TIAA ‘loyalty’ bonus for annuitizing: Do you understand it?

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McQ
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TIAA ‘loyalty’ bonus for annuitizing: Do you understand it?

Post by McQ »

I am not sure I do, hence this thread.

Don’t get me wrong; I read their white paper and I can give you a plausible-sounding explanation for how the loyalty bonus works. (With 30 years of college teaching under my belt, it wouldn’t be the first time I gave a plausible explanation for something I sorta kinda maybe understood).

See footnote 13 here: https://www.tiaa.org/public/pdf/TT_FAQ.pdf

Here’s the plausible-sounding explanation with small blue type serving as the devil whispering on the shoulder (in full size text I speak in TIAA voice)

1. During the accumulation period, we set aside reserves corresponding to the amount of your contribution. Reserves? What are those exactly … and corresponding to my contributions how?
2. If you choose to annuitize, we release those reserves, which augments your payout. Why do I have to annuitize? Why not just release those reserves as an addition to my balance when I turn 65 or 72 or whatever?
3. Therefore, a person who transfers to TIAA a large amount from outside and then immediately annuitizes will get a lower payout than someone who has been accumulating that same principal over decades, because there are no reserves to be released to the newcomer. Sounds good … if you are the long time contributor. Except, did withholding reserves reduce my return over the accumulation period?

Stepping back, and after reading a few cursory explanations for how insurance companies function under the modern regulatory environment, reserves can be understood as follows.
1. TIAA makes certain guarantees “backed up by its claims-paying ability.”
2. Although the investments that back up these guarantees are heavily regulated and quite conservative, nonetheless, can’t never say never.
3. This is where reserves start to make sense. Probably the investment portfolio will return enough to cover the guarantees under almost any circumstance, but just in case, maybe set aside a little extra in a side account, a rainy day fund as it were.
4. Sounds like the kind of thing a government regulator might require—especially one in a state with a guaranty fund, which is on the hook if the insurance company messes up.

Great—reserves make sense and are in the best interests of all. With that fact accepted, we can better see the unanswered questions that remain.
1. Why does annuitization lead to a release of reserves, while simply holding the account, and maybe taking RMDs, does not? What is special about annuitization?
2. How much is reserved each year? Is it an arithmetic function of the dollars contributed? Is it a percent of the contribution, or a portion of the return earned (which will vary)?

Alright, let’s try a spreadsheet. And let me announce in advance that this spreadsheet fails. It does not accomplish its goal of showing how reserves could increment annuity payouts by 10% or 20% or more, depending on length of service, i.e., 20 years, 30 years.

Case in point: my TIAA vintages only date back to 1998. On a weighted average dollar basis, call it 15+ years across vintages. Even so, TIAA sent me an email trumpeting my “9% loyalty bonus.” So that’s the bogie. An effective explanation of how reserves are treated should show a loyalty bonus on the order of 10% at 20 years, and more later. I’ve seen higher bonuses cited here at BH and in TIAA literature (~22% after 30 years), and welcome posts as to what your personal TIAA loyalty bonus might have been, and the weighted average age (roughly) of your balance at annuitization.

In the spreadsheet below, I assume:
1. 30 years of contributions
2. Initial contribution of $10,000, incrementing each year at inflation of 3% (arbitrary amounts needed for a concrete illustration)
3. Crediting rate to the participant of 4% throughout
4. Reserves accumulating at a rate equal to 40 bp of contributions + accumulation
5. TIAA internal rate of return of 5.0%
6. In short, TIAA earns 5%, puts aside 40 bp for reserves, takes 60 bp for its administrative costs, and offers the remainder, 4%, to the accumulating participant as a crediting rate.

This, I believe, is a scenario constructed in good faith. 4% crediting is not a bad average for crediting over the past twenty years. 100 bp is not crazy in estimating TIAA expenses against a raw return of 5%, which itself, as a gross return on fixed income 2002 – 2022, is also not crazy. Taking 40 bp as reserves is as high an amount as I could justify.

Here it is.

Image

Can’t be right. Incremental payout by adding reserves to the participant balance after 30 years is less than 8%; it’s less than 5% at 20 years.
Clearly, I don’t understand how the loyalty bonus works. So, where exactly did I go wrong?

1. should I have assumed a higher gap between participant crediting rate and TIAA return?
2. more than 40 bp put aside in reserves?
3. is there some other factor, such as a different rate used for annuitization, that I left out?

Please, I want to know.
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Re: TIAA ‘loyalty’ bonus for annuitizing: Do you understand it?

Post by Beensabu »

That's some pretty non-committal verbiage in that footnote...
TIAA may provide a loyalty bonus based on the length of time the funds are held in TIAA Traditional. This additional income is only available upon annuitization and the amount of the bonus is discretionary and determined by the TIAA Board of Trustees on an annual basis. Past performance
is not a guarantee of future performance.
So you may get some extra money paid out if you decide to annuitize, as long as you've been contributing to a TIAA Traditional account for awhile; but you can't plan on any particular amount and they can change it for people who haven't made the decision yet.

The loyalty bonus is an incentive for annuitization for long-standing account members. Whether or not it's worth it depends on when you're making the decision and whatever the board has determined for that year, right? It's a moving target.
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Re: TIAA ‘loyalty’ bonus for annuitizing: Do you understand it?

Post by ResearchMed »

For starters, I think most of us have long since agreed that we do *NOT* understand that "loyalty bonus" or any of TIAA's "black box extras"....


Where are you getting the "larger print", the "TIAA voice?
I can't find that wording in your link.
McQ wrote: Tue Jul 26, 2022 4:26 pm Here’s the plausible-sounding explanation with small blue type serving as the devil whispering on the shoulder (in full size text I speak in TIAA voice)

1. During the accumulation period, we set aside reserves corresponding to the amount of your contribution. Reserves? What are those exactly … and corresponding to my contributions how?
2. If you choose to annuitize, we release those reserves, which augments your payout. Why do I have to annuitize? Why not just release those reserves as an addition to my balance when I turn 65 or 72 or whatever?
3. Therefore, a person who transfers to TIAA a large amount from outside and then immediately annuitizes will get a lower payout than someone who has been accumulating that same principal over decades, because there are no reserves to be released to the newcomer. Sounds good … if you are the long time contributor. Except, did withholding reserves reduce my return over the accumulation period?

That Footnote #13 includes wording such as
"...TIAA may share profits with TIAA fixed annuity owners through declared additional amounts of interest and through increases in annuity income throughout retirement. These additional amounts are not guaranteed other than for the year(s) for which they are declared...."

If you included this context, wouldn't that at least in part explain why the "reserves" can't be released on a specific birthday or year.

IF you can find a good discussion of how this "works", many of us would love to know. It's been characterized as some sort of "black box" for a long time. I'm not sure that any civilians ever learn the magic rituals involved.
That is NOT a plus, to be sure. Most of us (judging from our own thinking and many comments here ane elsewhere online) sort of take it on faith that there is - and hopefully will continue to be - such a "black box reward/adjustment" in the future.

As to "why the need to annuitize" to reap this potential reward, well, that seems easier to answer: That's the way TIAA wrote the rules. Why is that different from a declaration to issue dividends in a certain way for some stock, or how bank interest will be calculated? The bigger problem is the opaqueness, but that's separate from "why they made this rule".

I don't think TIAA has any interest in answering your "Please I want to know."
Many of us have wanted to know, some for decades...
Some potential TIAA participants (or potential annuitants) decide it's too vague, and don't annuitize or remove their money from TIAA entirely, once they are able to do so.

I'm not sure what type of answer you are hoping to find.
IF it were accessible, it would almost definitely be front and center here on Bogleheads!
But alas, it's not. :annoyed

RM
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Re: TIAA ‘loyalty’ bonus for annuitizing: Do you understand it?

Post by crefwatch »

As an interim reply, note that "reserves" are an essential part of insurance company operations. When risks fall on the insurance company, reserves are regulated by the state "insurance commission" or similar body. That's because they are intended to cushion and protect the policy/annuity holders against fluctuations in the company's financial health. Since 1997, TIAA's reserves have been subject to taxation, just like every other insurance company.

Many TIAA investments are different, in that the Mortality risk does not fall on the company, it falls on the annuitants as a group. In this case, that is generally a good thing, especially when those annuitants have the good manners to die in greater than predicted numbers (!). (You may find it helpful to look for "Mortality and Expense Rate" risk figures in disclosures about non-TIAA annuity products. Those numbers, just Expense risk, are vanishingly small at TIAA.)

It is important to distinguish between statements about "TIAA" the insurance company that issues TIAA Traditional contracts, and "TIAA" the business name of TIAA and CREF as a joint enterprise. This can be, verbally, very confusing. I would not have made the decision to drop the name "TIAA-CREF".

Edit: Here is a quote from a 22-year earlier version of the brochure linked the post below. That is, "TIAA Traditional Annuity: Adding Safety and Stability to Retirement Portfolios Spring/Summer 2010"

Guaranteed minimum interest rate and potential for additional amounts during the payout phase

The third notable feature related to the TIAA Traditional Annuity Account’s returns is that each participant dollar applied to the account purchases a guaranteed amount of lifetime annuity income, paid to participants when they annuitize. Under most TIAA Traditional Annuity contracts, the minimum guaranteed interest rate during the payout phase is 2.5%. As in the accumulation phase, this guaranteed minimum rate may be supplemented by additional amounts declared by the TIAA Board of Trustees on a year-by-year basis.

These additional amounts reflect earnings in excess of the guaranteed minimum rate, as well as a payout of unneeded contingency reserves. As an insurance company, TIAA is required to maintain contingency reserves to ensure that it will be able to fulfill its contractual obligations to policyholders, even in the face of unexpected adverse circumstances. However, to the extent that these reserves prove to be unneeded, they are gradually distributed to participants in the form of additional annuity income during the payout phase. (It is important to note that if TIAA were a typical stock insurance company, unneeded reserves could be used for the benefit of its stockholders rather than its participants.)

