chmdpr, you've asked a great question.  I can't be 100% sure, but the documents are available for research.  In case anyone is not clear, you're asking about the relatively new addition to the small window that opens when you select "Interest Rates" from the blue list at the right, after chosing to inspect "Retirement Investments" and then one of the two "TIAA Traditional" choices (RA/ not RA).  In May, 2008, this says:

Payout Rates for Annuities Issued During May 2008(footnote 3)
For Benefits Arising From:     Payout Rates      
2003 - 2008 vintages     5.25%      
1992-2002 vintages     6.00         
Pre-1992 vintages     8.50

Footnote 3, which is crucial to answering your question says:

Rates apply to annuities using the Standard Payment Method. First-year benefits under the Graded Payment Method are based on a 4 percent additional amount rate. Payments in subsequent years using the Graded Payment Method increase to reflect the difference between the Standard Payment Method additional amount rate that would have applied in the prior year and 4 percent. 

 We should also refer to the booklet/.PDF,  "RECEIVING YOUR RETIREMENT INCOME FROM TIAA-CREF, A GUIDE TO YOUR INCOME ILLUSTRATIONS" This can be found on the Publications page, under "Education and Support" | Publications |View all TIAA-CREF Publications.  On page 9, it says:

The current TIAA Traditional total payout interest rates (guaranteed interest plus additional amounts), which have been used in these illustrations to calculate your payments, are shown in the Personal Information and Illustration Assumptions (Page 15). Remember, since additional amounts can change, so can your total TIAA Traditional income, every January 1. However, it can never go below the contractual payment. We’ll notify you ahead of time whenever your gross payment is going to change.

The reference to (Page 15) is to a personalized sheet prepared in response to a Participant's request for prospective income illustrations. The annual notification (with old and new dollar figures) in the last sentence comes with a non-personalized newsletter.  Last December's newsletter is online, here (.PDF link).  It says that:

During 2008, your TIAA Traditional lifetime total income (guaranteed income plus additional amounts) will increase by just under 1% as compared with the amount you received in 2007, if you are taking income under the Standard Payment Method.* 

 It also says that

The 2008 total payment levels are based on interest rates ranging from 5.00% to 10.50%, depending on when the underlying funds were applied to TIAA and when you began lifetime income.

Note the last phrase.  I think that explains where the unrecognizable 10.50% figure comes from, and what it means to say, in my very first quotation above, "For annuities issued during May, 2008." (italics mine.)  Blessedly, we're spared a discussion of Guaranteed interest and Additional Amounts, since we're only talking about (it would appear) the total sum of those two amounts.

Note that I called these figures (that you asked about) a relatively new addition.  I don't think they have ever been publicly been published on a regular basis.  They certainly aren't on the quarterly statement inserts, which otherwise correspond to the table of TIAA Traditional vintages.  So there is no way to tell you what the significance of the May, 2008 figures is.  Also, because they aren't printed, it is next to impossible to track them "yesterday" on the internet "today"!

One really interesting sidelight is that if someone suspects that they might need annuitized income to make a go of their retirement (and this has traditionally been a large subset of Participants ...), this seems to be a real disincentive to flopping your TIAA Traditional accumulation in and out of the Money Market account to chase a 1/2% Vintage interest rate advantage for the current month/quarter/year/who knows how long?

I certainly agree that it would be desirable for you to directly ask TIAA to explain these new figures, but I somehow doubt that they'll be any clearer or definitive than this muddy presentation of mine.

Tim 

Hi. I'm new here also, and this discussion about payout rates raises a question that has confused me for a long time. If you multiply a payout rate by a dollar amount annuitized, that should indicate the monthly (or annual) income from the annunity, unless I'm not understanding what "payout rate" means. It is a little more complicated with the use of vintages, but the principle is the same. So how does the age at which you annuitize figure into it? Annuitizing at age 69 ought to result in a greater annual income than annuitizing the same amount at age 65. I've never seen anything in the TIAA-CREF publications pointing this out or explaining what effect the age at which you annuitize has on income. Something has to change depending on the age at annuitiziation. If it is not payout rate, what is it?

Thanks very much.

jaysmit

Some responses since Ray is correct that I did indeed annuitize a nice chunk of TIAA Traditional when I retired in 2000 (no regrets 8 years later!). 

I had been in the TIAA system since 1968; therefore, when I annuitized (even at the relatively early age of 58) I had accumulated a substantial amount of high vintage years.  Thus at the time of annuitization the payout was approximately at the rate mentioned by the OP, even though my age (as well as the period certain I chose) were factors in the calculation of the payments.

It also helped that when I retired the current underlying interest rates (not to be mistaken for payout rate) were considerably higher than today.  Annuitizing, among other things, is an interest rate play and I happened to get lucky (I have no talent for forecasting anything other than my eventual demise).

