There’s been a recent (last 12 months) rise in questions surrounding TIAA Lifetime Income Annuity Options. My opinion, 2 main reasons behind the latest trend of questioning….
- Have you seen the latest TIAA Traditional interest rate for new deposits? You’re looking at 6.5% in the RC Contract. Yes, 6.5%!! That rate is VERY attractive and definitely difficult to ignore.
- In the last 12ish months, seen higher ed institutions, across the country, map the RA Contract over to the RC Contract within the TIAA platform. Thus, gaining more attention (changes will do that) and more questions abound.
I’ve recently proclaimed myself a hypocrite when it comes to TIAA Traditional. Where I was once an opponent of the fixed account, I’ve found myself a proponent of it….only as of late and won’t last too long.
I’ve warned those entering into the fixed account of TIAA Traditional to MAKE SURE you’re aware of the exit strategy. I’ve seen / heard too many troubling stories of those in higher ed not educating themselves on the TIAA Traditional account until it’s too late.
Recently, had a client that had accumulations in TIAA Traditional (RC Contract) needing to make a decision regarding what to do with those monies. His triggering event was that he retired – 67 yrs old. Has $200k in TIAA Traditional. Wife is 67 as well and they have one child of adult age.
His choices were…
- 7 yr TPA (Transfer Payout Annuity)
- Lifetime Income Annuity Option
- Rollover the amount to an IRA (2.5% penalty) and must choose earlier than 120 days after separation.
Let’s examine each option….
- This would amount to about $28k (not exact) per year. Would transfer to Rollover IRA and distribute from that account as needed. Pretty straight-forward….
- We were looking at payments for husband / wife for their lifetime and nothing to beneficiary (child). They have plenty of other assets to leave him (son) and he’s making a fine living on his own. Payments would be $1,131 to husband / wife.
- Rolling over $195k (2.5% penalty). Reason we looked at this option is that we’d invest in bond fund (will remain nameless) that has consistently earned 7.1% the last 20 years. This is NAV appreciation + interest. Even with the 2.5% penalty, $195k invested, and distributions of $1,131 (same as Option 2), client would have around $40k (not exact, of course) at the end of 30 years – would put them at age 97 years old. Child would inherit the money. Remember, Option #2 – child gets nothing.
Now, I’m not going to tell you specifically which option we chose, but I’ll let you make up your mind – which one would you choose if this was your situation?
If nothing else, please take away the fact that there are actually other strategies not discussed here and that any decision you make is IRREVOCALBE and will impact your financial future – choose wisely!!
🎤 Podcast Episode - TIAA Traditional Lifetime Income Annuity Option - RC Contract
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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.