A calculation by TIAA actuaries shows that, as a result of the gradual return of unneeded contingency reserves, a hypothetical 65-year old participant who annuitized in 2010 after 30 years of participating in the TIAA Traditional Annuity through an RA contract would have received an initial monthly annuity payment that was 5% larger than the initial monthly payment of a hypothetical participant who annuitized the same day, immediately after having made a lump sum contribution to the TIAA Traditional Annuity. Details and assumptions of this hypothetical example are shown in Exhibit 2.


[I can't paste the image here, but it shows two dudes with a 5% difference in payouts.]

... It is also important to note that past performance cannot guarantee future results, and that there
is no assurance that additional amounts above the TIAA Traditional Annuity’s guaranteed minimum rate will be declared in the future.
Furthermore, U.S. Treasury securities are guaranteed by the full faith and credit of the United States government, whereas the TIAA
Traditional Annuity’s guaranteed rate is subject to the claims-paying ability of Teachers Insurance and Annuity Association.


The thought is not particularly different, but here's a paragraph from a White Paper by John Biggs, then the President of TIAA-CREF, from 2010. "How TIAA-CREF Funded Plans Differ from a Typical 401(k) Plan"

Together, the guaranteed minimum and additional amounts make up the “crediting rate” in the accumulation phase of the account. Crediting rates applied to the TIAA Traditional Annuity have generally been among the highest in the life insurance industry.8 In addition, all funds held back (contingency reserves) for the guarantees made by TIAA are maintained in each vintage group and later distributed as additional annuity income as the need for such reserves wears away, thus providing additional income for TIAA retirees. This practice derives from the non-profit statuof TIAA.
Last edited by crefwatch on Wed Jul 27, 2022 11:53 am, edited 3 times in total.
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Re: TIAA ‘loyalty’ bonus for annuitizing: Do you understand it?

Post by jjustice »

Here is a brochure on the topic to supplement footnote 13 in the FAQs. My guess is that the loyalty bonus is at least partly designed to discourage market timing in Traditional annuity accounts. They prefer steady long-term monthly investments to large movements in and out. I don't know that this is the case, but it seems likely to me. In any case, I'm happy with the arrangement.
The brochure: https://www.tiaa.org/public/pdf/TIAA_Tr ... _FINAL.pdf
John
PS It also occurs to me that, in order to be fair, those who "paid" for the reserves should be the ones who benefit from their return.
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Re: TIAA ‘loyalty’ bonus for annuitizing: Do you understand it?

Post by rwcox123 »

Something else that is confusing is the impact of the loyalty bonus on the graded annuity. That is, does the loyalty bonus get included in the set aside for grading the annuity upwards? I would guess so, but that's not obvious.
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Re: TIAA ‘loyalty’ bonus for annuitizing: Do you understand it?

Post by tibbitts »

I don't understand it, but it's probably the least important feature to me of the many TIAA features that I don't understand.
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Re: TIAA ‘loyalty’ bonus for annuitizing: Do you understand it?

Post by beernutz »

I have been with TIAA and contributed to TIAA Traditional since 1999, though more than half of my Traditional was purchased since 2020. When I use TIAA's Retirement Income Illustrator tool and calculate a joint life annuity for me (63) and my wife (60) using my TIAA Traditional account I get a 6.1% yearly payout rate (annuity payment to Traditional balance). Five percent of that payout is labeled a Loyalty bonus and if I click that term for a definition this appears in a popup dialog

"Loyalty Bonus" - As you contribute over time to TIAA Traditional, you may potentially earn a higher payment from TIAA Traditional Annuity due to several factors, including the return of unused contingency reserves. “Loyalty Bonuses” may be declared on a year-by-year basis by TIAA's Board of Trustees. They remain in effect for the "declaration year", which begins each January 1 for payout annuities. They are not guaranteed for periods other than the period for which they were declared.

How that 5% is calculated is a mystery to me too but I've used the tool numerous times and always get around 5% (4.5% to be exact).
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Re: TIAA ‘loyalty’ bonus for annuitizing: Do you understand it?

Post by crefwatch »

Another reference, Kitces on Mortality Credits:

https://www.kitces.com/blog/understandi ... nt-income/

Excerpt:
...
Furthermore, with enough people (perhaps not 25, but certainly 25,000 or 250,000), it’s actually possible to predict
with a high degree of accuracy exactly what percentage of the group will be alive from year to year (a phenomenon
known as the “law of large numbers”, where the random variability of mortality on an individual basis “averages out” to
consistent results in the aggregate).
...
For a simplified example of how this payment structure would work, imagine for a moment that with our group of
retirees, our “known” mortality rate is that 1 person on average will pass away each year. We don’t know which
person it will be, but simply given the average health of the group, on average one person will die every year. As a
result, while there are 25 people around to receive the first payment, only 24 will still be alive to receive the second, 23
will get the third, etc., until there is only 1 (lucky) person expect to be alive by the 25th year to receive the last
payment.

Given our earlier assumption of a 3% interest rate, and this new mortality assumption, we can now calculate what the
anticipated (level) payment would be every year, that spends down the principal and interest over the 25-year time
horizon, but with a decreasing series of payments since fewer distributions must be made as the participants pass
away. As it turns out, the payment comes out to be $98.86/year for each $1,000 contribution made by each individual.

Notably, an annual payment of $98.86/year for a $1,000 contribution is significantly higher than the $57.43 that any
one individual could have achieved with the same $1,000, the same time horizon, and the same assumed growth
rate. The whopping 70% difference in payments occurs because, as noted earlier, each individual has to assume a
25-year time horizon for each person (not knowing who will live and who will not), while the group in the aggregate
can reliably assume a shorter time horizon for some of the individual payments (not knowing which people will pass
away, but being certain that some will).

In turn, what this actually means is that some people will put in $1,000 and only receive only a few $98.86 payments
(in fact, one person is assumed to only receive one payment), while a few will put in the same $1,000 and receive 20+
payments of $98.86/year each. Those who don’t live very long will leave a large balance remaining, which helps to
fund the payments for those who actually do live a long time.

The leftover dollars from those who don’t live very long, used to fund the payments to those who do, form what are
called “mortality credits”, and represent the additional amount of dollars that can be paid above and beyond principal
and interest alone, in anticipation of the mortality of at least some of those participating in the pool. In essence,
mortality credits are what make it possible to fund $98.86/year to a group of 25 people for 25 years, even though each
person’s funds individually could only cover $57.43/year of payments. On a year-by-year basis, mortality credits make
up a larger and larger portion of each payment over time, as more and more people have passed away to fund the
fewer and fewer that remain.
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Re: TIAA ‘loyalty’ bonus for annuitizing: Do you understand it?

Post by McQ »

ResearchMed wrote: Tue Jul 26, 2022 5:35 pm For starters, I think most of us have long since agreed that we do *NOT* understand that "loyalty bonus" or any of TIAA's "black box extras"....

...

IF you can find a good discussion of how this "works", many of us would love to know. It's been characterized as some sort of "black box" for a long time. I'm not sure that any civilians ever learn the magic rituals involved.
That is NOT a plus, to be sure. Most of us (judging from our own thinking and many comments here ane elsewhere online) sort of take it on faith that there is - and hopefully will continue to be - such a "black box reward/adjustment" in the future.

...

I don't think TIAA has any interest in answering your "Please I want to know."
Many of us have wanted to know, some for decades...
Some potential TIAA participants (or potential annuitants) decide it's too vague, and don't annuitize or remove their money from TIAA entirely, once they are able to do so.

I'm not sure what type of answer you are hoping to find.
IF it were accessible, it would almost definitely be front and center here on Bogleheads!
But alas, it's not. :annoyed

RM
Thanks for responding, ResearchMed. I am a comparative newbie here at BH, and it was good to hear your perspective that “we’ve danced around this maypole many a time.”

What I don’t think has been attempted at BH before is a spreadsheet interpretation of the plain English of “we accumulated reserves against your account, and as a non-profit, can release them back to you upon annuitization.”

As to the response I am hoping to receive: that here at BH I will find an actuary, or an insurance industry veteran, who can tell me: “I see the rationale behind your spreadsheet—it’s a good faith effort from a naïve outsider. But let me tell you, that’s not how insurance companies book reserves. Not even close. The actual reserves would accumulate according to [rule]”

Or maybe: “4% is misleadingly low as the average crediting rate for TIAA—it ran as high as 8% or more twenty years ago, and didn’t fall to 4% until the last ten years. So reserves in the early years would be higher. Plus, during the higher rate era I think there would have been more than a 100 basis point gap between TIAA’s earning rate and the crediting rate, allowing more than 10% of the crediting rate to be put into reserves.”

Those are two different replies with two different implications. The latter suggests that the high loyalty bonus rates currently bruited about in TIAA marketing materials are partly an artifact of the long bull market in bonds that only recently ended. The material crefwatch quoted tends to reinforce #2: the 5% increase he quotes from older materials is much lower than current materials.

PS: the "TIAA voice" is my own, paraphrasing what I have read in their materials
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Re: TIAA ‘loyalty’ bonus for annuitizing: Do you understand it?

Post by McQ »

crefwatch wrote: Wed Jul 27, 2022 8:53 am ...

Edit: Here is a quote from a 22-year earlier version of the brochure linked the post below. That is, "TIAA Traditional Annuity: Adding Safety and Stability to Retirement Portfolios Spring/Summer 2010"

Guaranteed minimum interest rate and potential for additional amounts during the payout phase

The third notable feature related to the TIAA Traditional Annuity Account’s returns is that each participant dollar applied to the account purchases a guaranteed amount of lifetime annuity income, paid to participants when they annuitize. Under most TIAA Traditional Annuity contracts, the minimum guaranteed interest rate during the payout phase is 2.5%. As in the accumulation phase, this guaranteed minimum rate may be supplemented by additional amounts declared by the TIAA Board of Trustees on a year-by-year basis.

