Okay, I realize that this may be "off-topic" in a site named "Mutual Fund Observer," but because one of my government 403b plans is with TIAA-Cref and offers the TIAA Traditional currently paying 3.75% (with a lock-up of nine years), I'm considering it for some portion of my fixed-income allocation. I'm 69 y/o but still working part-time. I am interested in your thoughts on the TIAA-Traditional vs. the Vanguard Total Bond index or a Stable Value account currently paying around 2% but with no trading restrictions. Thanks in advance.
Penfed has 3% CDs:
Or, have you considered a target maturity bond etf fund?
from the article:
"...target-maturity funds appeal to buy and hold investors who want steady income streams without the threat of losing their original principals."
Investors Climbing Aboard ETF Bond Ladders
The lock up is not on the rate, but on withdrawals, which must be via annuitization or ten annual payments. The rate itself fluctuates, and will rise as interest rates rise generally. This may be the most secure, best paying GIC or stable value investment around, and is great for one's cash/fixed income portion of one's portfolio.
You may get better responses over at M*'s TIAA-CREF board, where the participants are often exactly that - plan participants.
Thanks for your informative post. I'm not clear on what future interest rates to expect on money deposited in TIAA Trad today. (Does the rate track the 10-year treasury? Obviously, the current TIAA Trad rate is higher than the 10-yr.) If the TIAA-Trad is that great a deal, maybe I should use it for all my overall fixed-income allocation and hold equities in my taxable (non-retirement) accounts.
With the TIAA-Trad in a 403b account, it sounds like there's less risk from bad timing than is associated with the bond portion of Target-date funds. Obviously, when one buys a target date fund, one is assuming interest rate risk associated with the bond portion of the portfolio.
Jim, I'm not sure how much more I can add, though I'll try.
What TIAA says about how much it pays: I'll add that TIAA operates as a nonprofit, so like mutual insurance companies and like Vanguard (which calls itself a "mutual" mutual fund company), whatever it makes on its investments go into the interest rates, not shareholder pockets.
(It's interesting that the three top rated insurance companies are TIAA and mutual insurance companies - see Moodys.)
While competition doesn't appear to be a driving force in keeping the rates up, the nonprofit structure of TIAA does. As to what those rates will be, that depends on how well TIAA can invest, while still maintaining adequate reserves. I suspect you're right in using the 10 year treasury rate changes as a proxy for TIAA rate changes. I agree with you that this seems a bit safer than virtually locking in a rate by buying a single target date fund now.
TIAA (and many stable value funds) put restrictions on withdrawals to give them a handle on their cash flow needs. This enables them to invest over a longer horizon (for higher returns) without worrying about a sudden draw on their portfolio. (To a certain extent, all pensions function this way, since pooling provides statistical predictability; withdrawal rules add an additional layer of stability.)
But those withdrawal restrictions suggest not putting all of ones eggs in a single basket. Just as I might suggest an immediate annuity to provide only a base level of cash rather than everything one would possibly need, I would also suggest being conservative with TIAA Traditional. If you start a ten payment withdrawal, it would be good if you could actually make use of that cash as you receive it. So you may not want to stash everything there.
Finally, here's an old (2008) thread I ran across on M*: Why TIAA Traditional? It may seem like confirmation bias, because the people there say many of the things I posted here (plus lots more). I'll gladly acknowledge that I just haven't quite wrapped my head around TIAA-CREF's 403(b)s - between the many varieties (RA/SRA/GRA) and rates that depend on the variety, frozen accounts, allowed and disallowed transfers, etc., it's a whole 'nuther world. I think that if one doesn't "live" these plans, one doesn't fully grasp them.
When you suggest "being conservative with TIAA Traditional," would that mean not putting your entire fixed income allocation it said product? Are you suggesting pairing (maybe 50/50) it with a something like a traditional bond fund instead of putting the entire bond allocation into the TIAA Traditional? (Roughly half my financial assets are in deferred accounts and that's where I'm planning to keep my "bond allocation," with TIAA Traditional and bond fund or whatever. I'll keep my equity funds in taxable accounts.)
--TIAA Traditional cannot fall in value and guarantees a minimum annual return. In that sense, it's a good investment if you want to think of it as the "cash" or short-term bond part of your investment portfolio. (Obviously, it's not liquid, so it doesn't represent cash in that sense.)
--At any time you wish, you can decide to annuitize this money within TIAA. Considering that you're in your late 60's, you could expect a very good monthly income stream, either inflation-adjusted or not, as you choose, if and when you choose to stop working. Due to its very low expenses, TIAA's annuity would be likely to give you a better return than you could find elsewhere.
I'd agree with David that if I were in my 30's, I wouldn't see this as a good investment, but at age 69, it's a very different story.
I was not talking about risk (I regard TIAA Traditional as pretty close to riskless), but rather maintaining flexibility. Until reading some other posts here, I would have said that I place a bit too much emphasis on flexibility (albeit without being fanatical). Now I'm not so sure
Flexibility has its place, where there is a need for it. A fully liquid investment offers total flexibility, but with costs. The most obvious is that the longer a commitment one makes with an investment, the higher the expected rate of return (think CDs). There are others.
A certain measure of this flexibility is perceived, not actual. Down the road, one will have expenses that one must prepare for. So some assets must be locked up for future use. (The ING commercial with the orange dollar bills comes to mind.) And (unlike others) I see no problem with allocating at least this much toward TIAA Traditional (after adjusting for SS, pensions, etc.).
The question is: how much money do you need now, how much do you need over the next ten years (or ten years starting at some point in the future), and how much flexibility do you want with what's left over?
If you don't mind receiving (and perhaps spending) that money only gradually over time (a decade), you can put more of it in the Traditional annuity. But don't overdo it.
One generally does need some flexibility to tap resources more quickly in case of unexpected events (trip of a lifetime, medical emergency, etc.) That's a big part of why one allocates part of one's portfolio to cash and bonds. (You might need cash when the stock market is down.) One doesn't want to lose that virtue of one's cash/bond allocation by locking it all up.
If it helps, you might think of the Traditional annuity as a "10 year certain only" payout. That's a payout schedule from an annuity where you are guaranteed 10 years - no more, no less. Despite BobC's disaffection above regarding the ten year lock up, even he has acknowledged that "Immediate fixed annuities have a place in some folks' retirement arsenal".
I'm not quite sure what point you're trying to make by saying (in caps) that TIAA treats annuity dollars as their money. Of course they invest those dollars as they see fit, just as a corporation invests the money it receives from its bonds as it sees fit, as a bank invests dollars from CDs as it sees fit. (And just as mutual fund managers invests dollars as they see fit.)
It wouldn't seem to be a matter of money - since profits inure to the benefit of the plan participants. If it's a matter of control, your second sentence makes the situation clear. It seems like your lead sentence just adds heat, not light.
It sounds like you actively try to discourage your clients from any TIAA Traditional investment. Does that apply to the Traditional SRA (or GSA) or just the RA?
TIAA-CREF comparison sheet (for Stevens Tech plan):
If rate of activity/participation determined when to close up shop, all the mutual fund families but one should roll up the carpets now. Vanguard is taking in all the money (well, 98%). I'm sure they get more dollars in a day than most families get in a month, maybe two.
And that means no need for MFO to discuss other options.
There's been more light shed on TIAA -Traditional in this discussion than I've seen in total at M*. Thank you, msf. I still have more to learn about this and I'll look forward to reading more here at mfo.