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New Job - Questions on TIAA-Cref Annuity Offering in 403B

Hi,

I just started a new job and the company offers 2 TIAA-Cref Annuities in my 403B that has me thinking if they make sense for me to defer a part of my pay into. 

The offered annuities are:

1-(In the company match portion of the 403b) https://fluenttech.tiaa.org/pdf/factsheet/878094101-TIAAPRC.pdf

2-(In employee deferrals portion of the 403b) https://fluenttech.tiaa.org/pdf/factsheet/878094101-TIAAPRCP.pdf

There's a 3 year vesting period on company matches.

My current allocation in my retirement accounts are 80% stock/20% bonds.

 

From reading everything on the TIAA website regarding the traditional annuities, my understanding is that they lump into vintages and each vintage affects the final value of the contributions. While I contribute into an annuity, the value grows by a % determined each year for that year's contributions (for 2020, it appears to be 3% and 2.25% for the annuities available in my account).

Questions:

1. If I separate from my employer, am I right to assume it's no longer possible to contribute funds into the annuity or is it still possible via roll-overs? 

2. Is there some kind of calculator that can help me determine the potential annuity payments with only x years of contributions?

3. What's the advantage(s) of contributing to the annuity vs investing into the bond index directly? It appears to be the stable return and the option to convert to an annuity but how would this be affected if I end up changing jobs within say 10 years?

4. I'm trying to understand why / when it would make sense for a 37 year old to contribute to either of the 2 TIAA annuities. Any thoughts would be really appreciated!

Thanks!

 

 

 

 

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Re: New Job - Questions on TIAA-Cref Annuity Offering in 403B

Follow RC, RCP on this monthly thread,   https://community.morningstar.com/t5/TIAA-Funds/TIAA-Traditional-Rates-June-1-2020/m-p/702756#M6812

Basically, TIAA Traditional is like stable-value [SV] where principal plus accumulated interest are guaranteed by TIAA. 

A general rule of thumb is to prefer SV if the guaranteed rate exceeds the 30-day SEC yield of bond funds [i,e. their potential long-term future TR].

RC with higher rates has withdrawal restriction on lump-sum; RCP has lower rates but is liquid.

If you change job, you may be able to leave them where they are or rollover cash into T-IRA or your new 401k/403b.

TIAA does have an annuity calculator.

37-yr old doesn't need a whole lot of these but they are good cash/m-mkt and bond alternatives in the current rate environment.

YBB
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Re: New Job - Questions on TIAA-Cref Annuity Offering in 403B


@pandahouse wrote:

1. If I separate from my employer, am I right to assume it's no longer possible to contribute funds into the annuity or is it still possible via roll-overs? 

2. Is there some kind of calculator that can help me determine the potential annuity payments with only x years of contributions?

3. What's the advantage(s) of contributing to the annuity vs investing into the bond index directly? It appears to be the stable return and the option to convert to an annuity but how would this be affected if I end up changing jobs within say 10 years?

4. I'm trying to understand why / when it would make sense for a 37 year old to contribute to either of the 2 TIAA annuities. Any thoughts would be really appreciated!


I note that you posted some very specific questions. So I won't address whether your TOTAL asset allocation (not just TIAA Traditional) is well-chosen. You asked only about one particular menu choice. It's also unclear how much you know about investing. (The Bogleheads board is particularly good for general investing advice.) I'll also note that you may be viewing the term "annuity" as a little too weighted for your young age. That is, the TIAA business is based on annuities, fixed and also asset-linked. And many people use pay-out annuities as a part of their actual retirement years, especially if their total assets can't yield enough monthly income any other way. But you are a long way from making those decisions.

Note that almost any in-house retirement plan that has an employer match is likely an automatic "Yes" decision.

Because the archives of this board are very thin (they were recently deleted by Morningstar), you might read this, oversimplified thread: https://www.bogleheads.org/forum/viewtopic.php?f=1&t=318503

One problem with their recent adooption of "TIAA" as their business name is that it can be hard to parse a statement as to whether it refers to "the company" or "TIAA Traditional annuity."