These additional amounts reflect earnings in excess of the guaranteed minimum rate, as well as a payout of unneeded contingency reserves. As an insurance company, TIAA is required to maintain contingency reserves to ensure that it will be able to fulfill its contractual obligations to policyholders, even in the face of unexpected adverse circumstances. However, to the extent that these reserves prove to be unneeded, they are gradually distributed to participants in the form of additional annuity income during the payout phase. (It is important to note that if TIAA were a typical stock insurance company, unneeded reserves could be used for the benefit of its stockholders rather than its participants.)

A calculation by TIAA actuaries shows that, as a result of the gradual return of unneeded contingency reserves, a hypothetical 65-year old participant who annuitized in 2010 after 30 years of participating in the TIAA Traditional Annuity through an RA contract would have received an initial monthly annuity payment that was 5% larger than the initial monthly payment of a hypothetical participant who annuitized the same day, immediately after having made a lump sum contribution to the TIAA Traditional Annuity. Details and assumptions of this hypothetical example are shown in Exhibit 2.


[I can't paste the image here, but it shows two dudes with a 5% difference in payouts.]

... It is also important to note that past performance cannot guarantee future results, and that there
is no assurance that additional amounts above the TIAA Traditional Annuity’s guaranteed minimum rate will be declared in the future.
Furthermore, U.S. Treasury securities are guaranteed by the full faith and credit of the United States government, whereas the TIAA
Traditional Annuity’s guaranteed rate is subject to the claims-paying ability of Teachers Insurance and Annuity Association.


The thought is not particularly different, but here's a paragraph from a White Paper by John Biggs, then the President of TIAA-CREF, from 2010. "How TIAA-CREF Funded Plans Differ from a Typical 401(k) Plan"

Together, the guaranteed minimum and additional amounts make up the “crediting rate” in the accumulation phase of the account. Crediting rates applied to the TIAA Traditional Annuity have generally been among the highest in the life insurance industry.8 In addition, all funds held back (contingency reserves) for the guarantees made by TIAA are maintained in each vintage group and later distributed as additional annuity income as the need for such reserves wears away, thus providing additional income for TIAA retirees. This practice derives from the non-profit statuof TIAA.
Very helpful, crefwatch. BTW, thank you for posting on your website the link to the history of TIAA: https://sites.google.com/view/tncb/home ... d-crannies. I had never read much other than the company's own potted account. Working my way through the Greenough history now--very enjoyable.

The older 2010 brochure you posted tells a very different story about the amount of loyalty bonus to be expected (5% then, 20%+ now). That tends to confirm to me that the bonus goes up if past bond market returns were strong and maybe down if not. It also becomes clear from the older materials, and the Biggs quote, that there isn't a mechanical formula for releasing reserves (I simply annuitized them same as the participant's balance in my spreadsheet). In fact, the loyalty bonus may fluctuate year by year for a given participant, since the Board makes that decision year by year rather than one time at the moment of annuitization. Is that your understanding? Fluctuations may not be great, just as crediting rates don't change much.

Last, a suggestion for your website: it occurs to me that you may have a complete file of TIAA marketing materials going w-a-a-y back. That would be an interesting archive to peruse. I personally find the 2010 brochure language more informative than what is up there now.
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Re: TIAA ‘loyalty’ bonus for annuitizing: Do you understand it?

Post by willthrill81 »

The 'loyalty bonus' does not appear to be well understood by anyone, and, more importantly, it's not guaranteed. If you get it, count your blessings. But don't count on it.
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Re: TIAA ‘loyalty’ bonus for annuitizing: Do you understand it?

Post by dknightd »

In my mind, the "loyalty" bonus is just a new marketing term for what used to be called "additional amounts".
You get what TIAA guarantees. Assuming they can pay it, which seems likely. You might get additional amounts, which seems likely. But not guaranteed.
I think trying to put what TIAA calls "additional amounts" into a spread sheet is a fools errand. But perhaps a good mental exercise.
If the TIAA general fund returns more than expected, they share part of it with you. Part they keep in reserve.
Last year annuitants got a 5% increase in pay outs. This was not expected. I'm not sure how much of this was due to better than expected returns on the "general fund", and how much was due to some people dying before expected.
In my mind, TIAA Traditional has three types of customers.
1) people who have annualized, and are in it for the rest of their lives.
2) people who have not yet annualized, but are subject to restricted withdrawals
3) people who have fully flexible amounts.
It makes sense to me that they prioritize in that order.
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Re: TIAA ‘loyalty’ bonus for annuitizing: Do you understand it?

Post by dknightd »

McQ wrote: Tue Jul 26, 2022 4:26 pm
1. Why does annuitization lead to a release of reserves, while simply holding the account, and maybe taking RMDs, does not? What is special about annuitization?
Please, I want to know.
The special thing about annuitization, is that is what they were designed to do. They are primarily an insurance company. An insurance company created to make sure that retired teachers have enough money to live on in their old age. Thanks to Andrew Carnegie.

I don't think it was ever envisioned as an investment company. But it has to evolve with time.
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Re: TIAA ‘loyalty’ bonus for annuitizing: Do you understand it?

Post by crefwatch »

dknightd wrote: Thu Jul 28, 2022 11:06 am The special thing about annuitization, is that is what they were designed to do. They are primarily an insurance company. An insurance company created to make sure that retired teachers have enough money to live on in their old age. Thanks to Andrew Carnegie.
Very good point. Until about 1989, there were only two ways to get at even $1 of the money in your TIAA Traditional account:
1) Death benefit to your Beneficiary
2) One or two life Annuity
period. the end.

Sometimes people won't believe me when I tell them that my mother's TIAA Traditional payout declined slightly three times, from $583 in 1990, to eventually $526 in 1994. That was entirely in what were then called Dividends, and are now called Additional Amounts.

In fact, it is almost unheard of for TIAA Traditional payouts to decline, even though it is only, technically, the guaranteed amounts that cannot change. This is clearly a priority for the company.
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Re: TIAA ‘loyalty’ bonus for annuitizing: Do you understand it?

Post by ofckrupke »

McQ wrote: Tue Jul 26, 2022 4:26 pm 1. Why does annuitization lead to a release of reserves, while simply holding the account, and maybe taking RMDs, does not? What is special about annuitization?

Please, I want to know.
Annuitization puts an end to whatever optionality the accountholder previously had, whose execution means up to complete drawdown of account value on a timeline other than (faster than) expected for a life annuity (even someone in MDO might switch to a much faster systematic outbound transfer).

[edit to note: crefwatch beat me to it] Recall that for its first several decades, such optionality did not exist, and TIAA premiums could therefore be invested in full accord with a simpler deferred life annuity model (if you go back far enough, I suspect a pre-annuitization beneficiary could not even choose an immediate lump-sum death benefit). As a matter of good tradecraft, each time a new transfer-before-annuitization accountholder option exposed the general fund to a fresh liquidity risk relative to the base model, a new contingency reserve sub-account had to be established and managed.
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Re: TIAA ‘loyalty’ bonus for annuitizing: Do you understand it?

Post by McQ »

jjustice wrote: Wed Jul 27, 2022 8:54 am Here is a brochure on the topic to supplement footnote 13 in the FAQs. My guess is that the loyalty bonus is at least partly designed to discourage market timing in Traditional annuity accounts. They prefer steady long-term monthly investments to large movements in and out. I don't know that this is the case, but it seems likely to me. In any case, I'm happy with the arrangement.
The brochure: https://www.tiaa.org/public/pdf/TIAA_Tr ... _FINAL.pdf
John
PS It also occurs to me that, in order to be fair, those who "paid" for the reserves should be the ones who benefit from their return.
That link was extremely helpful, jjustice. My brochure link was to more general FAQs. I reproduce the key chart below.

Image

The dark blue area is the legacy bonus. The light blue area is the newcomer payment. Note that from about 2004, the legacy bonus is a constant dollar amount--the width of the dark blue line doesn't change. Before that year, the legacy bonus differs over time, growing after 1999.

A first cut for what I have learned thus far is consistent with knightd's comment: the loyalty bonus is a second "discretionary" amount, one more bucket from which the Board can draw to give back as much as it dares to participants. It can't be modelled in any simple linear way in a spreadsheet, and won't be constant in most cases. Except it has been constant for almost sixteen years. Almost as if they had moved to a rule-generated process.

Except the words just above the chart read: "It not only increases your initial payment but may also increase all future payments." My emphasis.
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Re: TIAA ‘loyalty’ bonus for annuitizing: Do you understand it?

Post by McQ »

crefwatch wrote: Thu Jul 28, 2022 11:40 am
dknightd wrote: Thu Jul 28, 2022 11:06 am The special thing about annuitization, is that is what they were designed to do. They are primarily an insurance company. An insurance company created to make sure that retired teachers have enough money to live on in their old age. Thanks to Andrew Carnegie.
Very good point. Until about 1989, there were only two ways to get at even $1 of the money in your TIAA Traditional account:
1) Death benefit to your Beneficiary
2) One or two life Annuity
period. the end.

Sometimes people won't believe me when I tell them that my mother's TIAA Traditional payout declined slightly three times, from $583 in 1990, to eventually $526 in 1994. That was entirely in what were then called Dividends, and are now called Additional Amounts.

In fact, it is almost unheard of for TIAA Traditional payouts to decline, even though it is only, technically, the guaranteed amounts that cannot change. This is clearly a priority for the company.
I'm glad you mentioned a case of declining "additional amounts." It really did happen, probably has happened before, and will happen again. Worse, inflation would have reduced her 1994 payment by 16% relative to 1990 dollars. So, $583 to $444 $447 in real dollars. Ouch.

