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Author Topic: Question about TIAA CREF - part 2  (Read 28036 times)
dr_strangelove
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« Reply #15 on: August 08, 2007, 12:35:01 pm »

I was told that since I don't have a husb and children, that the "annuity" part of the fund (Cref?) would go back to TIAA-CREF.  I have beneficiaries for the other funds, but the Cref annuity part, I can only name a spouse as the beneficiary.  but it doesn't matter -- my point is that I was ignorant about annuities, asleep at the wheel?  That I didn't know you could only get a payout over a 10 year period starting AFTER the 7th year of savings.

I just signed up with CREF last year (I am over 50) and the payout starts in 2013!  My point is - they should not allow anyone over 50 to get annuities (I know, wishfull thinking) because your lifespan is shortened after 50...not like you're 20 or 30.

And when you sign up for the retirement program, the CREF annuity is almost a default ....you MUST join along with the other programs.

Like I said, I think you were told something incorrect about the annuity beneficiaries.

Regarding the 2013 payout date, that's probably set by federal tax law. Is that when you turn 60? If so, you couldn't take money out of a retirement stock fund without penalty before then, either. That wouldn't have anything to do with your money being in an  annuity.

And actually, having some money in the TIAA-CREF annunity may well be a good thing at that age. The reason that particular annuity has a fixed withdrawal schedule is because it guarantees a certain minimum annual return (3%, I think). When you're close to retirement, you don't want all your money in a stock fund that might lose 20% of its value in one year. Being in an annuity when your 20 or 30 is probably the last thing you want to do.

Anyway, your understanding of all this is apparently a lot different than mine.
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chicago_48
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« Reply #16 on: August 08, 2007, 1:33:04 pm »

I don't like that the annuity is so restrictive.  The payout of 2013 is set in the contract.  I have to wait another 7 years before I can touch the money in any way shape or form.

That's the downside of the annuity.
Has nothing to do with me being 60 or 50 or 40.  When you set up the contract, they add 7 years to the start date as your payout year.
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dr_strangelove
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« Reply #17 on: August 08, 2007, 2:24:07 pm »

chicago_48, before I start, I'm not trying to argue, I'm just trying to understand this, for my own retirement as well.

I poked around on the TIAA-CREF web site and found this document: http://www.tiaa-cref.org/pubs/pdf/retire_strategies.pdf (link to pdf download).

What you're talking about is a "lifetime annuity", and you're right, payment stops when you (or your "annuitiy partner", not clear if this can be someone other than a spouse) dies.

But this is a disbursement option, not an investment option. If you're not yet drawing funds for your retirement, I don't understand why you would be locked into this. (Not saying you're not---there probably something I don't understand.) There are other options as well, such as a "fixed period" annuity (which can be as short as two years, depending on how the money is invested) or as a lump-sum withdrawal. It certainly is complicated.
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chicago_48
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« Reply #18 on: August 08, 2007, 3:13:00 pm »

Well you just proved my point, TIAA CREF is complicated.  I was just reading WSJ that there a bunch of class action lawsuits against equity-index annuities and one of the quotes was "these annuities may not be suitable for older adults because funds may be locked up for several years."  I don't think older adults understand annuities.  Therefore, unless you're going to retire young - before 55 and have been saving since your 20s you should be in them, just mo.
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raoul
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« Reply #19 on: August 08, 2007, 3:47:25 pm »

When I met with the TIAA Cref rep who visited my university, he told me that at retirement, one can take all the funds in the "TIAA Traditional Annuity" as a lump sum disbursement. I do believe that is correct. In that case, if you leave it there it's simply a mediocre investment that paid around 5% interest when you would probably have made much more in the stock market.

However, if you decide to keep your money in the annuity, then you should understand what you are doing. And this is not TIAA-Cref's fault, per se, but I admit that I find these plans very difficult to understand. It's one of those things like the theory of relativity or wireless home network security that I feel I can grasp for a moment after reading a lot about it, but then a few weeks later I really can't recall or explain it to anyone else. And to be honest that's part of my discomfort with TIAA is that I just basically find it difficult to understand what they do, and I don't feel comfortable having my retirement assets in something I don't fully understand. My guess is that MOST people who are invested in TIAA couldn't explain what an annuity is or how it works. Again, this is not TIAA's fault per se, though I don't think they're interested in doing much about it. However, I wouldn't advise someone who didn't know what a derivative was to get involved in derivates trading, so why do all these people who have no idea what an annuity is put their life savings in them? Personally I would rather just be in (some company like Vanguard's) mutual funds which seem to be much more straightforward and transparent.
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eddie_haskell
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« Reply #20 on: August 08, 2007, 8:58:29 pm »

Well, derivatives are some of the most risky things out there (although they can also be used to reduce risk of your other holdings) and traditional annuities are some the least risky things out there.  I see what Raoul is saying, but the comparison is probably not the best one.  The TIAA annuity is a very good one, as far as annuities go.  They have a long, long history of crediting earnings over and above the rate they guarantee. 

