The TIAA Traditional Annuity works differently when you contribute money during the accumulation phase than when you switch over to taking your money out, which is termed the "payout phase.
In the accumulation phase, the annuity guarantees the protection of your principal, and you earn a guaranteed minimum interest rate while also earning additional interest. Every year since , TIAA has paid some amount of additional interest on top of its guaranteed minimum interest rate.
The actual amount of interest you earn on your TIAA Traditional Annuity depends on when you make contributions, as the company groups funds together. Each group might have a different interest rate, and the interest rate in each group can change over time.
Unlike other investment options in employer plans where you can transfer money between choices at any time, once you elect the TIAA Traditional Annuity, you cannot transfer your money back out all at once. To move your money out, you must use something called a "transfer payout annuity," where a portion of your balance gets transferred out into some other investment you choose once per year over 10 years or 84 monthly installments.
This limitation on outgoing transfers is needed because it allows TIAA to have control over the total funds managed so it can invest for the long-term.
This helps the company towards its goal of paying an attractive interest rate while also guaranteeing the principal in each investor's annuity account. Note that a transfer payout annuity can be used to facilitate distributions either to be reinvested into another CREF fund with no liquidity restrictions, transfer out to another tax deferred account, or taken in cash but as a taxable distribution.
During the payout phase, also known as the "retirement income phase," you have two main options:. This option does not require you to annuitize your contract; you are only withdrawing the interest you've earned. As in the accumulation phase, this minimum-interest amount may also be supplemented with additional interest amounts as declared by TIAA on a year-by-year basis.
This option provides guaranteed income for as long as you live. You choose the annuity term such as life only, joint survivor, or life with a guaranteed period certain.
For example, if you receive income for five years and then die, your beneficiary would receive your income for the last five years. With these payout options, you must request an annuity quote to see what your monthly income would be. You shouldn't use the guaranteed interest rate to determine your payout rate. Interest rate and payout rate are not the same, and many TIAA participants misunderstand that and miscalculate the monthly income they might be able to receive.
Your payout rate is a customized number determined by your age, the time you request the quote, and the payout term you choose. It uses a guaranteed minimum interest rate in the formula, which is a different rate from the one used in the accumulation phase, to determine your payout amount. With an annuity payout, each payment you receive includes interest and a return of some of your principal. Just like in the accumulation phase, you may receive additional interest amounts paid by TIAA on top of your guaranteed lifetime income during the payout phase.
These additional amounts occur when the company has excess reserves. In addition to the payout term you select, you can choose between a graded method, where you get less initially, but your income increases each year, and a standard method, which provides a fixed monthly amount.
Every retirement plan for TIAA has its own structure. TIAA takes into account the size of the plan and the overall competitive environment when structuring the contracts for each institution and for products available to the general public.
There is some standardization though, that holds across most plans:. These are the easiest to understand. These contracts still have unrestricted liquidity, meaning that you can move from TIAA Traditional in an RCP to other investment choices without restriction. They generally allow participants to take them out as a lump sum upon separation from service, but they charge a 2.
The participant generally has days from separation from service to take advantage of this option, after which it goes away forever. Some UMS employees who have been with the system for a long time may still have these. Retirement Annuities RAs are the most restrictive, with no lump sum distributions being allowed at all.
Second, liquidity is a little less restrictive… Whereas the quickest you can take a distribution from the RA is 10 annual payments, the RC allows for distributions over 84 monthly payments. Importantly, this lack of liquidity is a key part of the reason that TIAA Traditional pays good interest.
Restricting withdrawals from the accounts allows TIAA to make investments in less-liquid but higher-returning investments in the General Account. In the GRA and RA accounts, interest credited is based largely upon when you put the money into the account. TIAA has a history that dates back to the late Andrew Carnegie, whose Carnegie Foundation for the Advancement of Teaching created the initial organization in order to service the pension needs of professors.
In , TIAA shifted its model to become a for-profit financial services corporation offering retirement products, College Savings Plans, managed investment accounts, checking and savings products, mortgage loans, and other managed investment accounts.
Up until , TIAA operated as a tax-exempt non-profit organization. It is now organized as a non-profit organization that has taxable subsidiaries. All of TIAA's profits are disbursed to policyholders. TIAA's rebranding was meant to portray a simpler and cleaner image while acknowledging the company's year history. The company continues to offer services to customers such as individual retirement accounts IRAs , mutual funds, annuities, brokerage, plans, insurance, banking, home loans, and estate planning.
It is the number-one-ranked asset manager of real assets in farmland and U. While the creation of TIAA in as a means of providing guaranteed lifetime income and insurance was a groundbreaking new resource for teachers and educators, it was the establishment of CREF in that started the company on the road to becoming a diversified financial services firm.
Citing rapidly increasingly life expectancies, CREF allowed individuals the opportunity to add equity investments to their personal portfolios through a variable annuity product.
It was designed to use the higher expected returns of stocks to help stretch out the retirement income streams of workers. Since , TIAA has made several acquisitions to grow its portfolio and product offerings. TIAA has demonstrated a history of accepting investment strategies before the strategies became mainstream. In , the company was one of the first to utilize a broad portfolio of international stocks as part of its investment strategy. In , it introduced the Rollover IRA.
In , TIAA offered individuals the ability to invest in directly-owned real estate properties. In , the company entered the marketplace. Business Leaders. Roth IRA.
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