TIAA Traditional, annuitized or not, remains an investment. All investments carry risk; risk to income is threatening same as risk to principal.

I predict that future TIAA annuitants will suffer your Mom's experience, if the bond bear market that began in 2022 grows intense enough, or prevails for long enough.

But then again, presuming your Mom lived long enough, what happened to the $526 payment level by 1999? 2004? 2009? [There was a notable bond rally across those years]
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Re: TIAA ‘loyalty’ bonus for annuitizing: Do you understand it?

Post by spdoublebass »

As a total laymen, is it worth it?
Is the loyalty bonus better than stocks?

Doesn't it basically come down to I have X years until retirement. My choices are I can contribute to TRAD now and probably get a loyalty bonus, or I could put that in stocks and then move a larger amount of money into TRAD at a later date without a loyalty bonus.
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Re: TIAA ‘loyalty’ bonus for annuitizing: Do you understand it?

Post by crefwatch »

spdoublebass, nobody is arguing that stocks and fixed-income products have similar long-term records. The age and risk tolerance of any single investor are more important in those respects than are TIAA (or anybody else's) rules.

For many years, say from 1955 to 1995 (dates chosen by me, not research), TIAA-CREF recommended that the average worker in one of their plans give serious consideration to accumulating 50% of their monthly salary reduction amounts in TIAA Traditional (with a 9 year lockup), and 50% in CREF Stock. Because that was a period of good stock market returns, CREF outpaced TIAA in the vast number of years.

It's not really applicable to YOU, because you are a different person. But my late mother was inclined to say (even though she was not an eagle-investor) that "I did a lot better than the other, more conservative ladies, in the teacher's lounge." She was referring to annuitization (not accumulation) in a mix of CREF and TIAA, while the other ladies were so conservative that they chose 100% TIAA Traditional upon retirement, which has not managed (and never promised to) keep up with increases in the cost of living.

(Inclusion and Equity Footnote: Most underpaid independent-school teachers in the 1970s were .... female.)

For the inquiry about my mother's TIAA Traditional payout experience: There's a table in this old reply:
viewtopic.php?p=5413297#p5413297
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Re: TIAA ‘loyalty’ bonus for annuitizing: Do you understand it?

Post by spdoublebass »

crefwatch wrote: Fri Jul 29, 2022 11:13 am spdoublebass, nobody is arguing that stocks and fixed-income products have similar long-term records. The age and risk tolerance of any single investor are more important in those respects than are TIAA (or anybody else's) rules.
Thanks for the reply.
I should have said I wrote my comment more for myself. I tend to read these threads and think I should be acting on something do to the loyalty bonus.
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Re: TIAA ‘loyalty’ bonus for annuitizing: Do you understand it?

Post by tibbitts »

crefwatch wrote: Fri Jul 29, 2022 11:13 am spdoublebass, nobody is arguing that stocks and fixed-income products have similar long-term records. The age and risk tolerance of any single investor are more important in those respects than are TIAA (or anybody else's) rules.

For many years, say from 1955 to 1995 (dates chosen by me, not research), TIAA-CREF recommended that the average worker in one of their plans give serious consideration to accumulating 50% of their monthly salary reduction amounts in TIAA Traditional (with a 9 year lockup), and 50% in CREF Stock. Because that was a period of good stock market returns, CREF outpaced TIAA in the vast number of years.

It's not really applicable to YOU, because you are a different person. But my late mother was inclined to say (even though she was not an eagle-investor) that "I did a lot better than the other, more conservative ladies, in the teacher's lounge." She was referring to annuitization (not accumulation) in a mix of CREF and TIAA, while the other ladies were so conservative that they chose 100% TIAA Traditional upon retirement, which has not managed (and never promised to) keep up with increases in the cost of living.

(Inclusion and Equity Footnote: Most underpaid independent-school teachers in the 1970s were .... female.)

For the inquiry about my mother's TIAA Traditional payout experience: There's a table in this old reply:
viewtopic.php?p=5413297#p5413297
Yes, 50/50 was the general suggestion for accumulation as well, even into the early '80s as far as I know. However since you mentioned it, most of those teachers in the '70s must have died young anyway from all the smoke in those teachers' lounges (made me cough now just thinking about it), so perhaps the conservative annuitization allocations didn't have much effect.
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Re: TIAA ‘loyalty’ bonus for annuitizing: Do you understand it?

Post by McQ »

By the way, here is a paste from fn 13 of the current FAQ. It describes a study of the loyalty bonus. It appears they've updated the study each year since the initial run. I'll interpret / comment below. Bold is my emphasis.

"Source: TIAA Actuarial Department, based on a study that compared the amount of initial lifetime income that would have been received by two hypothetical participants beginning lifetime income, for each of the 301 months from January 1, 1997, through January 1, 2022. The two hypothetical participants are the same age 67 and they select a single-life annuity with a 10-year guarantee period using TIAA’s standard payout annuity. The career contributor made level monthly contributions to TIAA Traditional under the Retirement Annuity Contract over a 30-year career prior to their retirement date. The new contributor transferred the same final accumulation as the career contributor to TIAA Traditional shortly
before selecting lifetime income. Over the study period, the career contributor’s initial lifetime income exceeded that of the new contributor
in 291 of the 301 retirement months
with an average lifetime income advantage of 15.1%. Their biggest advantage was 29.8% and their
smallest advantage was -2.9%.
Over the study’s most recent decade, the career contributor’s initial lifetime income exceeded that of the new
contributor in all 120 retirement months with an average lifetime income advantage of 22.3%. Their biggest advantage was 29.8% and their
smallest advantage was 12.8%. In the study’s most recent month, the career contributor’s initial lifetime income exceeded that of the new
contributor by 17.2%. Past performance is no guarantee of future results."

Interpretation

1. Sometimes there is no loyalty bonus, at least initially: that happened in 10 of 301 cases. It has never happened in the past ten years. I'll speculate on how it could happen below.

2. The variation in initial bonus is really quite substantial, over 30 percentage points best to worst case.

3. The study looked at the RA accounts, not SRA accounts.

4. The first datapoint would have been for employment contributions beginning January 1967--just before interest rates began their long climb to the peak in 1981. The most recent ten years--universal loyalty bonus--would be for employment contributions beginning between January 1982 and January 1992.

Speculation

If interest rates go up enough in the last year or two before retirement, and had been low enough long enough, there is unlikely to be a loyalty bonus. Rates in 1967 were about 4.50%; in 1997 they were about 6%; in 1981 - 1982, they would have been between 11% and 13% (20-year government bond).

Retirees in the last ten years all got loyalty bonuses because their early contributions had very high crediting rates, and they retired near the end of a long-running bull market in bonds. The 0% bonus cases would be concentrated in the late 1990s, because these retirees had initially low crediting rates from which to withhold reserves, and TIAA suffered a fifteen year bear market, like all bond holders, leaving little in the till to distribute.

This leads to a testable prediction. If the Fed is not initially successful, and has to do a full Volcker, then interest rates may go from 2% last year, to 4% this year, 6% in early 2023, and 8% in late 2023. In which case, long time TIAA participants who annuitize in 2024 are unlikely to get a loyalty bonus, especially those whose contributions were concentrated in the low rate years 2012 - 2021. The newcomers will prevail for a while again.

Thoughts?
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Re: TIAA ‘loyalty’ bonus for annuitizing: Do you understand it?

Post by ResearchMed »

McQ wrote: Fri Jul 29, 2022 6:14 pm Retirees in the last ten years all got loyalty bonuses because their early contributions had very high crediting rates, and they retired near the end of a long-running bull market in bonds. The 0% bonus cases would be concentrated in the late 1990s, because these retirees had initially low crediting rates from which to withhold reserves, and TIAA suffered a fifteen year bear market, like all bond holders, leaving little in the till to distribute.
[emphasis added]


Very helpful discussion. Thanks!

However, I think the bolded section above needs to include something other than "Retirees in the last ten years..." - something about assuming how long they had been contributing to Trad Ann.
As previously discussed, those who contributed just prior to retiring did not do as well historically as those who had been contributing all along, etc. There needs to be something making it clear that their "early contributions" were not just early per their own contributing timeline, especially for someone who didn't read the previous part carefully (or at all, and just skipped to some sort of summary statement...).

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Re: TIAA ‘loyalty’ bonus for annuitizing: Do you understand it?

Post by crefwatch »

McQ wrote: Fri Jul 29, 2022 6:14 pm This leads to a testable prediction. If the Fed is not initially successful, and has to do a full Volcker, then interest rates may go from 2% last year, to 4% this year, 6% in early 2023, and 8% in late 2023. In which case, long time TIAA participants who annuitize in 2024 are unlikely to get a loyalty bonus, especially those whose contributions were concentrated in the low rate years 2012 - 2021. The newcomers will prevail for a while again.

Thoughts?
Although "mortality credits" as a term, has been around at TIAA for some time, "Loyalty Bonus" is a very new marketing term. As I've said before, it's not well-defined enough, in the way that most investment terms usually are. And I don't want to confuse it with TIAA Traditional Payout Rates, which could be simplistically called "the bottom line of Loyalty ... ", maybe.

Unfortunately, those have never been reliably and repeatably reported by TIAA, and that's still the case today. So I can't pick exactly the reporting years I might wish to. But I'm trying to do your test on the huge peak in 10-Year Treasury Bill rates in 1981, and again in 1984.

