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Explorer ○

How solid is TIAA Traditional?

Is anyone a bit troubled that TIAA Traditional relies heavily on non-Treasury fixed income?

https://www.tiaa.org/public/pdf/performance/retirement/profiles/TIAA_Gen_Act_Fin_Strength.pdf

In normal times this would not be an issue but clearly there's now a significant deterioration in the high yield fixed income space, due mainly to the falling oil prices and the stress that is creating on energy loans.  With Saudi Arabia vowing to ramp up even further its oil production and Russia showing no sign of backing down loan defaults from the US shale producers should soon be in the offing.  Could that in turn result in stress for TIAA Traditional?  As much as I enjoy its guaranteed 3% minimum return rate is that now too high to be sustainable? And more importantly should TIAA Traditional still viewed as closely comparable to a CD that has FDIC insurance?

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Frequent Contributor

Re: How solid is TIAA Traditional?

2019 TIAA Annual Report is available at.  https://www.tiaa.org/public/about-tiaa/corporate-governance-leadership/document-library

It is a very long report. But pay attention to Capital & Surplus [C&S] in early tables and Notes. C&S is what backs TIAA guarantees. I may add some info later.

YBB
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Follower ○○○

Re: How solid is TIAA Traditional?

More info later would be much appreciated. 

Is the 2019 "annual report" the "TIAA Annual Statement 2019"?

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Participant ○○

Re: How solid is TIAA Traditional?

See the ratings from four agencies at the top of seabrook's link and at the bottom of yogi's link.  They are as good as it gets.  I keep in mind that they could change.  I have not forgotten what happened during the real estate crisis so I cannot get overconfident.  But I would be more concerned if the ratings begin to deteriorate.

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Frequent Contributor

Re: How solid is TIAA Traditional?

Respectfully, the question surfaced in 2008-2009.  It confirms the third stage of grief: panic.

Eventually, we will arrive at resignation--at the point where all will seem lost.  I couldn't possibly say when or how.

It looks like we are on the verge of Helicopter Money--as someone observed: TARP for the People!

The President has said he wants to go "Big."  I believe him.

And then there's covid-19.

Bob

 

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Frequent Contributor

Re: How solid is TIAA Traditional?

2019 Annual Report   https://www.tiaa.org/public/pdf/tiaa-annual-statement-2019.pdf

TIAA business has 2 parts - regulated insurance [life, etc] and annuity [Traditional, etc] businesses and much larger unregulated businesses [VAs, private-equity funds, direct stakes, funds (OEFs, CEFs, ETFs), etc].

This report focuses on the regulated part of the business. Here, the annuity business is much larger than the insurance business.

Assets related to regulated businesses are called Net Admitted Assets and those are only $271.768 billion, +2.55% [keep that in mind when you hear that TIAA has a $1+ trillion AUM].

Capital & Surplus [C&S] is $38.872 billion, +1.96%. Included are $5.041 billion in Surplus Notes issues in 2009 [during financial crisis when liquidity support for T-REA grew over $1+ billion and rating agencies raised other concerns], 2014 [around Nuveen acquisition] and 2017 [around EverBank acquisition]; these were issued not because TIAA really needed the money, but because rating agencies expressed concerns and were edgy about keeping TIAA ratings as high as they did.

Note 2 things: First, C&S is 14.30% of Net Admitted Assets, so TIAA is extremely well capitalized [12.45% even without Surplus Notes]. If it wasn't a nonprofit company, one might say it is overcapitalized. C&S backs TIAA guarantees. Second, C&S is growing. This is after paying all operational expenses, insurance claims, Traditional rate credits and annuity payments. So, don't worry about older 3% min Traditional guarantees [under closed/dedicated plan architecture]; newer annuities have much lower or no min guarantees [under open/flexible plan architecture]. If TIAA can no longer afford 3% min guarantees, then additional/bonus for RC, RA, SRA will disappear first; then TIAA will cut elsewhere; C&S will stop growing or will start to decline. None of this happening, so don't panic and jump out of Traditional because of some irrational concerns. I have been watching C&S closely.

Also read the rating agency reports near the bottom of this link,   https://www.tiaa.org/public/about-tiaa/corporate-governance-leadership/document-library

YBB
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Frequent Contributor

Re: How solid is TIAA Traditional?

As usual, Yogi, you offer an informative and rational perspective.

In times like these, you provide a real service to the community.

Thank you, again, for being you.

Bob

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Participant ○○

Re: How solid is TIAA Traditional?

