think I'm going to escape this final premium payment year without another increase in premium.
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Old 04-13-2020, 08:25 AM   #50
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I interpreted that Mike meant that the person would be annuitizing their existing deferred annuity balance rather than purchasing an annuity from another insurer... but I might be wrong about what he meant.
This is correct - I was considering annuitizing my existing deferred annuity with TIAA.
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Old 04-13-2020, 09:01 AM   #51
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TIAA (Teachers Insurance and Annuity Association of America) isn't an insurance company?
The name is confusing. Here's a snippet about it from "Investopedia":

Quote:
The Teachers, Insurance, and Annuity Association (TIAA) is a financial organization that provides investment and insurance services for those working in education, medicine, culture, and research. TIAA has a history that dates back to the late Andrew Carnegie, whose Carnegie Foundation for the Advancement of Teaching created the initial organization in order to service the pension needs of professors.

Up until 1997, TIAA operated as a tax-exempt non-profit organization. It is now organized as a non-profit organization that has taxable subsidiaries. All of TIAA's profits are disbursed to policyholders.

In 2010, TIAA shifted its model to become a for-profit financial services corporation offering retirement products, 529 College Savings Plans, managed investment accounts, checking and savings products, mortgage loans and other managed investment accounts.
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Old 04-13-2020, 10:19 AM   #52
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Congress created the 403(b) as a nonprofit version of the 401(k) legislation for those employed in nonprofits, like higher education. Typically university and other nonprofit employers would at minimum pay into a tax advantaged investment account owned by the employee. Many also offered matching amounts, like with the for profit 401(k)s. I remember getting a 12% match on my 8% contribution at my (private) university back in the old days!TIAA was at first just about the only game in town; but over time Vanguard and Fidelity made headway and are offered along with TIAA and others in the nonprofit world. TIAA offers (and this is a simplification) two main areas for investment: safer, interest bearing vehicles and real estate, and securities (stocks/bonds). The biggest risk is with the stocks/bonds offerings but also the greatest reward. Many new employees would just allocate 50% to the paper assets and 50% to the stocks/bonds. During my years as a contributor the general Stock/Bond fund (called "CREF" at that time) consisted of an indexed (S&P I think) core and a smaller actively managed piece).

I was employed in higher education almost all of my life and was covered by TIAA-CREF (now, called only TIAA) before I moved to Europe. TIAA and its products are very complex and require a lot of careful thinking before acting. For example, your final payout rate includes different rates on tranches of your TIAA investments over the years, each paying different interest rates on your contributions during those years...higher in the 80s and 90s of course). Plus, of course, mortality credits. As an investor client, you always can see very transparently which of your accumulations pay what interest rates. When you are ready to retire, you can request any number of models of different options available to you. TIAA, like anything that lasts more than a hundred years, has grown its offerings in helpful ways and offers a complexity as a by product.

You have several choices, OP. You can annuitize some or all of your TIAA accumulation for a lifetime annuity (with all the variations on single/two life, guaranteed period, etc.). You can also opt for an annuity with a built in inflation protector (some of the payout is held back and reinvested regularly for a higher future payout). You can opt for an interest only payout, where you do not annuitize but are simply paid the 3% (with potential plus amounts determined each year) interest. Then decide later if you want to annuitize. Finally, if your TIAA accumulation includes the TREA (TIAA Real Estate Account), your payout will take advantage of any growth (or loss) in that asset. So, a lot to consider.

IIRC, you mention that the TIAA traditional annuity accumulation is 20% of your total TIAA and CREF (stock). And, annuitizing that amount alone would cover your retirement needs. So, in some ways this acts as a bond allocation, at present. Just with a likely higher payout because your funds have variable interest rates based on those tranches I mentioned earlier.

Note: TIAA staff do the work advising and then creating the annuity for you. They do not earn commissions. They are salaried employees. That said, they don't always know what they are talking about on the phone, so be wary. Always confirm yourself what they tell you.

To be clear, you CAN withdraw your TIAA as a lump sum, but only over a ten year period (again, it's complex: technically ten, but in actuality nine). So, cashing out can be done but only in slow motion. Slow motion is what TIAA is all about. It moves slowly, and carefully. You cannot do things, as a client, that might negatively affect your fellow clients. So, the cash out is over a decade to blunt the effect on everyone else. It's a deliberate design to ensure stability of their payout capability.