Tim, I believe, makes a very important distinction that only a sample contract will reveal in thorough detail--namely, that it is essential that a potential annuitant appreciate the difference between the guaranteed rate (which I think continues to be 2.5%) and the "Additional amounts," which are the dividends you receive over and above the guaranteed rate.

The latter are not guaranteed.

In my case, the "additional amounts" have gone up +/- 1% a little over half the time, including for the year 2008.

There's no question that annuitization of TIAA Traditional should only be a part of your retirement income, especially if, like me, you take the standard payment.  You must find ways to offset the immediate annuity, whose payments (even if you choose the "graded" version), are subject to the ravages of inflation.  Obviously, the best counter-measures are TIPS and I-bonds (held directly) or inflation-indexed annuities that do not have arbitrary caps.

In this respect, Social Security, as Larry Kotlikoff has repeatedly asserted, is by far the best inflation-indexed annuity available, especially if you take SS at full retirement age or defer to age 70.

Bob U.  

jaysmit:

... Annuitizing at age 69 ought to result in a greater annual income than annuitizing the same amount at age 65. I've never seen anything in the TIAA-CREF publications pointing this out or explaining what effect the age at which you annuitize has on income. Something has to change depending on the age at annuitiziation.jaysmit

Jay, if you go back to your personal TIAA Contract, you'll find one or more full-page tables headed "Rate Schedule".  They all certainly have been replaced by more recent numbers, but they still have the same form, listing "Amount of Yearly Life Annuity with 10-Year Guarantee Purchasable by a Single Premium of $100".  Since they use both the age at beginning of annuity payments AND age when the premium was paid, it's clear that the amount of your first payment is not computed simply by multiplying your total accumulation by a single number like 8.50%.  (We're temporarily setting aside the issues of Guaranteed Periods, Number of Lives, and Amount of Benefit to Survivor, of course.)

These tables are also based only upon the Guaranteed amount of interest, which seems to be 3% during accumulation and 2 1/2% during annuity payments.  Naturally, the actual payments are larger because a)They assume a 4% total in advance and  adjust payments later to reflect real results, and b)The actual total has regularly been much higher than 4%.  So to a layman, I suspect the numbers in the contractual Rate Schedule are next to useless.

Now, this is pure speculation on my part, but since Bob was kind enough to tell us about the beginning of his annuity, I'm going to suggest that he started premium payments so long ago, and he was of an old enough age at annuitization, that his payments turned out to be close to the product of the two quantities mentioned above, but that the numerical result had some degree of "accident" to it.

If my guess is correct, that means that the absolute amount of the three Payout Vintage figures is not as important as their change, which would be used to recalculate your next year's payments. 

Tim 

Bob -- Thanks for that post.

Why the "held directly" qualification on I-Bonds.  

Tim: 

Jay,

You can request an estimate of an annuitization at any time by phoning in and asking for one.  You will have to specify exactly what and how much you want anuitized, starting date and various other bits of information. Or you can use the on-line calculator and do it yourself; this can be a bit intimidating the first time you try to use it but it does work.

Ray 

Jay, give a lot of consideration to Ray's suggestion about asking for an estimate.  This is not a "special request" you'll be making.  They have been offering and preparing these in great quantity for decades, to say the least.  It ought to be routine for them.

You might be in a position to remember, in the good-old/bad-old days (when TIAA-CREF only sent a single statement a year, the "Blue and Yellow Sheet"), they made a couple of (stated) assumptions and provided such an estimate once a year.  But aside from the sea change of Quarterly Reports (!), it's increasingly difficult to make uniform assumptions about a future retiree these days.  My Blue and Yellow sheets weren't really that helpful because I did not have a traditional, continuous, all-education career.  But back when you couldn't get the money any way except an annuity, it was reassuring to see how large that annuity could be.

Tim 

Rubiosa,

My phrasing was sloppy.  I simply meant to call attention to the fact--much emphasized at this and other sites--that TIPS and I-Bonds held to maturity offer a clearer outcome than, say, a TIPS fund which does not offer a certain maturity date--not to speak of the greater turnover in TIPS funds.  Bob U.

Logon to the website. Click on Manage My Portfolio. Click on Generate Illustrations and Use Planning Tools. Click on Retirement Illustrations. Click on Create a Custom Assumptions Folio. After putting in your assumptions, including which accounts you want to include in the income illustration, click on Save Folio.

I have found this tool useful for looking at the various options.  It may not include different rates for all my vintages, but gives you a rough idea of where you stand.  Since the interest rates at the time you actually annuitize are unknown, I am not sure you can do much better.

 

Al