Annuities are insurance products.  A traditional, fixed annuity is not an investment at all.  In its simplest form, you give an insurance company a lump sum and they give you a guaranteed income stream until you die.  So, if you buy an annuity you are betting you will live longer than the mortality charts say you will.  That is the gist of it.  To a certain extent it is also a bet that inflation in the future will be lower than the insurance company thinks it will be.

At least with the TIAA-CREF options I have through my university, I could put my retirement contribution in growth-oriented investments such as equities, and then switch to the guaranteed annuity upon retirement.  Or, I could switch some percentage to the annuity each year as I got older, to reduce the risk in my overall portfolio.  That is what I did.  Starting at age 45 I shifted 10% of TIAA-CREF portfolio to the traditional annuity, and I increased that one percentage point per year, so when I hit 60 I will have 25% of the portfolio in the annuity.  Then I will probably take the inflation-adjusted payout option, and the net result will be that it will function like Social Security for me:  increase with the cost of living and cease when I die, leaving nothing for my heirs.  That works well for me because I have very little Social Security built up due to working for state governments most of my life.  Also there is a lot of longevity in my family history and I am in excellent health, never smoked, etc.

Starting off as a 28 year old assistant professor and putting all your retirement contributions in TIAA-CREF's traditional annuity would definitely not be the way to go.
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chicago_48
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« Reply #21 on: August 08, 2007, 10:45:51 pm »

You're more sophistocated than I am.
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eddie_haskell
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« Reply #22 on: August 09, 2007, 1:38:12 am »

Maybe, but I didn't used to be.  You too can educate yourself to a greater degree.  By the way, equity-indexed annuities have no connection to what TIAA-CREF is doing.  They are suitable for perhaps 0.03% of the population and are largely a scam.  They introduce risk into a product that was intended to reduce risk, and are being heavily marketed by mostly charlatans who earn (?) healthy commissions by selling an esoteric and poorly understood product.

One dirty little secret I will expose right away is that in order to sell fixed annuities one only needs an insurance license.  In order to sell variable annuities which are classed as investments, one needs a securities license.  It is harder to get a securities license than an insurance license.  Some insurance agents are very honest and others are not.  Those who are less honest may say "this is the best product we have to offer" and this might mean "this product sucks but it is all I am licensed to sell."

Never let an insurance agent talk you into buying a fixed annuity in an IRA account. This happens all the time and is the worst of all possible worlds.  For an insurance company to sell you a fixed annuity and put it in an IRA is borderline fraud as far as I am concerned.
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random
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« Reply #23 on: August 09, 2007, 4:25:47 am »

This is very interesting.  I think I've been too risk-adverse, but the stock portion of my retirement account has been losing money.  And recently the stock market's taking a beating from the hedge fund scandal.  So is the thing to do to ride it out, provided one has decades to do so?

Related to this question about TIAA CREF not being the best option, what would forumites suggest as an alternative?  Is Vanguard better than Fidelity?
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innyc
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« Reply #24 on: August 09, 2007, 8:12:54 am »

If you look longterm, the historical rate of return for stocks is higher than for other categories of investment.  Depending on how it's calculated you get 9-10% on stocks, unadjusted for inflation, often 5-6% for bonds, and so on.  If you picked perfectly, by selling at exactly the best time, you could increase that.  The problem is that if you pick imperfectly, and stay out during a big runup, you get hit even harder and end up way below the historical averages, since a lot of the money is made in bursts.  So most people who aren't experts try to have a diversified portfolio of equities or funds, and ride it out.  Obviously, history doesn't predict the future, though.


Even with the bad last two weeks, stocks are up for 2007, so I wouldn't feel too bad about your funds losing money in July/August.  On the other hand, if your stock funds have been losing money not just the last two weeks but for all of 2007--while the market overall is well up--then that could be a sign that there's something wrong with those particular funds. 


If you were 64 and thinking of retiring next year, you'd minimize your risk, but most people suggest that those who are decades from retirement profit by being a bit more risky.  Even if it drives you crazy in the short term.

I'd look at which specific funds the other retirement options would allow you to invest in; if it's Fidelity, can you invest in all Fidelity funds, only some Fidelity funds, or funds offered by other people?  What are your potential expense rates?  Morningstar has good info and their info is also copied onto the Schwab website.
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chicago_48
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« Reply #25 on: August 09, 2007, 10:13:28 am »

This is very interesting.  I think I've been too risk-adverse, but the stock portion of my retirement account has been losing money.  And recently the stock market's taking a beating from the hedge fund scandal.  So is the thing to do to ride it out, provided one has decades to do so?