1. All TIAA salary-reduction plans are specific to the employer. Enrollment is the ideal time to ask the HR office what happens when someone leaves. Alas, TIAA plans are famous for paternalistically restricting actions before retirement age. While TIAA also offers IRAs and Roth IRAs, it's very rare to be able to add money to the same exact plan one had while working someplace. OTOH, TIAA readily adds new "plans" to your portfolio if you, for example, go to work at another Not For Profit that participates. Although partial annuitization is always possible, it's almost an advantage to have multiple plans, to especially "separate" [verb] future decisions.

Policies and laws change, but when I wanted to roll over another employer's 403b to an existing TIAA plan, my only option was to roll it into an IRA. (Some states tax 403b distributions differently from IRAs, and may have different lawsuit and marital settlement protections for the two.)

2. TIAA runs a phone bank that can do estimates for you, and the website (when logged in) can prepare projections. You are a little young for the projections to be meaningful.

3. See the Bogleheads link I posted above. The ability TIAA has to change the accumulation interest rates in the RC annuity means that you have to periodically (I mean, annually, say, not weekly!) look at your records, even after you might leave this employer. I like TIAA Traditional a lot. Do you understand that bond funds MUST lose money if interest rates increase? There have also been more temporary changes in bond values due to general economic malaise, until the Fed intervened to stabilize values. If you include "investment grade" bonds (which funds can have huge amounts of BBB bonds) and "junk bonds", it's simplistic to think that all bonds are perfect for widows and orphans.

But, conversely, the superb "guarantee" of TIAA Trad is simply that of an exceptionally well-run, A++ rated, NY State regulated insurance company. Not the Federal government.

4. When I started working in 1975, I put 50% of my contributions in TIAA Traditional (RA product, withdrawal restrictions) and 50% in CREF Stock Variable Annuity. That corresponds, vaguely, to a Boglehead 2-fund plan. In 1975, those were the ONLY TWO OPTIONS in anyone's TIAA-CREF plan.

You need a fixed-income allocation, even at 37. Everyone is different, but one reason is so that, during market disruptions, you see something on your quarterly reports that didn't go down. It helps with the (substantial) psychological aspects of long-term investing.

Alas, once you own TIAA Traditional, you will be exposed to misplaced criticism for buying an oppressive, exploitative, overpriced, rip-off "annuity" within your retirement plan. Those criticisms, in this case, are completely wrong. But TIAA is, outside the NFP world, so little-known that they are hard to refute.

In most cases, someone who actually annuitizes (I'm 69 and do not plan to annuitize) does better with TIAA Trad money that has been in the plan a long time. That is part of the complexity of the product. See https://www.bogleheads.org/forum/viewtopic.php?f=10&t=318376

Tim

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Re: New Job - Questions on TIAA-Cref Annuity Offering in 403B

As a TIAA Traditional participant/annuitant since 1968, I entirely agree with Tim's final three paragraphs.

Bob

 

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Re: New Job - Questions on TIAA-Cref Annuity Offering in 403B

In answer to op's question 1), I'll mention that yes, I was able to do a rollover of $$ from a traditional IRA to an existing GSRA account at TIAA a few years ago. Once in the GSRA, I could move the money into whichever options were available to me, including liquid TIAA Traditional paying 3% or more...

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Re: New Job - Questions on TIAA-Cref Annuity Offering in 403B

I agree with Bob's agreement with Tim.

Bob and I are among those who are now happy to have Traditional annuities after decades of contributing to the Traditional account.  We elders contributed to the RA and SRA accounts,  The RC and RCP accounts have lower minimum guarantees, but when rates have been not so low as they are now the RC and RCP accounts were paying a fraction of a percent more than RA and SRA accounts.

