Compared with a standard savings withdrawal strategy,
including the TIAA Traditional annuity can provide
32%i more income
NEW
YORK, May 13, 2024 /PRNewswire/ -- TIAA,
the leader in lifetime income, has launched a new metric—the TIAA
Annuity Paycheck Advantage—that demonstrates, in a concise, easily
understandable way, the potentially significant additional income
new retirees can receive by combining a TIAA annuity with a 4%
withdrawal versus using the standard 4% withdrawal rule
alone.ii
"Retirement advice tends to focus on how much to save, but
determining how much can be spent safely in retirement is the far
tougher problem. The result is that a top retirement fear is
outliving savingsiii," said Kourtney Gibson, chief institutional client
officer for TIAA. "First-year retirees can think of
the TIAA Annuity Paycheck Advantage as a new 'North Star' that can
help them achieve a higher guaranteed payout potential and greater
certainty around how much to safely spend in retirement."
The TIAA Annuity Paycheck Advantage presents, in percentage
terms, the difference between what a first-year retiree can
withdraw using a conventional retirement spending formula and what
they could get by converting one-third of their retirement savings
into lifetime retirement paychecksiv, guaranteed by TIAA
through its flagship TIAA Traditional annuity, in addition to
taking a 4% withdrawal on the remaining balance. The conventional
formula is the so-called 4% rule, under which new retirees who want
a reasonable chance to make their savings last for three decades
withdraw at most 4% of their savings the first year they
retire.
A 32% Income Advantage in 2024
For 2024, if a 67-year-old new retiree dedicates one-third of
their savings to lifetime income with a 10-year guarantee period
through TIAA Traditional and takes a 4% withdrawal on the remaining
balance, they will receive 32% more to spend each month in their
first year of retirement than if they applied only the 4%
withdrawal rate.
"We can show that a retiree who has opted to annuitize,
alongside a 4% withdrawal, has historically been in a better
financial position than the person who simply pulled money out of
their accounts each year," said Colbert Narcisse, chief product
officer for TIAA.
TIAA will update the Annuity Paycheck Advantage metric annually
to provide current information that demonstrates how lifetime
income helps ensure more Americans can retire with security and
dignity.
"In addition to enhancing income, TIAA Traditional offers the
opportunity for interest above guaranteed minimums while saving and
income above guaranteed minimums while retired. It also offers the
opportunity for higher income the earlier and longer one
contributes to the annuityv," Narcisse continued.
"We believe our metric will help retirement savers feel more
confident about their fundamental financial security in
retirement."
A Consistent Income Advantage
The Annuity Paycheck Advantage has been consistent over time,
with TIAA Traditional providing an income advantage between 16% and
44%,vi compared with 4% savings withdrawals every
month since at least 1994, the year research on the rule was first
published.
"The 4% rule is a starting point and isn't right for everyone.
It also is difficult to apply as one gets older, might require
a riskier asset allocation than retires are comfortable with,
and under some of the market conditions we have experienced in
recent years it may not even have worked," said Benny Goodman, vice president with the TIAA
Institute. "We believe in a more tailored and holistic approach to
financial planning and have seen that including some annuitization
offers more diversification, with additional safety and security,
all while maximizing their total retirement income."
For more information click here.
About TIAA
TIAA is a leading provider of secure retirements and
outcome-focused investment solutions to millions of people and
thousands of institutions. It is the #1 not-for-profit retirement
market providervii, paid more than $5.6 billion in lifetime income to retired
clients in 2022 and has $1.28
trillion in assets under management (as of
12/31/2023)viii.
Learn more about TIAA
Read the latest TIAA news
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TIAA Traditional is issued by Teachers Insurance and Annuity
Association of America (TIAA), New York,
NY.
This point of view is designed to be a starting point for the
retirement income conversation. It is not a recommendation.
Annuity contracts may contain terms for keeping them in force.
TIAA can provide you with costs and complete details.
TIAA Traditional is a fixed annuity product issued through these
contracts: Form series including but not limited to: 1000.24;
G-1000.4; IGRS-01-84-ACC; IGRSP-01-84-ACC; 6008.8. Not all
contracts are available in all states or currently issued.