I have been a client since 1984 and have been very happy. They manage hundreds of billions of dollars in assets for some 5 million clients in higher ed, secondary school, hospitals, and other nonprofits. The four credit-rating agencies all give TIAA-CREF their highest possible ratings: A++ from A.M. Best, AAA from Fitch, Aaa from Moody's, and AAA from Standard & Poor's. They were founded 102 years ago by the Andrew Carnegie Foundation as a nonprofit in order to ensure that professors could have comfortable retirements (which were lacking in 1918). They grew in popularity and in AUM over the next 80 years. In 1998 they were forced out of their nontaxable status because for profit investment firms didn't like their untaxed competition and lobbied the federal government. So, in return they asked to be allowed to create a for profit subsidiary to sell mutual funds and immediate annuities retail. That is a completely separate business.

When I retired five years ago I annuitized my TIAA/CREF accounts to provide one reliable income stream (about 25% of my total invested assets). While a fixed annuity mostly, it nonetheless has increased by 1 or 2% in 3 of the 5 years. Also, the TREA portion has added some growth as well. This year might be a loss, however. In any case, my TREA component is only about 10% of the total accumulation that I annuitized.

I am happy to have this backstop and I treat it like a bond asset in my allocation model. This allows me to take on more risk in my after tax stock portfolio. It allows me to sleep at night when the markets are in full volatility mode.

Wow, a long treatise here; but I cannot emphasize more...do your homework and due diligence before acting. The annuity in its various flavors might work for you; the interest only payouts for now, or something else. Study up online...there are a ton of resources online and some good ones from TIAA itself. Most important, I trust the core group of people at MorningStar's community forum on "TIAA". Join up and pose your questions, they will help you out. Some are retired fellow economists, finance professors, etc. and know what they are about. You can trust their advice.

Hope this helps...

-BB
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Old 04-13-2020, 12:14 PM   #53
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Thanks. I actually do have a separate LTC policy. I chose one from Genworth that, at the time, was offering a policy starting at $5500/month, with 5% annual compounding, UNLIMITED payout period, that qualifies under the Indiana Long Term Care Program for Medicaid Asset Protection. I opted for the 10-year premium option, meaning I pay premiums for 10 years, and then I'm done with the payments ... and the yearly payment I make this year (next month, actually), will be my 10th and final payment. They raised my annual premium one time over the past 10 years, so this will be their "last chance" to try and squeeze a bit more out of me! But I'm within the 45 day window they have to notify me of a premium increase, so I think I'm going to escape this final premium payment year without another increase in premium.
Congratulations. It looks like you are golden. I didn't know anyone was offering unlimited payout + 10 year premium, even 10 years ago.
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Old 04-13-2020, 12:51 PM   #54
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Wow, a long treatise here; but I cannot emphasize more...do your homework and due diligence before acting. The annuity in its various flavors might work for you; the interest only payouts for now, or something else. Study up online...there are a ton of resources online and some good ones from TIAA itself. Most important, I trust the core group of people at MorningStar's community forum on "TIAA". Join up and pose your questions, they will help you out. Some are retired fellow economists, finance professors, etc. and know what they are about. You can trust their advice.

Hope this helps...

-BB
Wow, thanks so much! Nice to hear from someone so familiar with how TIAA works. As you, I worked for in a non-profit (university affiliated) research organization my entire working life. The "employer match" was extremely generous, at least by today's standards. I started with a 50/50 allocation between TIAA (fixed) and CREF (stocks), but at some point later in my career, realized that for the long haul, the stock part of the account was appreciating notably faster, and changed it to more like 20/80. I never really paid much attention to it after that ... until now. I've been "officially retired for just over 5 years. I was doing some part-time "consulting" work for the same office during that time, and also supplementing income as a part-time musician. Both the consulting and music gigs have pretty much ended (at least for now), so all of a sudden I had a need to start thinking about how to start drawing income from the TIAA/CREF accounts.

I didn't know I might be able to start drawing off just the interest from the TIAA fixed portion - that might be the best way for me to start, so I'm going to explore that some more. I'll definitely check out the Morningstar forum as well - I'd not heard about that before starting this thread.

