People who work in the public education system can access to TIAA-CREF options for investments as per their employer-sponsored planning. There is much confusion among these people about the working of TIAA-CREF that is traditional annuity working, and most of them are the retirees. here we will clear up the confusion with TIAA Traditional Annuity.
They even don't know the working of it when you opted for the money to take out. Let's clear this confusion as below by comparing the accumulation phase with the payout phase.
Accumulation Phase of TIAA-CERF
You TIAA Traditional Annuity works in a very different manner when you are saving money which is usually called accumulation phase if you compare it with the phase when you are taking out your money which is called payout phase.
When you are into accumulation phase the guarantee for your principal is there and you earn the minimum interest rate, you can earn additional interest rates as well. And these additional interest rates are fixed and determined by the TIAA board of trustees every year. This practice is in the process since 1948 and TIAA has paid the additional interest rates in addition to guaranteed minimum interest rates.
The total amount which you are going to earn in your TIAA Traditional Annuity will depend upon the time when you are making the contributions, as funds are grouped together as "Vintages". Each money group is having different interest rates and it interest rates changes with time for each vintage.
You can also go through the TIAA-CERF's Retirement Investments & IRAs Interest Rates Pages to get more detailed information about interest rates crediting process.
Transferring Money Out Limitations
When you have opted for TIAA Traditional Annuity,y you won't be able to transfer all the money out at the same shot, which you can do when you are having many other investments options in employer plans where you can easily transfer money as per your choices and without any limitations.
But still, if you need to transfer the money out at a rapid pace, then you can opt for 'transfer payout annuity', where you can transfer a portion of your balance out each year over ten years. Some other TIAA annuities offer a varied time period for the transfer but most of them transfer it in ten years.
So when you are opting for the TIAA Traditional Annuity option, you should always consider whether it is fit in your financial plan or not because it is very difficult to change the plans once you have opted for it.
To have successful TIAA it is necessary to have limitations on the outgoing transfers, as it will provide TIAA to control the total funds managed and they can be invested for the long term, and because of this they will be able to provide the high interest in long terms and can also have guaranteed principal.
Below let's see what will be the scenario when you have opted to take income out from your TIAA Traditional Annuity, which is also called the 'payout phases'.
Payout Phase of TIAA-CERF
Payout phase is having three main options and lots of confusion also is there in these options:
- Income From Traditional Annuity: In this, you can withdraw only the earned interest from the TIAA Traditional Annuity. The applicable guaranteed minimum interest rate is there in which option which also determines the contractually guaranteed minimum amount of interest you will earn. you are only withdrawing the interest so this option does not need to annuitize your contract. The minimum amount can also be added with some additional amount which is declared as per yearly basis in the accumulation phase.
- Guaranteed Payout Options in Life Annuity: This option will provide you guaranteed income all your life, as Annuity term is being chosen as life only, joint survivor or life with a guaranteed certain period. In this option, you should request your an annuity quote to view your monthly income possibilities and no need to discuss your guaranteed interest rate as above to determine your payout rate. As a TIAA participant, you should understand that the interest rate and the payout rate is not the same and let it miscalculate your monthly income. Your payout rate can be defined as the customized number determined by your age at the time you request for the quote and the payout term you chose. Your payout amount is determined by using the guaranteed minimum interest rate formula, but the guaranteed minimum interest rate is not your payout rate, it is just a part of the whole formula.
- Income From Variable Annuity: With this option, you can have a lifetime monthly income which as per how the underlying investment options perform. Like the option above in this option too you are annuitize your contract and also able to choose your annuity term.
The brochure of TIAA - CERF's Lifetime Retirement Income has provided these three options and monthly illustration of each option.
Online Retirement Planning Tool of TIAA
TIAA also offer best online retirement planning tool and you have to create your account in it and start using it. This tool allows you to model out potential transfers to the TIAA Traditional Annuity options. You need to make one fake transfer to make this model run within your tool. many of the participants get confused that they are transferring the real money. but this only a model to let you understand the things, there is not an actual transfer is being done.
It has been found that the TIAA - CERF customer representatives are also not familiar with all the nuances of income and various distribution options. You should understand that most of these customer service representatives are just very young and just recently have done their schooling and when you ask many questions related to your TIAA - CERF account may be you will not get the suitable answer, you are more mature than those representatives so don't lose your cool and be patient. Just be diligent with your research and you will find out what you have queried for.
TIAA Traditional Annuity will surely provide you with the guaranteed income, if you don't have it just opt for it, it is really a good choice.