Paul,

I use the accounts mentioned by Ray (Traditional & Real Estate).  I use the CREF Stock Account alone for the equity portion of my portfolio.  I look for simplicity and find it with the CREF Stock Account.  The CREF Stock Account is very diversified investing  in over 6,000 individual stocks.  It holds 70-75% in U.S. Equities and 25-30% in foreign equities.  The foreign equities portion includes emerging markets and foreign small-cap exposure. The account uses the following benchmarks:

Russell 3000

MSCI EAFE® + Canada Index

MSCI EAFE® + Canada Small Cap Index

MSCI Emerging Markets Index

Good luck with whatever you choose ...... Mike 

 

Thanks, Ray and Mike,

Actually, I am using the Real Estate account as a core holding. I consider it a separate asset class, and I am slowly increasing my percentage holding to it over time. I am not using TIAA traditional; my 403(b) is a Supplemental Retirement Annuity. I will also get a pension, so I am more interested in being flexible with the SRA. I am likely to annuitize some of my accumulations, as Ray suggested.

Ray's answer confuses me, however. Is it not the case that I can annuitize a portion of my accumulations (when it becomes time for distributions) regardless of what accounts they are held in? Quoting directly from the TIAA-CREF web page on SRAs (http://www.tiaa-cref.org/products/retirement/supplemental/index.html), this is what they say about available investment options:

"You can allocate your contributions among a variety of annuity accounts and, at some employers, mutual funds. You can change your allocation of future contributions at any time or transfer some or all of your funds between accounts, with no tax implications. "

If there was something special about the VA accounts, couldn't one simply transfer all of his/her holdings to one of the VA accounts just before retiring? Instead, I have the idea that you simply use some of your accumulated funds, from any VA subaccount or mutual fund, to purchase an annuity at the desired time. Am I off base?

Thanks!

PaulF

Paul,

 I don't know I said confused you but you certainly can annuitize a part of your holdings in any one investment, fund or VA, PROVIDED it is not in a TPA. Since you do not hold any Traditional Account, you will not have a TPA and the qualification does not apply to you.

Also you certainly can convert any of your CREF Accounts to any of the Variable Annuities. IF you wanted one that was based on the Traditional Account, what is termed a "fixed immediate annuity" (it isn't fixed as the interest rate changes), than you would have to put transfer funds into the Traditional Account. If you want a variable annuity, then you would transfer the funds into the VA which will be the basis of that annuity.

So, no you are not off base, you are correct. Your initial post did not deal with annuitization which is why I did not address it.

Ray
 

Paul, your questions are natural and appropriate.  I suspect from the way you asked them that you may not know that originally TIAA-CREF only offered Variable Annuities (and very few of them) as investment options.  This happens to be for historical reasons that may not be of interest to you. It does help to explain the turmoil (for lack of a better word) at TIAA-CREF in the last 15 years, as they jumped/were dragged into the larger arena of general (not just academic employer) American retirement investing.

With the understanding that a personal opinion is involved (i.e.,not purely a factual answer to your question), I would say that you are right (assuming you like the choice of index available) to select the lowest-cost investment option, and worry about your post-work payout plans later.

To go into only a little more detail, it used to be very uncommon to be able to buy a payout annuity with an equity-linked variable component.  And when the CREF VAs were first set up (you're not going to believe this ....) the only payout option was annuitizing them - you could not cash them out.

Because there are now a wide variety of offerings, and not all choices are available to all plan participants, you should be certain that you are looking at the actual, future expense ratio of a choice that your employer has actually arranged to be available to you.  I don't say that to be mysterious or conspiratorial sounding-I'm alluding to the fact that I do not have the S&P 500 choice you mentioned, at the expense ratio you mentioned.  Alas, that's a normal condition nowadays.

Again, not to be mysterious, it is entirely possible that over a long period of time (and I mean approximately two generations) it is conceivable that the VAs at CREF will wither away.  I mean, gracefully, and without any financial losses to the last few owners.  It may be a form of investment that has passed its time.

It is important to distinguish (and you did not make any such accusation, but this issue often comes up...) between the CREF VAs and some open-market variable annuities that are considered to be rip-off investments sold to the wrong investors.  For example, at CREF, there are no surrender charges, the expense ratios are (if, indeed rising) near mutual fund levels, and this is not a case of putting a tax-deferred investment unecessarily inside a tax-deferred vehicle.  Many people have had excellent retirements with CREF variable annuities.  Since you've made it clear what your desires and needs are, I have no intention of trying to promote them to you!

Tim 

Edit: I realized that this post may make me sound like an employee of TIAA-CREF, which could not be farther from the truth!  When I wrote "promote them to you", I meant, "explain why they're not such bad investments, despite the irritating expense ratio increases I protest at every Annual Meeting."  When I was in school and teaching, I think it was very common for TIAA-CREF retirees to annuitize, and everyone who was willing to share the info told me that they retired with a higher annual income than they had in their last year at the school!  (Your mileage may vary ....)  There are other reasons for annuities today, like bloodsucking relatives, estate plans, bad experience with credit cards, long-lived ancestors.  But they are not for everyone anymore.