Thanks to all!
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Old 04-13-2020, 03:22 PM   #55
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Congratulations. It looks like you are golden. I didn't know anyone was offering unlimited payout + 10 year premium, even 10 years ago.
I found out just a few months after I signed up for it that Genworth quit offering it. There were some stories in the news a few years after questioning whether Genworth could remain "solvent" because of the LTC policy business, and might sell it off, etc, that were pretty unsettling. I do have the "guarantee" of the State of Indiana, for what that is worth. And in recent years, Genworth seems to have "righted the ship". They did raise my premium once a couple of years ago, but as I said, after this year, I'm paid up for life, so I feel good about that.
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Old 04-13-2020, 03:46 PM   #56
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Congress created the 403(b) as a nonprofit version of the 401(k) legislation for those employed in nonprofits, like higher education. Typically university and other nonprofit employers would at minimum pay into a tax advantaged investment account owned by the employee. Many also offered matching amounts, like with the for profit 401(k)s. I remember getting a 12% match on my 8% contribution at my (private) university back in the old days!TIAA was at first just about the only game in town; but over time Vanguard and Fidelity made headway and are offered along with TIAA and others in the nonprofit world. TIAA offers (and this is a simplification) two main areas for investment: safer, interest bearing vehicles and real estate, and securities (stocks/bonds). The biggest risk is with the stocks/bonds offerings but also the greatest reward. Many new employees would just allocate 50% to the paper assets and 50% to the stocks/bonds. During my years as a contributor the general Stock/Bond fund (called "CREF" at that time) consisted of an indexed (S&P I think) core and a smaller actively managed piece).

I was employed in higher education almost all of my life and was covered by TIAA-CREF (now, called only TIAA) before I moved to Europe. TIAA and its products are very complex and require a lot of careful thinking before acting. For example, your final payout rate includes different rates on tranches of your TIAA investments over the years, each paying different interest rates on your contributions during those years...higher in the 80s and 90s of course). Plus, of course, mortality credits. As an investor client, you always can see very transparently which of your accumulations pay what interest rates. When you are ready to retire, you can request any number of models of different options available to you. TIAA, like anything that lasts more than a hundred years, has grown its offerings in helpful ways and offers a complexity as a by product.

You have several choices, OP. You can annuitize some or all of your TIAA accumulation for a lifetime annuity (with all the variations on single/two life, guaranteed period, etc.). You can also opt for an annuity with a built in inflation protector (some of the payout is held back and reinvested regularly for a higher future payout). You can opt for an interest only payout, where you do not annuitize but are simply paid the 3% (with potential plus amounts determined each year) interest. Then decide later if you want to annuitize. Finally, if your TIAA accumulation includes the TREA (TIAA Real Estate Account), your payout will take advantage of any growth (or loss) in that asset. So, a lot to consider.

IIRC, you mention that the TIAA traditional annuity accumulation is 20% of your total TIAA and CREF (stock). And, annuitizing that amount alone would cover your retirement needs. So, in some ways this acts as a bond allocation, at present. Just with a likely higher payout because your funds have variable interest rates based on those tranches I mentioned earlier.

Note: TIAA staff do the work advising and then creating the annuity for you. They do not earn commissions. They are salaried employees. That said, they don't always know what they are talking about on the phone, so be wary. Always confirm yourself what they tell you.

To be clear, you CAN withdraw your TIAA as a lump sum, but only over a ten year period (again, it's complex: technically ten, but in actuality nine). So, cashing out can be done but only in slow motion. Slow motion is what TIAA is all about. It moves slowly, and carefully. You cannot do things, as a client, that might negatively affect your fellow clients. So, the cash out is over a decade to blunt the effect on everyone else. It's a deliberate design to ensure stability of their payout capability.

I have been a client since 1984 and have been very happy. They manage hundreds of billions of dollars in assets for some 5 million clients in higher ed, secondary school, hospitals, and other nonprofits. The four credit-rating agencies all give TIAA-CREF their highest possible ratings: A++ from A.M. Best, AAA from Fitch, Aaa from Moody's, and AAA from Standard & Poor's. They were founded 102 years ago by the Andrew Carnegie Foundation as a nonprofit in order to ensure that professors could have comfortable retirements (which were lacking in 1918). They grew in popularity and in AUM over the next 80 years. In 1998 they were forced out of their nontaxable status because for profit investment firms didn't like their untaxed competition and lobbied the federal government. So, in return they asked to be allowed to create a for profit subsidiary to sell mutual funds and immediate annuities retail. That is a completely separate business.