John

P.S. On Wednesday morning my 84th monthly annuity payment will appear in my bank account.  They add up faster than you anticipate.

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Re: New Job - Questions on TIAA-Cref Annuity Offering in 403B

P.S.

Tim's explanation and commentary set a very high standard.

Well done, Tim. 👍

Bob

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Re: New Job - Questions on TIAA-Cref Annuity Offering in 403B

I'll pile on a little and also agree with Tim - I am about the same "vintage" as Tim and worked for universities for about 5 years from 1977 to 1980 and 1983 - 1985 where I had a TIAA account with the same options - simple CREF and simple TIAA options.  I let mine roll for years while I worked in the private sector because at that time you often had to wait 18 months to get into a university's TIAA retirement plan if you were not already in TIAA.  I was mostly in the basic CREF plan until I started with a financial advisor in my late 40s and by that time I had many other retirement and savings assets so he recommended I put the CREF funds into TIAA (paying 3%+ - a nice interest rate at the time) as a counter-balance to much more aggressive stock/fund investing that I was doing at the time.  I converted it into a TIAA annuity a couple years ago that covers by my life and my wife's (we are the same age).  Pays us about $1000 a month which we think is pretty nice for the amount a beginning instructor and assistant professor put into it many years ago.  Pays our club & golf dues each month.

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Re: New Job - Questions on TIAA-Cref Annuity Offering in 403B

P.S. to John:

Come July 1, I will have collected my 240th annuity payment from TIAA Traditional. Never has gone down, but certainly has gone up over time.

No, it's not inflation indexed. I take care of that from other sources as originally planned.

Bob

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Re: New Job - Questions on TIAA-Cref Annuity Offering in 403B

Pandahouse

A caution about the term "annuity", TIAA refers to all of its plans as "annuities" but they not actually that until you reach retirement age and choose to "annuitize". Up until then they are just "tax deferred".

Part of the confusion is because originally TIAA contracts only allowed you to "annuitize" or to provide a death benefit to a beneficiary. Now they have to allow you to use RMD.

You need to know more about the details of the contract between TIAA and your employer, those can affect your investment choices and may be subject to change by the employer (even retroactively).  Would you have access to non-TIAA products? Note that money invested in TIAA Traditional is essentially "locked up", this investment is where "vintages" come into to play. If you change employers you probably would not be able to continue contributing to your 403b. That contract can restrict your choices at retirement. It is likely that rollovers (e.g. to an external IRA) would not be permitted until  you reach retirement age.

 

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Re: New Job - Questions on TIAA-Cref Annuity Offering in 403B

OP initially had links to employer retirement website that indicted that the plan has an open-architecture with TIAA as administrator/record-keeper only. Other than TIAA Traditional RC and RCP, and TIAA Stable Value [current rate 2.35%, single vintage], there are no other TIAA products in the plan menu. Most funds are from Vanguard, and among those, most are target-date funds. I found the website easily on a web search.   https://www.tiaa.org/public/tcm/mskcc/view-all-investments

YBB
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Re: New Job - Questions on TIAA-Cref Annuity Offering in 403B

My two-cents.  I started contributing to TIAA Traditional in 1977, my wife in 1988.  I also contributed over the years, via my employers' 403b plans, to Fidelity equity and bond funds.  During rough economic times when the market was swooning (e.g., 1987, 2000, 2008), it was a great comfort to know that the TIAA fund was holding steady, growing at 3%+ a year--made it easier to sleep at night and eased the pain of watching the Fidelity funds plunge and gyrate.  

Now that we're retired, it's an even greater comfort to have TIAA Traditional as a core part of our nest egg.  We are not tapping into it yet, and we don't plan to annuitize unless we have to.  But it's there if we need it--as a lifetime annuity, as interest-only payments, as a ten-year payout, or as RMDs.  Not flashy, not sexy, and it hasn't grown as dramatically as our equity holdings have, but we don't for a second regret having it.

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