Retirement paycheck refers to the annuity income received in
retirement. Guarantees of fixed monthly payments are only
associated with TIAA's fixed annuities.
Any guarantees under annuities issued by TIAA are subject to
TIAA's claims-paying ability.
TIAA Traditional Annuity interest and income benefits include
guaranteed amounts plus additional amounts as may be declared on a
year-by-year basis by the TIAA Board of Trustees. The additional
amounts, when declared, remain in effect through the "declaration
year", which begins each March 1 for
accumulating annuities and January 1
for payout annuities. Additional amounts are not guaranteed beyond
the period for which they are declared.
Converting some or all of your savings to income benefits
(referred to as "annuitization") is a permanent decision.
Once income benefit payments have begun, you are unable to change
to another option.
This material is for informational or educational purposes only
and is not fiduciary investment advice, or a securities, investment
strategy, or insurance product recommendation. This material does
not consider an individual's own objectives or circumstances which
should be the basis of any investment decision.
Annuities are designed for retirement or other long-term goals,
and offer a variety of income options, including lifetime income.
Past performance is no guarantee of future results.
i The 2024 Annuity Paycheck Advantage is
hypothetical and for illustrative purposes only. The Annuity
Paycheck Advantage calculations use the TIAA Traditional "new
money" income rate for a single life annuity (SLA) with a 10-year
guarantee period at age 67 using TIAA's standard payment method
beginning income on March 1, 2024.
Individual results may vary. Example: Participants A and B both had
a retirement savings balance of $1
million as of March 1, 2024.
Participant A withdrew 4% ($40,000)
in year 1. Participant B made a one-time transfer to TIAA
Traditional and selected an SLA with a guarantee period of 10 years
at age 67, starting on March 1, 2024.
Participant B received an income rate of 7.8% ($26,000) on $333,333 annuitized in year 1; Participant B also
withdrew 4% ($26,667) from the
$666,667 remaining saving balance in
year 1. The result ($52,667) is
initial income for Participant B in year 1 that is 32% higher than
the initial income of Participant A ($40,000). Income rates for TIAA Traditional
annuitizations are subject to change monthly. TIAA Traditional
Annuity income benefits include guaranteed amounts plus additional
amounts as may be declared on a year-by-year basis by the TIAA
Board of Trustees. The additional amounts, when declared, remain in
effect through the "declaration year", which begins each
January 1 for payout annuities.
Additional amounts are not guaranteed beyond the period for which
they are declared. TIAA has paid more in lifetime income than its
guaranteed minimum amount every year since 1949. Over the past 30
years, TIAA has given 19 income increases to existing annuitants
(as of January 2024). Past
performance is not a guarantee of future results. An annuity is a
product issued by an insurance company. It is an agreement that
comes with a contract outlining certain guarantees. Fixed annuities
guarantee a minimum rate of interest while you save and, if you
choose lifetime income, a minimum monthly amount in retirement.
Converting some or all of your savings to income benefits (referred
to as "annuitization") is a permanent decision. Once income benefit
payments have begun, you are unable to change to another
option.
ii The 2024 Annuity Paycheck Advantage uses the
income rate on a new money annuitization as of March 1, 2024. TIAA Traditional income rates are
subject to change monthly. Additionally, the exact amount of
spending money available to both a retiree who uses a withdrawal
strategy and one who combines that with an annuity of one-third of
their portfolio may rise or fall in subsequent years based on the
performance of financial markets and annuity income rates.
iii Cerulli Associates, "The Cerulli Edge Retirement
Edition," Second Quarter 2023
iv Example assumes taking withdrawals on the
remaining balance.
v Lifetime income payments from TIAA Traditional
may include a TIAA Loyalty BonusSM which is
discretionary and determined annually.
vi Bengen, William P. 1994. "Determining
Withdrawal Rates Using Historical Data." Journal of Financial
Planning 7, 4 (October): 171-180.
vii As of July 21,
2022. Based on data in PLANSPONSOR's 403(b) 2022 DC
Recordkeeping Survey, combined 457 and 403(b) data.
viii As of December 31,
2023, assets under management across Nuveen's investment
specialists and TIAA investment management teams are $1.28 trillion.
QPS-3539211PM-O0424X
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SOURCE TIAA