Let me add my appreciation and thanks for yogi's very informative post with many relevant and important points.  What would we do without yogi?

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Follower ○○○

Re: How solid is TIAA Traditional?

Yes Yogi, you can read a TIAA report like no one else. Thanks. 

My concern has not been whether to leave traditional but whether to to buy more before the 3% party ends--essentially scaling back my bond funds and shifting more to it over the coming year. How much is too much? 

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Follower ○○○

How solid is TIAA Traditional?

A bit off topic but related.

At a CREF Annual Meeting that I attended several years ago in NYC, Roger Ferguson, during the Q&A session (he entertained questions re TIAA even though it was a CREF Annual Meeting), stated that if TRAD were stressed, the TIAA Board of Overseers/TIAA Board of Trustees (don't remember which) could suspend any inflow of new monies, but would have no ability to suspend the 3% guarantee.

canopus

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Frequent Contributor

Re: How solid is TIAA Traditional?


@GLI2019 wrote:

As usual, Yogi, you offer an informative and rational perspective.

In times like these, you provide a real service to the community.

Thank you, again, for being you.

Bob


+1

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Follower ○○

Re: How solid is TIAA Traditional?

Very informative--and reassuring. Thanks for your research and analysis, Yogi.

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Contributor ○○

Re: How solid is TIAA Traditional?


@Learner wrote:

Let me add my appreciation and thanks for yogi's very informative post with many relevant and important points.  What would we do without yogi?


That is why we need engineers to be thinkers first and foremost. When did I hear that? Back in 1966, the year I graduated with my first degree.

Did you all get it?

I just wanted to mention that, if I am correct, Pete (Phenders) is the student (or knows) of Prof. VanValkenburg of U of IL, who was my professor's professor. I believe that Pete could also be an engineer.

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Explorer ○○

Re: How solid is TIAA Traditional?

Zonker asked above: "How much is too much (in TIAA Traditional)?"  I would like to hear answers to that as well. Thanks.

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Frequent Contributor

Re: How solid is TIAA Traditional?

"How much is too much (in TIAA Traditional)?"

If you are asking retirees, I guess it depends on relative risk aversion.

As an accumulator, I was at 25% of monthly contributions.

As a retiree, I draw about 1/3 of my retirement income from Traditional (annuitized).

That's me.  I speak for no one else.

Bob

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Explorer ○○

Re: How solid is TIAA Traditional?

Thank you, Bob.

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Participant ○○

Re: How solid is TIAA Traditional?

Zonkers and Retired,

I would start with what an appropriate asset allocation is for my circumstances.  Obviously, TIAA Trad is not for your allocation to stocks or real estate.  If you want, you can use it for  some or even all of your allocation to bonds.  If you can withdraw from it freely, you can even use it for a part of your allocation to cash.

P.S.  If you plan to annuitize in the future, you need to include this in your thinking too.  Questions like how much you want to annuitize and the interest rate environment would become imporant then.

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Follower ○○○

Re: How solid is TIAA Traditional?

Thanks Learner. That is what I've been pondering--why not make traditional my whole "bond" allocation? After selling all my TREA and moving it to traditional, traditional is now about 28% of my portfolio. As I am now a federal employee, my TIAA 403b is closed and entirely Traditional. 

But I have the option of opening an ATRA and could add more to traditional through that route. Given the money I put in my Thrift Savings Plan, I couldn't ever make contributions to Traditional sufficient for it to be my whole bond fund, but I could push up its allocation somewhat above 28%.. 

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Participant ○

Re: How solid is TIAA Traditional?

Just a reminder that if, and when you make withdrawals from your TIAA Traditional, they will be taken proportionately from all your vintages. That means that your higher-paying, old vintages will be depleted (perhaps, faster) than your pandemic-driven recent deposits.

It's futile to make the observation, but the fastest way to get TIAA to reduce TIAA Traditional interest rates (in the accounts where it has that power) is to pile into the product, at a time when the company can't possibly invest your money safely in securities yielding the current level of return.

I honestly don't know the (opaque, anyway) rules, but because my mother's TIAA Traditional payouts have varied (between a initial 1990 high of $583/month to a low of $526 per month, new high just set for 2020, $586/month), they must have some flexibility in making payouts. The 2020 figure is 251 (contract) + 335 (dividends) = $586.

Tim

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Follower ○○○

Re: How solid is TIAA Traditional?

Yes Tim, there is no way to stop the piling in. You have touched on "the fisherman's problem." With no restraint on any individual investor (fisherman) there is nothing to prevent over investing (over-fishing) in traditional (the sea).

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