I Love TIAA (pension, financial advisor, federal, husband)
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> The website said the initial payout rate if I started in January 2017 would be 6.18%, or $572/month. I asked if that is a lifetime guaranteed payout rate, and the first guy said no, only 2.5% is guaranteed, and the rest is added on.
I think you were confused, or maybe he got confused. I suspect both numbers were right.
2.5% sounds like a correct number for the guaranteed growth rate for a balance that has not been annuitized yet. That guaranteed rate depends on when the money was deposited (TIAA talks about "vintages".). TIAA may declare additional dividends but the vintage rate is guaranteed.
6.2% sounds like a plausible number for a lifetime annuity for a person around 65 years old. If you choose to take your funds as a lifetime annuity the payout rate is guaranteed for life.
Asking and answering questions can be a bit of an art, and maybe one or the other person was not good at it.
No, the interest rate on a TIAA traditional account is 3% guaranteed. If that account is annuitized this January, the payout rate is 6.18%.
Of course I assumed the 6.18% would be guaranteed for life. On the website is says the $572/month is fixed. Fixed means not variable, of course.
But the first phone rep I spoke to told me 6.18% is NOT guaranteed, and the rate is decided every year when the board of trustees votes on it. He said ONLY 2.5% is guaranteed.
I asked him the same thing over and over and over, in every way I could possibly think of. I said the payout rate is NOT fixed if it can go down to 2.5%. He repeated the same answer over and over and over, that ONLY 2.5% is guaranteed.
I hung up and emailed the adviser I had met with recently, but he's away until Monday.
I called the TIAA number again and got a different phone rep. Asked the same question, he said the 6.18% is guaranteed for life. I told him what the first guy said, he went and asked someone, came back and told me only 2.5% is guaranteed.
It is possible that both guys were so terrible at math they thought $572/month is only 2.5%. I did explain to them over and over and over that 6.18% is $572/month.
The second guy even told me to get a calculator and multiply $111k by .0618 and see if I got $572. Yes I did! What a revelation!
That is what I had been telling him, over and over and over.
Obviously, I was speaking to robots, not real people.
There is absolutely no way that I misunderstood them. And I tried VERY VERY HARD to make them understand me.
This was very scary to me, because I had planned, since years ago, on annuitizing my TIAA account at a lifetime payout rate between 6 and 7 percent.
The 6.18% is the rate of withdrawal, not interest. When I annuitized $10,000 of my TIAA account back in 2008 my rate of withdrawal was about 7.1%. It has since increased to 7.44 %.
This...
OP is confusing the two and TIAA is obviously not explaining well.
To the OP, this is one of the advantages of an immediate annuity.
Traditionally, all things considered, you will hear the advice that you can spend your assets by withdrawing 4% of them on average each year until you die. Of course that depends on investing them in various ways to earn interest/dividends/etc to support that rate of withdrawal, as well as budgeting to be able to live on that amount, etc.
The withdrawal rate is one of the advantages of an immediate annuity. They can give you your money each year at a faster rate than you could give it to yourself from your own portfolio. The reason is that like insurance, they are counting on a certain number of people not living long enough to collect all their money back.
IMO they work best if you are annuitizing money to cover fixed expenses. So for example, if you had a mortgage for a $1000 each month an annuity that paid you $1000 each month would likely be a good deal. Not as good if you rent because your rent will always be subject to increases and likely will increase. You could I suppose estimate those increases out for your life expectancy and annuitize some averaged amount that would be more than you needed in the early years(reinvesting the difference).
Or, as some said in your other thread get shorter term annuities for smaller amounts so that your money is not eroded by inflation.
If I understood you correctly, the money you are considering annuitizing is in a TIAA guaranteed account that has a rate better than you will find most other places right now. In other words, its not in a risky place you need to worry about it.
My advice is slow down and make sure you understand the advantages/disadvantages of annuities before you do something that cannot be undone.
"OP is confusing the two and TIAA is obviously not explaining well."
No I did not confuse the two!!
I know exactly what a fixed annuity is, and that is what I want.
The TIAA guys kept telling me that the 6.18% is NOT guaranteed and is subject to change every January when the board of trustees votes on it. It could go down as low as 2.5%, they told me.
Obviously, what they told me was wrong wrong wrong.
Finally, the second guy said that 6.18% is guaranteed, not 2.5%.
The TIAA traditional account guarantees at least 3% interest.
The two guys I spoke to said the guarantee decreases from 3% to 2.5% when you start getting the "fixed" lifetime payouts.
I understand what the truth is supposed to be, obviously, and they were telling me something that CANNOT be true.
"OP is confusing the two and TIAA is obviously not explaining well."
No I did not confuse the two!!
I know exactly what a fixed annuity is, and that is what I want.
The TIAA guys kept telling me that the 6.18% is NOT guaranteed and is subject to change every January when the board of trustees votes on it. It could go down as low as 2.5%, they told me.
Obviously, what they told me was wrong wrong wrong.
Finally, the second guy said that 6.18% is guaranteed, not 2.5%.
The TIAA traditional account guarantees at least 3% interest.
