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Liss

Tiaa fixed annuity

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My colleague who is retiring

said that TIAA offerered him a fixed lifetime annuity with a guarantee return at 10 per cent . Does this sound right. It seems out of whack.

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That cannot be correct.

What it could be is that given his age, the payout on the money he has in the account amounts to 10% of the balance. But that is not a rate of return as it includes return of principal.

 

ScottyD

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That cannot be correct.

 

I agree with Scotty that it probably indicates principal plus interest but somewhere in back of my mind I thought I read somewhere it paid as much as 13% in the high inflation years of the late 70s early 80s or am I crazy?

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Thank you. I am not sure what is going on with this offer. It sounds bizarre. It could be that the rep cooked it up with some strange actuarial table.

I am going to check this. Out  with my retirement planner,, it is just so bizarre. How could they give 10 per cent that’s nuts.TRS people have a guarantee between 7 and 8 per cent.

Suffice,

 to say I just retired and divested from TIAA for many reasons,  for one their stupid paternalistic attitude toward us educators, another is Their moronic advertising. If they spent the millions of dollars they do on ad for reinvestment, maybe the returns/yields would be more competitive..

And I found a much better institution than TIAA  for my retirement savings.

 

 

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Liss

Be aware there are some  TIAA fans on this site. I am not one of them but hopefully one of those TIAA folks can acknowledge their take on your comments and also possibly answer your original  question. Please let us know what you find out.

Tony

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10 hours ago, Liss said:

My colleague who is retiring

said that TIAA offerered him a fixed lifetime annuity with a guarantee return at 10 per cent . Does this sound right. It seems out of whack.

Liss, I think this is how a life-time annuity works. You give them your big stack of money and they decide how much they can give for the rest of your life. They guess how long you will live, based on actuarial tables. The older you are at the start of the annuity, the bigger the monthly payout. Some will live longer than average and the principal plus earnings may not cover the payments. Some will die early and that makes up for those who live longer than the tables predicted. Because the insurance company gets to keep what's left of the principal and earnings when you die, you can't compare an annuity's life-time payout with the rate of return on a principal's investment.

TRS has a goal of earning 7 to 8% on their slowly accumulated pile, some collected from the teachers and some from the state's general fund. Accumulated over a teacher's career (30+ years?), over ups and downs of the markets. And then doled out over the teacher's retirement years (30+ years?). And provide a COLA to counteract inflation? And deal with increased longevity? And sometimes the state decides to skip the general fund contribution?

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Thanks,

so if I guessed this correctly, the down side of the fixed lifetime annuity is that you cannot pass it on to heirs?  A spouse?

 

you mean they get to keep your bread in exchange for them doling out a guaranteed pension before you croak.

I heard something like this. What is so great about it then?

Isn’t the average rate of return on principal about 3 to 3.5 .

 

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1 hour ago, Liss said:

Thanks,

so if I guessed this correctly, the down side of the fixed lifetime annuity is that you cannot pass it on to heirs?  A spouse?

you mean they get to keep your bread in exchange for them doling out a guaranteed pension before you croak.

I heard something like this. What is so great about it then?

Isn’t the average rate of return on principal about 3 to 3.5 .

 

Yes, a life-time annuity with TIAA will not leave anything to heirs. Of course insurance companies love to give you choices. So I'm guessing that there could be an option that might leave something to heirs, but it would reduce the annual payout. My understanding of life-time annuities is very basic--in fact I'm not even sure that's the correct term for what TIAA offered to your colleague.

Some folks have absolutely no interest in managing a retirement portfolio and so a life-time annuity can make sense. It's the equivalent of a pension. Some folks are afraid that a 10 year downturn in the stock market will wipe out their savings, and they're willing to have TIAA take that risk for a fee. Although the average real return on principal may be 3 to 3.5%, or even twice that, the problem can be deviation from the mean. 

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MetLife sells something like this to teachers in my district.  Not sure if the TIAA product is the same but the Metlife product I’m referring to is called a Lifetime Benefit Withdrawal.  It works like Krow explained above, basically income insurance.  

The problem I saw with this was the way it was sold to teachers.  Anyone I spoke with assumed they were getting a guaranteed 6% return on their investments.  It sounds like the person your talking to assumes they’re getting 10% return on their investment too.  

 

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So Krow, and or Jeb, if his payout really is 10% part of that is principal based on his balance?  I personally would never have purchased one of these based what I know now and I am glad I never did.   If you are in one of these and realize you made a mistake and want out, what is the penalty ?

 

Tony

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A company can offer their retiring employees a choice between a lump sum that can be rolled into an IRA, or an annuity with an insurance company. This is a common method of avoiding having to administer a company pension. Which to choose is a question that comes up from time to time on the Boglehead forum, and the best choice depends on a number of factors. Like any pension, once the annuity is started, you are in. I don't think you can back out. 

Bailing out of an annuity-based 403b contract that is based on salary reduction contributions is a different kettle of fish. Staying in and paying the high annual fees is usually more expensive than just paying the surrender fee. 

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I don’t remember exactly how the calculation for the payout worked.  It was confusing and involved using market value vs actual value, whichever was greater at the time you were going to take payments?  I got this information directly from the rep who sold it to my colleagues.  

I did ask if the investment was transferable to heirs and was told you could but there was an additional cost.

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