The 1986 "interest rates used in calculating total TIAA annuity payments are
-------
"12% on all amounts credited before January 1, 1986 (a rate that first went into effect in 1982) and
"11% on all amounts ... credited on and after January 1, 1986"

The 1987 "Total Effective Interest Rates for Payout Annuities" were
-------
12% for funds applied prior to 1986
10% for funds applied during 1986
9% for funds applied during 1988

the "1988 TIAA Dividend Scale for Pay-Out Annuities" (note that this is not the same words as used today!) was
------------------------------------
12% for funds applied prior to 1986
10% for funds applied during 1986
9% for funds applied during 1987
9.5% for funds applied during 1988
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Re: TIAA ‘loyalty’ bonus for annuitizing: Do you understand it?

Post by neurosphere »

dknightd wrote: Thu Jul 28, 2022 9:55 am In my mind, the "loyalty" bonus is just a new marketing term for what used to be called "additional amounts".
I played around with the retirement estimator at TIAA for my former employer accounts. 100% of my TIAA investments are in Traditional.

They clearly separate Additional Amounts from the Loyalty Bonus.

For a payout date starting way in the future (25 years, I'm 50) they break down the payments in three separate lines:
1) Guaranteed Amounts - 71% [I've scaled these as a percentage of the total first year payment and rounded]
2) Additional Amounts -- 28%
3) "Loyalty Bonus" [quotes are theirs] - 1%

My first Traditional investment was mid 2020. I assume that these projections take into account a 27 year loyalty bonus (2 previous years and 25 future years).

They also write "Your TIAA Traditional Income Payout Rate is 7.18% (vs. 7.09% payout rate for new contributor.)"
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Re: TIAA ‘loyalty’ bonus for annuitizing: Do you understand it?

Post by McQ »

tibbitts wrote: Fri Jul 29, 2022 11:39 am
crefwatch wrote: Fri Jul 29, 2022 11:13 am spdoublebass, nobody is arguing that stocks and fixed-income products have similar long-term records. The age and risk tolerance of any single investor are more important in those respects than are TIAA (or anybody else's) rules.

For many years, say from 1955 to 1995 (dates chosen by me, not research), TIAA-CREF recommended that the average worker in one of their plans give serious consideration to accumulating 50% of their monthly salary reduction amounts in TIAA Traditional (with a 9 year lockup), and 50% in CREF Stock. Because that was a period of good stock market returns, CREF outpaced TIAA in the vast number of years.

It's not really applicable to YOU, because you are a different person. But my late mother was inclined to say (even though she was not an eagle-investor) that "I did a lot better than the other, more conservative ladies, in the teacher's lounge." She was referring to annuitization (not accumulation) in a mix of CREF and TIAA, while the other ladies were so conservative that they chose 100% TIAA Traditional upon retirement, which has not managed (and never promised to) keep up with increases in the cost of living.

(Inclusion and Equity Footnote: Most underpaid independent-school teachers in the 1970s were .... female.)

For the inquiry about my mother's TIAA Traditional payout experience: There's a table in this old reply:
viewtopic.php?p=5413297#p5413297
Yes, 50/50 was the general suggestion for accumulation as well, even into the early '80s as far as I know. However since you mentioned it, most of those teachers in the '70s must have died young anyway from all the smoke in those teachers' lounges (made me cough now just thinking about it), so perhaps the conservative annuitization allocations didn't have much effect.
Interestingly, the Greenough history of TIAA that I found at crefwatch's site does not support the idea that TIAA "recommended" a 50-50 split, at least, before the 1980s. From p. 104, where he describes the development of CREF:

"Originally, participants and their colleges could put any amount up to 50 percent, but not more, into the CREF variable annuity. ... By far the most important of the original limits was the one restricting participation in CREF to half of the total retirement contributions being made on behalf of a participant. This 50 percent limit on contributions was strongly supported by college faculty, administrators, and trustees as the most basic of all the initial controls. ... And finally, it was highly unlikely that approval of the various necessary public authorities could have been obtained without the [50%] limit.
After careful monitoring over the years, the 50 percent limit on CREF participation was raised to 75 percent January 1, 1967, and 100 percent July 1, 1971. In 1989, nearly all of TIAA’s 4,300 participating institutions permit full choice of up to 100 percent either to TIAA or CREF."

If you've got as much money in TIAA Traditional as me, I think you will enjoy this very readable history. Greenough was President of TIAA for a while and a key player in the design of CREF, the "first variable annuity."
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Re: TIAA ‘loyalty’ bonus for annuitizing: Do you understand it?

Post by GaryA505 »

Some people say annuity bonuses are like candy for the stupid. You decide.
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Re: TIAA ‘loyalty’ bonus for annuitizing: Do you understand it?

Post by spdoublebass »

neurosphere wrote: Sun Jul 31, 2022 4:36 pm
dknightd wrote: Thu Jul 28, 2022 9:55 am In my mind, the "loyalty" bonus is just a new marketing term for what used to be called "additional amounts".
I played around with the retirement estimator at TIAA for my former employer accounts. 100% of my TIAA investments are in Traditional.

They clearly separate Additional Amounts from the Loyalty Bonus.

For a payout date starting way in the future (25 years, I'm 50) they break down the payments in three separate lines:
1) Guaranteed Amounts - 71% [I've scaled these as a percentage of the total first year payment and rounded]
2) Additional Amounts -- 28%
3) "Loyalty Bonus" [quotes are theirs] - 1%

My first Traditional investment was mid 2020. I assume that these projections take into account a 27 year loyalty bonus (2 previous years and 25 future years).

They also write "Your TIAA Traditional Income Payout Rate is 7.18% (vs. 7.09% payout rate for new contributor.)"
How is the additional amount different fro ma loyalty bonus?

If that’s all the loyalty bonus is for 27 years, I’d probably just let the money grow in stock and then settle for the lesser rate when I move it to Trad later one.
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Re: TIAA ‘loyalty’ bonus for annuitizing: Do you understand it?

Post by afan »

I definitely do not know how TIAA determines how much to offer in the loyalty bonus each year. I suspect it is not mechanical, or at least, not considering only the record of past contributions and returns.

The goal of the bonus appears to be to encourage people to annuitize, as opposed to taking out money in unpredictable amounts at unpredictable times. I suspect part of the loyalty bonus figure may be in response to what participants have been doing. If there are large numbers of people pulling their money out, then maybe TIAA reacts by increasing the incentive to annuitize.

Each dollar that is pulled out without annuitizing is a dollar for which they no longer need reserves to meet the annuity obligation. Thus, they may have more reserve money available and greater need to incentivize using the annuity option.

To the extent that the bonus is funded by the unused reserves, it could be near impossible to predict what it may be in the future. One would need to know the current ratio of reserves to obligations for each contribution year, age distribution of participants and trends in how people are accessing their annuity money in retirement. TIAA has all this information but some of it I doubt they publish.
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Re: TIAA ‘loyalty’ bonus for annuitizing: Do you understand it?

Post by crefwatch »

Additional discussion of this topic:

https://community.morningstar.com/s/que ... us-chatter
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Re: TIAA ‘loyalty’ bonus for annuitizing: Do you understand it?

Post by tibbitts »

GaryA505 wrote: Mon Aug 01, 2022 4:34 pm Some people say annuity bonuses are like candy for the stupid. You decide.
I don't think most Bogleheads would consider the TIAA loyalty bonus similar to other annuity purchase bonuses.
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Re: TIAA ‘loyalty’ bonus for annuitizing: Do you understand it?

Post by aspiringboglehead »

Does anyone have a sense if the "loyalty bonuses" even continue to go up after about 20 years? In the brochure here --

https://www.tiaa.org/public/pdf/TIAA_Tr ... _FINAL.pdf

-- all "pre-2002" deposits appear to be lumped together for a hypothetical payout annuity declared in January 2023. This would mean, for example, that there would be no benefit to preserving a (low-interest) 2012 vintage today even if you planned to declare a payout annuity in 2050.
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Re: TIAA ‘loyalty’ bonus for annuitizing: Do you understand it?

Post by crefwatch »

aspiringboglehead wrote: Mon Jun 05, 2023 1:03 pm Does anyone have a sense if the "loyalty bonuses" even continue to go up after about 20 years?
Sadly, TIAA Traditional remains a Black Box, no matter what aspect of it you try to investigate! But to your specific question, are you familiar with this family of Data Sheets? I'm posting RC below, because you didn't say which flavor of TIAA Trad you have. (However, the table I'm about to cite is the same on every Data Sheet.)

https://www.tiaa.org/public/investment- ... r=47933637

Page down to the table headed in boldface, "Income Payout Rates". You need to understand that every March, you get a different Data Sheet from the same link just above. They can change (or leave alone) the "oldest" vintage's size, dates, and payout fraction. Now, factors like Mortality Experience are not under TIAA's control. The Pandemic may well have increased payouts because more Participants died than the mortality tables predicted.

My point is that the hypothetical discussion you cited (thanks so much for posting a link to exactly what you were citing) is, of necessity, frozen at a particular moment. (I think the brochure says January, 2023.) It does not apply for eternity with specific numbers, dates, or results.

If you had asked, "Isn't it historically true that TIAA Traditional Payout tables generally span around 20 years, and under most interest rate conditions, the oldest vintage has had the highest payout?", one could give a guarded "Yes" answer. But we don't know if this is because TIAA finds no value in making the table wider (in time), or if so many annuitants die after 20 years of collecting, there are not a lot more Unneeded Reserves to be distributed!

Unfortunately, TIAA didn't publish the payout tables prominently or regularly until the last ten or twenty years. So we don't have a lot of data to make amateur projections from.

More importantly, I hope you may know that TIAA has announced substantial, unscheduled, un-promised, non-policy-making, non-committal for the future, INCREASES (of 1% to 2.5%, I think) in annuitized payouts to EVERY annuitant at least twice in the last five years. (I don't know the exact quantity because I haven't annuitized anything.) These payments don't depend on the cited Payout table, and are (because only 2.5% interest is GUARANTEED after annuitization) not binding on TIAA. But in my lifetime, DECREASES in payments to annuitants in the payout phase are pretty darn rare. How many profit-making insurance companies increase annuity payouts when they don't have to? I'd think the answer is zero.
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Re: TIAA ‘loyalty’ bonus for annuitizing: Do you understand it?

