Accumulation Phase
The traditional retirement plan from TIAA functions differently when you contribute during the accumulation phase compared to when you withdraw your funds (payout phase).
During the accumulation phase, the retirement plan ensures the protection of your capital and achieves a minimum guaranteed interest rate that protects both the capital and additional interest. This amount of additional interest is set each year by the TIAA Board of Trustees. Since 1948, TIAA has paid an amount of additional interest above the guaranteed minimum interest rate.
The actual amount of interest you earn on the traditional retirement plan from TIAA depends on the timing of your contributions, as the company aggregates funds together. Each group may have a different interest rate, and the interest rate for each group can change over time.
Restrictions on Fund Transfers
Other investment options within employer plans allow for the transfer of funds among options at any time. However, once you select the traditional retirement plan from TIAA, you cannot transfer your funds at once.
To transfer your funds, you must use something called “cash transfer retirement.” A portion of your balance is transferred to another investment of your choice once a year over a period of 10 years or in 84 monthly installments. This means that when choosing the traditional retirement plan from TIAA, you will want to understand how it fits with your retirement plan, as you will be subject to this transfer restriction.
TIAA requires this restriction on outgoing transfers to control the total funds it manages so that it can invest for the long term. This helps the company achieve its goal of paying an attractive interest rate while guaranteeing the capital in the retirement account of each investor.
Please note that the cash transfer retirement can be used to facilitate distributions for reinvestment in another CREF fund without liquidity restrictions, or to transfer to another tax-exempt account, or to receive it in cash (but as a taxable distribution).
Payout Phase
During the payout phase, also known as the retirement income phase, you have two main options.
Receiving interest income from the traditional retirement plan
This allows you to withdraw only the interest earned from the traditional retirement plan from TIAA. This option does not require converting the retirement contract into a pension contract; you simply withdraw the interest you have earned. As in the accumulation phase, this minimum amount of interest may be enhanced by additional amounts as announced by TIAA annually.
Guaranteed payout options for retirement
This option provides guaranteed income for the duration of your life. You choose the duration of the retirement, such as life only, joint survivor, or life with a certain guaranteed period.
“Life only” means you will receive income for your entire life. “Joint survivor” means that the retirement will be paid as long as you or your partner are alive. “Life with a certain guaranteed period” means either life or a certain period, such as 10 years, whichever comes later. For example, if you received income for five years and then passed away, your beneficiary would receive your income for the last five years. With these options, you need to request a retirement quote to find out what your monthly income will be.
You do not have to use the guaranteed interest rate to determine your payout rate. The interest rate and payout rate are not the same. Many TIAA participants misunderstand the difference between them and incorrectly calculate the monthly income that they might be able to receive.
Your payout rate is a designated number determined by your age and the time you request the quote and the payout duration you choose. The guaranteed minimum interest rate is used in the formula, which is a different rate from the one used in the accumulation phase, to determine your payout amount.
With
Pension payout includes every payment you receive that consists of interest and a return of some of your capital. Just like in the accumulation phase, you may receive additional amounts of interest paid by TIAA on top of the guaranteed income for life during the payout phase.
TIAA Online Retirement Planning Tool
TIAA offers a fantastic online retirement planning tool that you can use on the TIAA website, allowing you to design potential transfer options to TIAA’s traditional retirement options. To run this model within the tool, you must make a hypothetical transfer to the traditional retirement option. Some participants may worry that this will move funds, but the tool is only for modeling purposes – no actual transfers are made.
Not all TIAA customer service representatives have in-depth knowledge of all the details regarding income and distribution options, so you may want to seek assistance from a financial planner. Be patient and persistent in your research, and you will be able to accurately assess and model your options.
Source: https://www.thebalancemoney.com/the-tiaa-traditional-annuity-clearing-up-confusion-2388559
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