Greetings, higher education employees! In today's blog post,
we're going to unravel a financial strategy that can significantly benefit you
as you prepare for retirement. Greg Shepard, a financial specialist with
extensive experience helping individuals in higher education, recently shared a
valuable strategy that could potentially increase your retirement savings. This
innovative approach involves creating liquidity while taking advantage of the
high rates offered by TIAA Traditional. Please note that this is not investment
advice but rather an educational overview of a strategy that can prove valuable
if implemented correctly.
this strategy, we're aiming to leverage the current (2023) high-interest rates
offered by TIAA Traditional for new money contributions. The key here is timing
- this strategy is most effective for those still employed, with a specific
focus on August running into September of 2023.
might ask, "Why the emphasis on timing?" The interest rates for new
contributions into TIAA Traditional change monthly. In our scenario, we're
dealing with two illiquid contracts: RA and RC contracts, with a substantial
sum in both. These contracts are still active as the account holder is still
let's dive into the strategy:
Transfer: The first step is initiating a
contract transfer from the illiquid account, TIAA Traditional, to a liquid
account, such as TIAA RCP. In this case, the RCP account offers a higher
interest rate for TIAA Traditional new deposits than what’s being currently
generated inside the RA & RC contracts for TIAA Traditional.
Payout Annuity (TPA): Next, you initiate a TPA. The
duration of the TPA can vary; in our example, we're considering a 10-year TPA
for the RA contract and a 7-year TPA for the RC contract.
Contract-to-Contract Form: Here's a
critical detail - to maintain this strategy, you must submit a
contract-to-contract form annually. This form ensures that the TPA payments are
directed to the new contract for new money contributions.
real beauty of this strategy lies in its liquidity creation. Suppose you forget
to submit the annual contract-to-contract form. In that case, the TPA payments
will continue, but they'll be directed to the default investment within the
existing contract. This default investment is often Money Market or something
similar, offering a different interest rate than the new contract.
instance, if the RCP account's new money interest rate is 5.75% this year, but
it drops to 4% the next year, you might prefer not to submit the form. This
way, your TPA payments will go into Money Market within the existing contract,
and from there, you can redirect your investments to more favorable options.
strategy aims to achieve two primary goals:
Creating Liquidity: By directing new money contributions to a more liquid
account while maintaining your current contracts, you have access to funds when
Capitalizing on High Rates: You take advantage of the higher interest rates offered for
new money contributions.
conclusion, this strategy offers a unique opportunity for higher education
employees to enhance their retirement savings. It emphasizes the importance of
timing, contract transfers, and annual maintenance through contract-to-contract
this strategy can be highly beneficial, it's essential to remember that it
might not be suitable for everyone. Factors like the amount of money involved
and your comfort level with managing these transactions play a significant role
in deciding whether to implement this strategy.
making any financial moves, it's advisable to contact TIAA and consult with a
financial advisor who specializes in higher education retirement plans. They
can provide tailored advice based on your specific circumstances and help you
navigate this strategy effectively.
this is not investment advice, but rather an educational resource to help you
explore innovative ways to optimize your retirement plan. If you have questions
or need assistance, don't hesitate to reach out to professionals who can guide
you through this process. Your financial well-being in retirement is a top
priority, and strategic moves like this can make a significant difference in
achieving your retirement goals.
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*Nothing discussed in this blog post should be construed as investment advice. Each situation is unique and you need to receive professional advice from independent fee-only financial advisor that's familiar with higher ed retirement plans prior to implementing any strategies discussed or thought of on your own.
**S&A Financial Services, Inc. is a registered investment advisor. Content presented is for informational purposes only and should not be considered as investment advice or as an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Always consult with your tax advisor or attorney regarding your specific situation.