Post by aspiringboglehead »

crefwatch wrote: Mon Jun 05, 2023 2:25 pm
aspiringboglehead wrote: Mon Jun 05, 2023 1:03 pm Does anyone have a sense if the "loyalty bonuses" even continue to go up after about 20 years?
Sadly, TIAA Traditional remains a Black Box, no matter what aspect of it you try to investigate! But to your specific question, are you familiar with this family of Data Sheets? I'm posting RC below, because you didn't say which flavor of TIAA Trad you have. (However, the table I'm about to cite is the same on every Data Sheet.)
Thanks! That was a very helpful response.

I think I'm falling into that pattern that some experimental psychologists have identified: people often keep options open even when their value is exceedingly small. I don't know that I'll even ever use a payout annuity - as opposed to keeping the money indefinitely in a "crediting" state or any number of other possibilities. (This is in a Roth 403(b) plan.)

Yet it seems somehow regrettable to throw away 2011ish "vintages" even if their rate is 3.8% (in my GSRA) and the new crediting rate is 5.5% - and money deposited today will likely earn higher crediting rates in the future, so any "loyalty bonus" would have some ground to make up. But if I never move the money out and back in, there's no real benefit to have allocated some of my exposure to TIAA Traditional into a GSRA instead of an RA.
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Re: TIAA ‘loyalty’ bonus for annuitizing: Do you understand it?

Post by crefwatch »

On the other hand, perhaps efforts to get the best possible current accumulation rate are more ... worthwhile ... for you, because they increase an amount to be (theoretically) annuitized, and certainly increase the amount to be RMDed to live on, and to be left for inheritances.

It is useful to make a retirement budget for study and refinement at least ten years before you expect to retire. This can help prepare for Roth conversions, IRMAA costs, SS starting year, and answering the question, do I have enough income without annuitizing? Ours is also important because my wife is five years younger than I am, and will likely be paying much worse (i.e. widow's) income taxes for a long time.
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Re: TIAA ‘loyalty’ bonus for annuitizing: Do you understand it?

Post by aspiringboglehead »

crefwatch wrote: Mon Jun 05, 2023 2:58 pm On the other hand, perhaps efforts to get the best possible current accumulation rate are more ... worthwhile ... for you, because they increase an amount to be (theoretically) annuitized, and certainly increase the amount to be RMDed to live on, and to be left for inheritances.

It is useful to make a retirement budget for study and refinement at least ten years before you expect to retire. This can help prepare for Roth conversions, IRMAA costs, SS starting year, and answering the question, do I have enough income without annuitizing? Ours is also important because my wife is five years younger than I am, and will likely be paying much worse (i.e. widow's) income taxes for a long time.
Yeah, exactly - partly because of your response and the data sheets it led me to, I ended up putting in an order today to transfer the balance in a particular plan out from TIAA Traditional to the CREF money market, with a plan to redeposit into TIAA Traditional after 120 days. At worst, I'm losing 6-11 years of a loyalty bonus, as the account goes back only to 2011. Unless the rates crash between now and October (in which case I can make the redeposit before 120 days), it will generate significantly more accumulation/interest, which is (1) certainly better if I never annuitize and (2) only tentatively better even if I do annuitize (and it would not be better at all based on the way they currently bucket older "vintages"). If the rates stay the same or go up between now and October, the difference in the crediting rate is around 1.7 percentage points on the full balance.

I'm more likely to leave the whole account to charity or to a beneficiary than to annuitize. This whole account was never meant for living expenses.

It feels aggressive to do this, but it's clearly permitted by TIAA's rules. It's too bad they don't handle the rates in a way that makes this plan unattractive - I feel as if I'm just taking money from more passive or less sophisticated plan participants. But it's still possible I've made some mistake predicting loyalty bonuses (or my own propensity to annuitize) and that I'm the chump here. :)

Thanks again!
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McQ
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Re: TIAA ‘loyalty’ bonus for annuitizing: Do you understand it?

Post by McQ »

In another context crefwatch remarked that people have been trying to disintermediate TIAA for decades.

So, why the 120 day rule, since it seems to put only a mild brake on that disintermediation?

It occurred to me that TIAA gains from not having to pay you a legacy bonus (or as much), now that you've transferred out. Likewise, TIAA will collect an expense ratio on the money market fund for 120 days.

On this reasoning, the legacy bonus, among other things, is a way to compensate for what inevitably happens when interest rates make a sharp jump, easing the squeeze on TIAA since they know in the end they can't fight the exit from the SRA/GSRA liquid accounts (Vanguard money market fund at 5.0%, yada yada).

You might enjoy this other thread where I calibrated the legacy bonus in my personal case for contributions of different vintages. I'll update it in August on the anniversary; I'm curious to see how much greater the bonus is, after one year, with everything else that has happened: viewtopic.php?t=384206
You can take the academic out of the classroom by retirement, but you can't ever take the classroom out of his tone, style, and manner of approach.
aspiringboglehead
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Re: TIAA ‘loyalty’ bonus for annuitizing: Do you understand it?

Post by aspiringboglehead »

Thanks - that all makes sense. I suppose nothing would stop them from having a 365-day or 2-year rule (although, given the complexity of the product, I don't even know where to look to figure out whether they can change that for existing contributions and/or future contributions or whether it's a contractual term). And presumably they can set the 2011-2019 vintage (or whatever it happens to be) to a higher rate to discourage this if they wanted, but that has a cost as against the other vintages.

I'm not sure the expense ratio in the CREF money market helps them much, as a comparative matter, because the same thing is there (just implicit rather than explicit) in the the TIAA Traditional Annuity. In other words, assuming the organization is a big single entity (as I think they are), if the money market is paying me a net 5% (after expenses) but TIAA Traditional was paying me a net 3.8%, that is just a relative loss for them. Of course, maybe they account for the money-market differently: it's pure revenue for them, compared to TIAA Traditional which is more complicated and requires reserves, etc. (Though TIAA Traditional is opaque for us, it may not be completely transparent for them in the sense that they face risks of unknown future withdrawals, unknown future rates, etc., whereas the money market is a presumably very simple proposition for them: take money, pay people to buy cash-equivalents, and pocket the difference between the cost of that and 18 basis points.)
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Re: TIAA ‘loyalty’ bonus for annuitizing: Do you understand it?

Post by crefwatch »

McQ wrote: Mon Jun 05, 2023 6:23 pm It occurred to me that TIAA gains from not having to pay you a legacy bonus (or as much), now that you've transferred out. Likewise, TIAA will collect an expense ratio on the money market fund for 120 days.
I don't want to sound naive, but TIAA Traditional is a Participating Annuity. The other Participants get the excess reserves, not big bad TIAA. And the reserves "payouts" used to be larger, before Congress elected to tax them, specifically, in 1997.

CREF expenses are charged "at cost." That leaves a lot of wiggle room, but it is uncommon.
Last edited by crefwatch on Tue Jun 06, 2023 8:15 am, edited 1 time in total.
Rex66
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Re: TIAA ‘loyalty’ bonus for annuitizing: Do you understand it?

Post by Rex66 »

This is similar to typical WL dividends. It’s not guaranteed and vague with no disclosure on the formula. It’s even more nebulous since they don’t have to yearly disclose the dividend rate even if that rate can’t be used in a known equation. I wouldn’t waste time trying to figure how they do it since the industry has a long history of not disclosing it.
valleyrock
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Re: TIAA ‘loyalty’ bonus for annuitizing: Do you understand it?

Post by valleyrock »

Help please on annuitizing, looking at the "loyalty bonus" as lagniappe. (Lagniappe is a Louisiana word meaning "a little something extra.")

I'm currently in the process of considering annuitizing (lifetime) my RA accounts, which otherwise would have to be taken out over a period of 9 years plus 1 day.

Backing up, if I were to select the 9 year plus a day option, that would result in about $483 per month for the 10 years (assuming no more interest is earned, which I believe is the case for this option).

If I annuitize, the written summary says I'm guaranteed $300 per month, plus an "additional amount" of $132 per month, plus a "loyalty bonus" of $100 per month, for a total of $532 per month, with looks real good compared to an immediate annuity (currently at $445 per month for my age, state, etc.). If I read the footnote correctly (see below), it appears that the "additional amount" stays, although the footnote is not totally clear on that. (Thoughts on that will be apprecaited.) Whereas, the "loyalty bonus" (footnote also below) is determined annually (by some arcane means, which I do not wish to attempt to understand, even if it is understandable).

So, even if the "loyalty bonus" ends, I'm still getting $300 plus $132 = $432 per month (assuming I'm right about the "additional amount" staying with me). That's pretty close to the $445 immediate annuity I could get with the amount here, but $50 per month less than the $483 per month I'd get by just taking everything over a 10 year period.

Of course, I'm assuming I'll be sticking around at least 10 years here, and the ramifications of not doing so are clear.

So, the question is, with these assumptions, does the annuitization sound good? Surely the "loyalty bonus" will still be available... and even it it were halved to $50 a month, I'd still be more or less at breakeven in terms of comparison to the 9 years plus 1day withdrawal option.

Thanks for any thoughts on what others would do, what I'm missing, etc.


Footnotes:
"***(ii) additional amounts, which are available to both new and long-term participants above the estimated guaranteed minimum amount, are not guaranteed for periods other than the period for which they were declared. Such additional amounts, when declared, remain in effect for the “declaration year”, which begins each January 1 for payout annuities.