When I retired five years ago I annuitized my TIAA/CREF accounts to provide one reliable income stream (about 25% of my total invested assets). While a fixed annuity mostly, it nonetheless has increased by 1 or 2% in 3 of the 5 years. Also, the TREA portion has added some growth as well. This year might be a loss, however. In any case, my TREA component is only about 10% of the total accumulation that I annuitized.

I am happy to have this backstop and I treat it like a bond asset in my allocation model. This allows me to take on more risk in my after tax stock portfolio. It allows me to sleep at night when the markets are in full volatility mode.

Wow, a long treatise here; but I cannot emphasize more...do your homework and due diligence before acting. The annuity in its various flavors might work for you; the interest only payouts for now, or something else. Study up online...there are a ton of resources online and some good ones from TIAA itself. Most important, I trust the core group of people at MorningStar's community forum on "TIAA". Join up and pose your questions, they will help you out. Some are retired fellow economists, finance professors, etc. and know what they are about. You can trust their advice.

Hope this helps...

-BB
Excellent info for the OP. Thanks for taking the time to write that up.

I will add that recent tranches of TIAA Traditional can be sold once. They do not earn as much as the older vintages.

TREA is a bit of a darling over on BHs, as it appears to actually provide some real estate diversification without having to be landlord (not correlated to stocks or bonds). It is a complicated product and would not meet Old Shooter's criteria of understandability by a long shot. It also has liquidity issues for the holder (when/how much you can but/sell) and a pretty low limit on how much you can hold.

Most REITs end up highly correlated to equities.
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Old 04-13-2020, 03:57 PM   #57
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Congratulations. It looks like you are golden. I didn't know anyone was offering unlimited payout + 10 year premium, even 10 years ago.
A year ago when I purchased mine there were only 2 with unlimited payouts.
One America offers unlimited payout in the form of a rider to whole life with 10 year pay, 20 year pay or lifetime pay the premium never goes up.
National Guardian has a traditional LTC that is also unlimited payout.
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I would do it myself
Old 04-17-2020, 04:10 PM   #58
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I would do it myself

Don't get sucked into a fixed rate of return (which, as others have already pointed out, is likely much less than the 6.5% payout rate you are being quoted). Keep control of your money, save yourself the ridiculous commission and fees, and put your own annuity in place by:

1. Putting a % of money into an index fund (e.g. S&P500, Total Mkt)
2. Put the remainder of the monies into a ladder of CDs.

By doing this you have likely replicated what the annuity provider will be doing anyways, without having them skim off a lot of your money for themselves.
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credit risk
Old 04-17-2020, 04:18 PM   #59
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credit risk

If you are 65, and relying on "guaranteed income" don't forget credit risk. During 30 years, a lot will change for insurance companies. If an insurer fails, in a political/monetary environment that favors debtors over creditors, annuity holders with other assets may be significantly disadvantaged. Generally, I think credit risk is under appreciated for younger retirees.
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Old 04-17-2020, 04:18 PM   #60
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I have my funds in TIAA as that was the vehicle the college where I worked used. the funds in the "guaranteed" portion OP mentions are locked in where they can't be taken out unless you follow one of very specific ways.either as an annuity, or a drawdown spread out over either 7 or 10 years or annual accumulated interest only. our plan allowed for a onetime lump withdrawal within 2 years of retirement and charged i think 2% fee to do so. once you pass that threshold your only choice for getting your money is one of the ways i mentioned. it makes for some complicated planning and that is why they push the annuity option so strongly. i am 64 living on SS and the interest portion which is set at a minimum 3% "guaranteed" rate plus an extra percentage based on when the money entered the account.this i will do until i decide on one of the other available options. TIAA also offers other options with more flexibility but those have to be chosen when the money enters the account an if you chose the guaranteed portion it is forever locked into that option.i'd be interested in others that have used TIAA what their experiences are and what worked for you.
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