PaulF - I also believe in the indexing strategy and using the lowest cost fund. Hence, like you I am using the TIAA-CREF S&P 500 Index fund (exp 0.32) rather than the CREF Equity Index. I look at my entire portfolio rather than just my 401a at TIAA-CREF. I use a small cap index and international index at Vanguard in my Roth to keep expenses less than the two CREF accounts mentioned above (Stock and Equity Index). Will expenses make a big difference over the long run - who knows?

Message 2 - Kudos to Tim. That is an excellent explanation of TIAA's VA's. I think some people see VA and confuse them with after tax purchased annuities. Our pretax retirement VA's are a very different animal. Thanks Tim!

Paul,

I would say that you are right (assuming you like the choice of index available) to select the lowest-cost investment option, and worry about your post-work payout plans later.

Just adding to Tim's excellent explanation; if you're seeking to select the lowest-cost investment option, and willing to worry about your post-work payout plans later, then there are at least a couple of more options that you might find satisfactory.

One would be: transfer some or all of the appropriate investments to Vanguard which many advisors suggest, or a few other low-expense funds from some other companies.

Two; buy single purchases of the equivalent ETFs, as their Expense Ratios are very low. If you're averaging in, then each purchase adds to your total expense in spreads and commissions.

Good luck,

Sy  

Thanks, all.

 Thank you, Ray, for your further clarification.  I took your first response to mean that I would be giving up my ability to annuitize if I used the mutual fund instead of the VA.  I think I understand now.

Thanks, too, DavidH and Sy for some good suggestions on, e.g., keeping costs down.  I do keep our Roth and rollover IRAs and our taxable account at Vanguard, and I have my wife's 403(b) in rock-bottom ER Spartan funds at Fido.  I balance the entire, 6-fund, 3-provider portfolio across desired asset classes, using the best funds (for my situation) at each provider.  Even before this change, I have our weighted-average ER down to 0.25.  I haven't found a sensible way (yet!) to use ETFs, but perhaps I will some day. I appreciate your input.

Major thanks to Tim for that nice, succinct, but thorough explanation of some of the historical reasons for the way TIAA-CREF is set up.  You were right, Tim, I did not know essentially any of that. (I did know, as you also suspected, not to confuse the CREF VAs with awful high-surrender-charge annuities, misplaced inside a tax-deferred vehicle.)  Your recounting the history helps make the issue make a lot more sense to me now.  Thank you greatly.

I do indeed have the 500 fund available, along with some other nice index funds, like large-cap value, small blend, international equity index.  (They also give access to the actively managed version of many of these same asset classes; I find it kind of funny to read the available list: "International Equity," "International Equity Index" "Large Cap Value," "Large Cap Value Index," etc.)

I appreciate all of your time and wisdom.

PaulF 

Since you are on the topic of T/C's variable annuities, could someone please explain something to me, that has me puzzled. John Biggs Former chairman TIAA-CREF John Biggs has been quoted as saying: "I cannot imagine a situation where I'd recommend a variable annuity." When I read that, my first thought was What....the...f.....TIAA-CREF's middle name is ANNUITY. I assume he made that comment after he departed the organization. Still, its kind of like Jack Welch saying, "I can't imagine why anyone would buy a GE product." Can anyone explain that comment? Was Biggs just a turncoat? Someone who'd sold investment vehicles he didn't believe in?  Or someone who'd found some new religion?  Not that I have any interest in buying any kind of VA, its just that Biggs statement baffles me. Someone enlighten me.

The only way I could interpret Bigg's comment is that he was referring to a deferred annuitie which is generally what people talk about when they talk about annuities. Most people would probably agree that deferred annuities that are SOLD (and the sell tends to be a hard if not outright deceptive in some cases) with very high costs and very quite low returns to the purchaser. I speak with some knowledge about them as I have an elderly relative who was conned into purchasing a number of them mostly by "investment reps" in Washington Mutual banks when she had CDs to renew.

Bigg's certainly would not be talking about T-C's VA accounts as there is no great difference between them and conventional mutual funds, except that the T-C VAs have lower ERs than most actively manage mutual funds.

Ray 

Katmanndu, it's like I tell all those students with MP3 players and cellphones: Just because you read it on the internet ....   I managed to chase down the actual article you referred to without a real reference:

"One Faulty Investment" By Jane Bryant Quinn   Newsweek Aug 30, 2004, available on the internet without subscription here: Link .  (I'm concerned that there was no place to request a Permalink, but that's the best I can do.)

Biggs did say what you quoted. But, 

Here's what she actually said:

Before going forward, let me define the battlefield. I am not dissing tax-deductible retirement annuities that come with employer-sponsored plans. Nor "fixed annuities" that pay a set rate of interest. Nor "immediate annuities" that pay you a monthly income for life.

My quarry is the commercial tax- deferred annuity sold by stock brokers, insurance agents, banks and financial planners. Their market: older people--so they're lying in wait for boomers approaching retirement. Savers in their 70s and 80s could be roadkill, too (do you know where your parents' money is?).

Now, I don't have much sympathy for John Biggs.  I didn't like his setup of TIAA-CREF's first mutual funds.  He was paid plenty of millions of dollars in his last few years at TIAA-CREF, and he had to parachute out of the Getty Foundation after a very short time on top there.  But this adds up to a bum rap on his (however, literally accurate) quotation.

Tim