Related to this question about TIAA CREF not being the best option, what would forumites suggest as an alternative?  Is Vanguard better than Fidelity?

I'm a buy and hold person.  I don't play the market.  very safe in that regard, but I will move from one plan to another if I'm losing money.
I personally like Vanguard or Fidelity....but it depends on what your university offers.  Both of my colleges offer TIAA CREF and Fidelity, so I'm switching to Fidelity because I like the straight mutual funds (and the ability to get my money out w/o a lot of restrictions).  When I get my TIAA statement, it looks like a road mapped maze and I have to spend more time trying to figure out what plan earned (or lost) what and by how much percentage.

TIAA Cref should make the annuity part of it optional.  There should be a box on the application  you check if you have read the terms and conditions of going into an annuity.  But they set up their retirement plans so that you practically MUST go into the annuity or you cannot get into the plan.
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innyc
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« Reply #26 on: August 09, 2007, 10:27:27 am »

This is very interesting.  I think I've been too risk-adverse, but the stock portion of my retirement account has been losing money.  And recently the stock market's taking a beating from the hedge fund scandal.  So is the thing to do to ride it out, provided one has decades to do so?

Related to this question about TIAA CREF not being the best option, what would forumites suggest as an alternative?  Is Vanguard better than Fidelity?

I'm a buy and hold person.  I don't play the market.  very safe in that regard, but I will move from one plan to another if I'm losing money.
I personally like Vanguard or Fidelity....but it depends on what your university offers.  Both of my colleges offer TIAA CREF and Fidelity, so I'm switching to Fidelity because I like the straight mutual funds (and the ability to get my money out w/o a lot of restrictions).  When I get my TIAA statement, it looks like a road mapped maze and I have to spend more time trying to figure out what plan earned (or lost) what and by how much percentage.

TIAA Cref should make the annuity part of it optional.  There should be a box on the application  you check if you have read the terms and conditions of going into an annuity.  But they set up their retirement plans so that you practically MUST go into the annuity or you cannot get into the plan.

the annuity is optional...unless your particular university--not TIAA-CREF--mandates it.
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eddie_haskell
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« Reply #27 on: August 09, 2007, 12:44:55 pm »

Vanguard is better than Fidelity, in my opinion.
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random
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« Reply #28 on: August 09, 2007, 12:52:34 pm »

It's true that TIAA CREF statements are particularly hard to read.  On the face of it, the various companies seem to offer a similar range of products.

Eddie_haskell: why do you think Vanguard's better?  Is it the low-loads?  The fact that it's smaller than Fidelity and possibly nimbler?
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spork
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« Reply #29 on: August 09, 2007, 1:50:49 pm »

I find this very interesting.  TIAA-CREF manages my retirement accounts, except for my Roth IRA, which is with ETrade.

First job, money was rolled over from state pension plan to traditional IRA.  Money is invested in the following funds:  CREF Equity Index and TIAA-CREF Mid-Cap Value Fund - Retirement Class.

Second job, money is invested in the following funds:  CREF Stock, CREF Equity Index, and TIAA Real Estate.

Current job, money is invested in the following funds: CREF Equity Index, TIAA-CREF Large-Cap Value Index Fund - Retirement Class, TIAA-CREF Mid-Cap Value Fund - Retirement Class, and TIAA Real Estate.

My current employer requires that it's 8 percent contribution go to CREF.  I'm not sure whether I can shift the money out of strictly CREF instruments and into non-CREF instruments (whatever those might be -- something with only "TIAA" in its name?) after the money has been contributed to my account.

I'm at least 35 years from retirement.  I chose the funds listed above because of their high rates of return over long periods of time and their low expense ratios (they're all based on market indices, except for the TIAA commercial real estate fund).

The TIAA-CREF documentation states that upon retirement, a person can have money paid out of their retirement account in a variety of ways -- via a lifetime annuity, interest only payments, lump sum and systematic distributions, and minimum distributions, or some mixture of the above.  The documentation also says that a person can change how the money is distributed, so the decision is not one-time only.  However, an employer may impose restrictions on how money can be paid out of a particular account.

My understanding of a lifetime annuity is that the company offering the annuity guarantees that the account holder will receive regular payments of a certain amount for as long as that person is alive.  Some people like the security of knowing that they will receive X amount of money every year until death.  The annuity payments reflect a certain rate of return on the account holder's contributions.  The company earns its profits by investing the account holder's money at a rate of return that is higher than what it pays the account holder.

Any suggestions? Any corrections?

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