****(iii) TIAA may provide a loyalty bonus that is only available when electing lifetime income. The amount of the bonus is discretionary and determined annually."
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Re: TIAA ‘loyalty’ bonus for annuitizing: Do you understand it?

Post by crefwatch »

valleyrock, you are asking a single question without background. That's okay, but you're going to get answers that don't take into consideration things like whether you are married, you had different income levels, whether you have children or charitable interests, and how old you are, what other retirement income options you have. We don't know your inflation fears or assumptions.

You also need to do enough reading (I mean, of links found on this board, some of them TIAA documents) to give you confidence that you ARE going to get those Additional Amounts. It is unethical for me to tell you "You will get those amounts, and they won't go down very much, IF they go down." But that has been everyone's experience since 1918.

You mentioned "no more interest" on the TPA of 9 years and a day. The interest rate gets frozen, it doesn't stop paying interest. But they refer to the payment stream as "substantially equal payments", which include interest.

We do not plan to annuitize anything. But I agree that you have sketched a compelling reason to select the life annuity option. (One or two persons? Guaranteed period? The insurance factors for those choices are all actuarially equivalent; They are not marketing driven.) Do you understand that you are not betting with TIAA? If you die soon, the money goes to the other annuitants, not to the CEO of the company.

When you ask TIAA for a formal estimate, it will say for what time period it is binding on TIAA. It is never binding on you until you sign and return the paperwork.

One Participant's Results
viewtopic.php?f=1&t=321889
viewtopic.php?p=5413297#p5413297

Should I annuitize TIAA Trad? 2020.2
viewtopic.php?f=1&t=316872

Why Should I use TIAA Traditional?
viewtopic.php?f=1&t=318503
viewtopic.php?t=315414
www.tiaa.org/public/pdf/compliance/tiaa ... -paper.pdf
https://www.tiaa.org/public/pdf/making- ... rement.pdf

Should I annuitize at retirement?
viewtopic.php?f=1&t=327725
viewtopic.php?f=1&t=331390
viewtopic.php?p=6831150#p6831150 (Retirement Illustrator 2022)
valleyrock
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Re: TIAA ‘loyalty’ bonus for annuitizing: Do you understand it?

Post by valleyrock »

crefwatch wrote: Sun Jun 11, 2023 11:44 am valleyrock, you are asking a single question without background. That's okay, but you're going to get answers that don't take into consideration things like whether you are married, you had different income levels, whether you have children or charitable interests, and how old you are, what other retirement income options you have. We don't know your inflation fears or assumptions.

You also need to do enough reading (I mean, of links found on this board, some of them TIAA documents) to give you confidence that you ARE going to get those Additional Amounts. It is unethical for me to tell you "You will get those amounts, and they won't go down very much, IF they go down." But that has been everyone's experience since 1918.

You mentioned "no more interest" on the TPA of 9 years and a day. The interest rate gets frozen, it doesn't stop paying interest. But they refer to the payment stream as "substantially equal payments", which include interest.

We do not plan to annuitize anything. But I agree that you have sketched a compelling reason to select the life annuity option. (One or two persons? Guaranteed period? The insurance factors for those choices are all actuarially equivalent; They are not marketing driven.) Do you understand that you are not betting with TIAA? If you die soon, the money goes to the other annuitants, not to the CEO of the company.

When you ask TIAA for a formal estimate, it will say for what time period it is binding on TIAA. It is never binding on you until you sign and return the paperwork.
Thanks for clarifying. My goal was to simplify my ask, by only providing the dollar amounts under consideration because I've already factored in all the things you rightly say must be considered (marital status, number of persons, fears, age, children, social security, etc.), which go into considering how to manage retirements assets. This is only a small part of my savings/retirement funds, and which I want to start getting now. It is a lifetime annuity I'm seeking, just for myself. I'm fully aware of the downsides.

Thanks for the comment re interest on the 9 years plus 1 day withdrawal. I recall now TIAA saying there is interest, but it is much less than the accounts earn at present. Indeed that could and probably should be factored into my considerations.

Thanks also for the historical observations since 1918.

Regarding that "it will say for what time period it is binding on TIAA," yes, that's clear, BUT there are those footnotes. To amplify re the first one, which is most relevant to my concerns for the present:

I am indeed concerned about the first footnote I quoted (reproduced below). First, they say that the "additional amounts" are "not guaranteed for periods other than the period for which they were declared" ...I'm applying for a lifetime annuity: is that the period that's being declared? I think so, but I'm not certain, but I don't like the unclear language ("not guaranteed" ... "other than," etc.) And then the footnote says the "additional amount" will "remain in effect for the “declaration year”, which begins each January 1 for payout annuities". So, does the second footnote item re the "declaration year" just mean that the amount they are stating as an "additional amount" is determined to be what it is annually, and that I'll receive that as per the first part of the footnote. Or am I missing something?

***(ii) additional amounts, which are available to both new and long-term participants above the estimated guaranteed minimum amount, are not guaranteed for periods other than the period for which they were declared. Such additional amounts, when declared, remain in effect for the “declaration year”, which begins each January 1 for payout annuities.
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Re: TIAA ‘loyalty’ bonus for annuitizing: Do you understand it?

Post by crefwatch »

Just so I don't forget, let's mark the fact that TIAA has given noticeable un-promised, un-scheduled, permanent small increases in TIAA payouts in the last few years.
https://www.tiaa.org/public/about-tiaa/ ... 2021/12-16
https://www.tiaa.org/public/about-tiaa/ ... 2022/12-19

People spend a lot of time bemoaning (... however TRUE) that TIAA Traditional is a "Black Box", with opaque policies and 99.9% of the rights and powers reserved to TIAA. But this is one example of how that Black Box setup can actually help the Participants.

I'm glad TIAA is so heavily regulated (by the NY Dept of Finance insurance division) that they can't PROMISE the Additional Amounts. Do you get any satisfaction from reading the White Paper or FAQ document I cited? This "disturbing" fact has been true throughout your Accumulation years. You had a Guarantee of only 3% (goes to 2.5% after annuitization, BTW), but when the US had double-digit interest rates, I got double-digit interest from TIAA Traditional. (Note: I'm 72.) They had no visible DUTY to give me those double-digits, but they did!

Although it may upset you even more, I should remind you that TIAA Traditional is not a fractional ownership product, like an open-end mutual fund. It's nothing more than a contract (.... a promise) from a big, scary Insurance Company ... ) to do certain things. It does not promise to ever pay you more than 3%. Sorry. However, when prevailing interest rates were 0.1% (and banks were paying 0.01%!), you were getting 3%, because that's what they promised you when you signed up.

As I said previously, I am not going to PROMISE you that Additional Amounts will never decline. If you read the link, my mother's TIAA Trad payout DID go down, which is quite unusual. But neither she nor I "lost faith". She got such huge increases on her (EQUITY-linked) CREF Stock payout annuity that she didn't care about the TIAA Traditional decrease. ("One Participant ... " links) There's no ethical way I can make those footnotes not scare you. Can you talk to any of the Emeriti at your institution? Are they eating cat food?

It's perfectly true that the Acuumulation period, and the Payout period interest rates are reset once a year. They go up, and they go down. But TIAA has a history (not, a "promise") of trying to hold PAYOUT annuity payments steady, or at least to have only minor decreases. I might point out that TIAA is currently trying to protect itself against future low-interest periods by promoting RC and RCP plans, with the revolutionary (to me, anyway) right to change the minimum Guaranteed amount every ten years. A fixed 3% Guarantee looks like a good deal to me.
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Re: TIAA ‘loyalty’ bonus for annuitizing: Do you understand it?

Post by House Blend »

valleyrock wrote: Sun Jun 11, 2023 11:01 am I'm currently in the process of considering annuitizing (lifetime) my RA accounts, which otherwise would have to be taken out over a period of 9 years plus 1 day.

Backing up, if I were to select the 9 year plus a day option, that would result in about $483 per month for the 10 years (assuming no more interest is earned, which I believe is the case for this option).
crefwatch wrote: You mentioned "no more interest" on the TPA of 9 years and a day. The interest rate gets frozen, it doesn't stop paying interest. But they refer to the payment stream as "substantially equal payments", which include interest.
valleyrock wrote: Thanks for the comment re interest on the 9 years plus 1 day withdrawal. I recall now TIAA saying there is interest, but it is much less than the accounts earn at present. Indeed that could and probably should be factored into my considerations.
(Color added for emphasis.) Based on my experience with a TPA (Transfer Payout Annuty) that ran from 2010 to 2019, that's not how it works.

I had a small amount of Traditional in an RA from a Previous Employer. I elected a TPA, using my existing Vanguard trad IRA as the destination.

Once initiated, the old account and contract were terminated and a new account and contract were created for the TPA. The account tracked the undistributed balance, which continued to earn interest. Although the guaranteed rate dropped from 3% to 2.5%, what I observed is that the vintage structure I had during accumulation was preserved, and the "additional amounts" for each vintage were magically increased by 0.5%, so that the rates I earned exactly matched what my vintages would have earned under the old account.

One curiousity is that the annual adjustment of additional amounts occurred a month or two later than the usual March 1 date for accumulators. It was either April 1 or May 1; I don't recall.

In any case, it did mean that there was a bit of variability in the size of the 10 payments--they went up or down a few percent each year. (As I recall, this decade featured both rising and falling additional amounts, even for old vintages.)

(Aside from the 2.5% guarantee, I never saw any of these practices regarding interest spelled out anywhere on the TIAA website or on any of the paper documents. My guess is that TIAA wants to keep their options open if they decide that they can't afford to continue operating this way.)

One other comment. Everyone seems hung up on "9 years + one day" as the fastest way to get your money out of an RA contract. However, another option if you are in retirement is to set up a fixed term (not lifetime) annuity. If I remember correctly, TIAA offers fixed terms as short as 5 years.

