March 23, 2017
Unique Planning Opportunities with TIAA Traditional
Teachers Insurance and Annuity Association, better known as TIAA was founded almost 100 years ago (1918). TIAA provides retirement plan solutions for a majority of the higher education institutions in the United States. One type of investment, called the TIAA Traditional Annuity, is a unique fixed income investment option that is available in TIAA 403(b) plans and cannot be purchased on the open market.
TIAA Traditional Annuity Basics
- Available in most university 403(b) plans and usually has guaranteed minimum return of 3.00%.
- Guaranteed returns are subject to the creditworthiness of TIAA (currently rated as one of the best insurers in the market).
- The actual crediting rate of TIAA Traditional Annuities is based on when the money went into the fund. Older contributions can have a crediting rate of 4-5%.
What are TIAA Traditional Restrictions?
- Contract type matters with how TIAA Traditional Funds can be withdrawn.
- In Retirement Annuity/Group Retirement Annuity (RA/GRA) contracts, TIAA Traditional investments have to be taken out over a period of time. The shortest allowed is 10 payments over 9 years.
- In Supplemental Retirement Annuity/Group Supplemental Retirement Annuity (SRA/GSRA) contracts, investments in the TIAA Traditional Annuity can be withdrawn at any time.
- Supplemental plans have a lower guaranteed crediting rate since the investment is liquid, but the minimum is usually 3%.
What is the Current Fixed Income Environment?
- Short Term CDs yield around 1%
- 10-Year Treasuries yield around 2.5%
- If interest rates rise, bond prices fall causing the return on treasuries to be lower.
- TIAA Traditional Annuities yields 3%+ with no volatility.
What are the Planning Considerations for TIAA Traditional Funds?
- A 3%+ rate of return on fixed income assets is appealing in today’s interest rate environment.
- The TIAA Traditional Annuity could be utilized for some or all of the fixed income portion of a portfolio.
- Careful consideration of withdrawal needs in retirement should be considered before transferring money into RA/GRA TIAA Traditional investments where the withdrawals are restricted.
- Making the right investment selection across multiple TIAA contracts and outside investments can be complicated.
As you can see, the TIAA Traditional Annuity option in university 403(b) accounts provides a unique planning opportunity in today’s interest rate environment. If you have this option available to you through you TIAA 403(b), it may be worth utilizing. However, please remember that it is important to weigh the pros and cons of this option to determine if it makes sense to be considered as part of an overall investment and financial planning strategy.