The two guys I spoke to said the guarantee decreases from 3% to 2.5% when you start getting the "fixed" lifetime payouts.
I understand what the truth is supposed to be, obviously, and they were telling me something that CANNOT be true.
OK
I don't know which one is correct. I went on their website, but all I could find was the historical interest rates earned on various types of annuities. Almost all their "guaranteed rates" have footnotes that the rate is subject to their ability to pay it and decided at the beginning of the year. I do believe some of their guaranteed rates are grandfathered for existing accounts when they lower rates, but not sure.
I agree with others that a letter is worthless. I would call them back and ask for a copy of the contract.
My general rule on anything is getting the same answer 3 times from 3 different people before I accept it lol.
I don't know which one is correct. I went on their website, but all I could find was the historical interest rates earned on various types of annuities. Almost all their "guaranteed rates" have footnotes that the rate is subject to their ability to pay it and decided at the beginning of the year. I do believe some of their guaranteed rates are grandfathered for existing accounts when they lower rates, but not sure.
I agree with others that a letter is worthless. I would call them back and ask for a copy of the contract.
My general rule on anything is getting the same answer 3 times from 3 different people before I accept it lol.
Well it sounds like you understand why the conversations I had were confusing. It really seems that something deceptive is going on. I know I am not supposed to criticize a company at this forum, but I think it is extremely important that we figure out what is really going on.
If their "guaranteed" 6.18% fixed payout rate is subject to change every year, and can go down as low as 2.5%, that is NOT a fixed annuity.
But the website says "fixed."
Something is very very wrong. Seriously wrong. We really should try to figure this out.
Well it sounds like you understand why the conversations I had were confusing. It really seems that something deceptive is going on. I know I am not supposed to criticize a company at this forum, but I think it is extremely important that we figure out what is really going on.
If their "guaranteed" 6.18% fixed payout rate is subject to change every year, and can go down as low as 2.5%, that is NOT a fixed annuity.
But the website says "fixed."
Something is very very wrong. Seriously wrong. We really should try to figure this out.
I understand your frustration, but I doubt there is anything illegal going on with TIAA. Not trying to sell them, but they hold the retirement assets of most college professors in this country. So, maybe the Gender Studies Professor could be duped, but pretty sure the Finance professors are on top of things lol!
Here's what I will say..........some of their products as well as their explanations are EXTREMELY confusing and you have to grill them multiple times both to understand what they are saying and to get enough info to verify it yourself. As well as, we did encounter different answers from different people.
Wherever you saw the guaranteed rate did you see if there was a footnote as I mentioned above?
Their annuity footnotes make a big point that they are an insurance product and not subject to laws covering other investment accounts.
Try not to let your emotions get in the way of being persistent until you are comfortable you have the correct info.
Ok, I just talked to another representative, and this one made sense. I guess the other two were inexperienced and did not understand TIAA annuities.
This is what I was told just now:
There are 3 types of TIAA annuities -- fixed, graded and variable. The one I want, as I have said, is fixed. The starting payout rate is guaranteed for life.
Unless, of course, TIAA goes out of business but that probably won't happen unless there is a world war and we lose, and earth is hit by a giant meteorite that kills 90% of the population. TIAA is staying in business, as far as anyone can predict.
So I have to decide between the 3 types between now and January, and I guess I will probably get the fixed, even though it does not keep up with inflation. It is less than one fifth of my total retirement savings, so I will have other ways to hopefully deal with inflation.
So the moral is -- keep calling until you get someone who knows something.
Ok, I just talked to another representative, and this one made sense. I guess the other two were inexperienced and did not understand TIAA annuities.
This is what I was told just now:
There are 3 types of TIAA annuities -- fixed, graded and variable. The one I want, as I have said, is fixed. The starting payout rate is guaranteed for life.
Unless, of course, TIAA goes out of business but that probably won't happen unless there is a world war and we lose, and earth is hit by a giant meteorite that kills 90% of the population. TIAA is staying in business, as far as anyone can predict.
So I have to decide between the 3 types between now and January, and I guess I will probably get the fixed, even though it does not keep up with inflation. It is less than one fifth of my total retirement savings, so I will have other ways to hopefully deal with inflation.
So the moral is -- keep calling until you get someone who knows something.
Does this translate to the monthly payment amount is the only thing that is guaranteed(subject to their ability to pay as in they don't go out of business) and the actual payout %(guaranteed no less than 2.5%) varies from year to year.
Because, after thinking about it, that's the only thing that makes sense to me.
In other words, if the monthly payment stays the same, they could never guarantee the payout rate beyond a certain % because the amount they can earn each year on what you have given them will vary as will the number of people who die each year without collecting all their money back which minus their expenses is the sum total of the value of the assets they are tapping for your monthly payout.
Clearly they have determined that unless the SHTF they can guarantee that the withdrawal rate will be 2.5%. They are also assuming that if they are able to stay in business they can guarantee the 2.5% withdrawal rate. If they go out of business, youre on your own or in line with all their other creditors in a bankruptcy court.
Beyond that, you said it is required to annuitize this money. Is this money part of a 403(b) retirement plan? And if so, and you aren't happy with TIAA, why cant you roll it over to a different company?
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