This does mean taking the money as (taxable) cash. Keeping it tax-protected is only possible with a TPA.
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Re: TIAA ‘loyalty’ bonus for annuitizing: Do you understand it?

Post by valleyrock »

House Blend wrote: Mon Jun 12, 2023 11:00 am
valleyrock wrote: Sun Jun 11, 2023 11:01 am I'm currently in the process of considering annuitizing (lifetime) my RA accounts, which otherwise would have to be taken out over a period of 9 years plus 1 day.

Backing up, if I were to select the 9 year plus a day option, that would result in about $483 per month for the 10 years (assuming no more interest is earned, which I believe is the case for this option).
crefwatch wrote: You mentioned "no more interest" on the TPA of 9 years and a day. The interest rate gets frozen, it doesn't stop paying interest. But they refer to the payment stream as "substantially equal payments", which include interest.
valleyrock wrote: Thanks for the comment re interest on the 9 years plus 1 day withdrawal. I recall now TIAA saying there is interest, but it is much less than the accounts earn at present. Indeed that could and probably should be factored into my considerations.
(Color added for emphasis.) Based on my experience with a TPA (Transfer Payout Annuty) that ran from 2010 to 2019, that's not how it works.

I had a small amount of Traditional in an RA from a Previous Employer. I elected a TPA, using my existing Vanguard trad IRA as the destination.

Once initiated, the old account and contract were terminated and a new account and contract were created for the TPA. The account tracked the undistributed balance, which continued to earn interest. Although the guaranteed rate dropped from 3% to 2.5%, what I observed is that the vintage structure I had during accumulation was preserved, and the "additional amounts" for each vintage were magically increased by 0.5%, so that the rates I earned exactly matched what my vintages would have earned under the old account.

One curiousity is that the annual adjustment of additional amounts occurred a month or two later than the usual March 1 date for accumulators. It was either April 1 or May 1; I don't recall.

In any case, it did mean that there was a bit of variability in the size of the 10 payments--they went up or down a few percent each year. (As I recall, this decade featured both rising and falling additional amounts, even for old vintages.)

(Aside from the 2.5% guarantee, I never saw any of these practices regarding interest spelled out anywhere on the TIAA website or on any of the paper documents. My guess is that TIAA wants to keep their options open if they decide that they can't afford to continue operating this way.)

One other comment. Everyone seems hung up on "9 years + one day" as the fastest way to get your money out of an RA contract. However, another option if you are in retirement is to set up a fixed term (not lifetime) annuity. If I remember correctly, TIAA offers fixed terms as short as 5 years.

This does mean taking the money as (taxable) cash. Keeping it tax-protected is only possible with a TPA.
Yes, indeed there are fixed term offerings. I believe you are correct that they could be for terms as low as 5 years.

Well, inasmuch as my RAs are only about 5% of my retirement funds, I'm thinking to just annuitize on a lifetime basis, and enjoy the $500 a month extra income. Yes, I have to pay taxes, but, hey, I'll still have enough for a car payment if I decide to upgrade, car-wise.
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Re: TIAA ‘loyalty’ bonus for annuitizing: Do you understand it?

Post by jrush »

I have been following this discussion, but because of my own lack of background, only have limited understanding. So if anyone could help me with a simple question, I would really appreciate it.

I am 73, retired at 72 and am trying to decide whether to annualize my TIAA Traditional (GRA and RA) or take the ten year payment plans. I started funding my TIAA Traditional in 1983. If I take the annuity, it would represent approximately 30% of my retirement savings.

In my annuity illustration, the additional amounts and loyalty bonus make up 47% of my estimated first payment. That is a large percentage to leave to TIAA's whim.

So my broad question is how much can the additional amounts and loyalty bonus vary? Are they largely fixed by my built-up lifetime savings or can they widely swing by variance in the market? Are they likely to move up and down, say, plus/minus 5% which would be no problem. Or could they plunge much more than that? Also, given that interest rates are currently high, are current projections unnaturally inflated and, assuming a return to more normal interest rates, certain to fall. Or the other way around? Or no correlation at all?

I am out of my depth and I cannot get a straight answer from TIAA. Any help?

Best,

Jeff
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Re: TIAA ‘loyalty’ bonus for annuitizing: Do you understand it?

Post by ResearchMed »

jrush wrote: Thu Jan 18, 2024 1:23 pm I have been following this discussion, but because of my own lack of background, only have limited understanding. So if anyone could help me with a simple question, I would really appreciate it.

I am 73, retired at 72 and am trying to decide whether to annualize my TIAA Traditional (GRA and RA) or take the ten year payment plans. I started funding my TIAA Traditional in 1983. If I take the annuity, it would represent approximately 30% of my retirement savings.

In my annuity illustration, the additional amounts and loyalty bonus make up 47% of my estimated first payment. That is a large percentage to leave to TIAA's whim.

So my broad question is how much can the additional amounts and loyalty bonus vary? Are they largely fixed by my built-up lifetime savings or can they widely swing by variance in the market? Are they likely to move up and down, say, plus/minus 5% which would be no problem. Or could they plunge much more than that? Also, given that interest rates are currently high, are current projections unnaturally inflated and, assuming a return to more normal interest rates, certain to fall. Or the other way around? Or no correlation at all?

I am out of my depth and I cannot get a straight answer from TIAA. Any help?

Best,

Jeff

Welcome to Bogleheads!

You've started with one of the more difficult topics.
As you've noted, there is a lot of discussion about Trad Ann, and whether to annuitize it, or some of it, or not.

You might want to look back especially at CREFWATCH's posts. And, I think it was them, the "history" of a relative's payments. Nope, no guarantee it would be the same, but I think that's generally helpful.

One bit of background:
Both of my parents and both of DH's parents retired with TIAA life annuities. My parents had little else, so this was really critical for them.
And DH's mother ended up with their life annuity continuing on about 25 years after she was widowed: She passed a few years ago, about a month before her 100th, and those TIAA payments arrived like clockwork, year after year.

Given your situation, I would STRONGLY suggest that you look very carefully BEFORE transferring much out of Trad Ann. If you already have that large of their "loyalty bonus" - 47% of the expected total - that could be a huge advantage.
Just to be clear, IF you start withdrawing money from Trad Ann, even if you put some of it back in, you will have lost that hefty loyalty bonus on the re-deposited money.

Please take a look at
www.immediateannuities.com

Enter your age, some amount (use $100k and multiply the result if that helps), etc., select "Life" with no guarantee/etc., and then compare that figure with what you'd get for the same at TIAA (no guarantee, etc.).

That "loyalty bonus", what some of us refer to as a "black box" is something that I would *NOT* characterize as "at TIAA's whim". Sure, there is no guarantee, but TIAA is a relatively conservative financial institution, at least for the basics. And they are also regulated by the state of NY, not that that is any true guarantee of anything.
For a very long time, TIAA only offered annuitized payments. I suspect that all 4 of our parents were in that group, but I'm not sure. They wanted life annuities, so it didn't matter in their cases.
Now, if the zombies arrive, all bets are off. :twisted:

I'd be very curious about the difference, if you care to share.
How those two figures compare could make a difference in what some of us might suggest for you.

Do some more reading and then ask away with any additional questions.
And don't try to completely understand Trad Ann. We ordinary folks will never know the complete innards of that loyalty bonus. But your particular bonus seems to be quite high, so don't eliminate it until you are certain. Or don't eliminate it for all of your current holdings...

Will you also get Social Security? That's important to consider as part of a "floor" on retirement income, too.
Also, please don't give details, but are you relatively healthy? Life annuities are probably not the best idea for anyone who has a shorter than average life expectancy.

Again, welcome!

RM
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McQ
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Re: TIAA ‘loyalty’ bonus for annuitizing: Do you understand it?

Post by McQ »

jrush wrote: Thu Jan 18, 2024 1:23 pm I have been following this discussion, but because of my own lack of background, only have limited understanding. So if anyone could help me with a simple question, I would really appreciate it.

I am 73, retired at 72 and am trying to decide whether to annualize my TIAA Traditional (GRA and RA) or take the ten year payment plans. I started funding my TIAA Traditional in 1983. If I take the annuity, it would represent approximately 30% of my retirement savings.

In my annuity illustration, the additional amounts and loyalty bonus make up 47% of my estimated first payment. That is a large percentage to leave to TIAA's whim.

So my broad question is how much can the additional amounts and loyalty bonus vary? Are they largely fixed by my built-up lifetime savings or can they widely swing by variance in the market? Are they likely to move up and down, say, plus/minus 5% which would be no problem. Or could they plunge much more than that? Also, given that interest rates are currently high, are current projections unnaturally inflated and, assuming a return to more normal interest rates, certain to fall. Or the other way around? Or no correlation at all?

I am out of my depth and I cannot get a straight answer from TIAA. Any help?

Best,

Jeff
Welcome, Jeff. You caught a post (this thread) early in my ongoing examination of the loyalty bonus (and all things TIAA traditional). I achieved a more satisfactory understanding once I tracked my exact loyalty bonus by account using the Income Illustrator (as you have done).

I’m a few years younger than you, and will be tracking and reporting my loyalty bonus until the day I do annuitize (which I intend to do, starting with the account with the highest loyalty bonus). Happy to discuss, here or in that thread: viewtopic.php?t=410627

SECURE 2.0 gave further impetus to my inclination to annuitize much of my Traditional balance. Check this out for an explanation: viewtopic.php?t=403662

To your particular question, your loyalty bonus is large because you have 40 years of contributions. I think it is more stable than the “additional amounts” which themselves are not all that unstable (although able to vary).

If you are a good candidate for annuitization (note ResearchMed’s questions), I would tell you “Go for it!”

PS: my estimates used their default election: “joint and last survivor with 10-year guarantee.”
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