3 Replies Latest reply on Feb 28, 2011 4:58 PM by JerryD

    TIAA pension

    philzyz

      I"m new here so maybe this concern has already been addressed--if so, my apologies-but it's my concern.  With interest rates down as low as they are, what become of TIAA's guaranteed rate of return?  The reassurances in the letters that the management has sent from time to  time have worried me more than reassured me.  I should mention that I am retired and receiving income from my TIAA-CREF accounts.

      Thanks in advance for your responses/

        • Re: TIAA pension
          Perry
          I'm also concerned.  It looks like the Federal Reserve intends to hold down interest rates to practically zero indefinitely.  Prospects for a full recovery from the recession seem likely to take several years.  It's difficult to see how the traditional fund can continue to pay out at rates above 3 %. 
            • Re: TIAA pension
              stagehand
              You're certainly right to consider this theoretical possibility, because it is that: Theoretically possible.  But you would be wrong to lose sleep or be obsessed by it. You're talking about a promise that was made to you by an insurance company with the highest ratings it's possible to get! If you look up the history, it turned out that TIAA annuities written before 1936 had guaranteed rates that turned out to be too high. But rather than fail to fulfill its promises, TIAA found the money and paid what it promised.

              Have you noticed that new IRA contracts have a lower guarantee than 3%? (Note that TIAA Traditional money is not "locked up" in an IRA account, another reason for lower interest rates there.) This is clearly a step taken to limit just the exposure you are worried about.

              You should be careful not to focus entirely on CD rates and US Treasury Bill rates when you think about prevailing interest rates. I don't want to make you even more nervous, but TIAA is not limited to absolutely risk-free investments like those. It's not that hard to earn 3% today with only a small amount of investment risk. TIAA has been doing retirement investing since 1918. They have a good idea of what they're doing. (I don't work for TIAA or CREF, or any financial company.)

              Here's a concrete example. Today (Feb, 2011), the Tennessee Valley Authority is offering a 20-year note (to ordinary schmos like me, not just to big investors) that pays 4.25%. This power agency is rated Aaa/AAA/AAA by the three (chastened and wiser, we hope ....) rating companies. Obviously, that's not as safe as a $1,000 CD at the bank in your town. But it's pretty darned safe, especially in a giant pool like TIAA's General Account. (I have no idea if TIAA actually has any TVA bonds .....)

              I apologize if you don't happen to be familiar with corporate notes and bonds. I'm just trying to find something to say besides "TIAA is a safe, well-run insurance company".
              • Re: TIAA pension
                JerryD
                Beating 3% (Plus a little for costs) shouldn't be hard for TIAA. It is paying the minimum now. As mentioned TIAA has moved to cut future minimums on new IRA's at least to closer to 1%. Hard to believe that they couldn't do that. If not, there would be a lot more to worry about in the economy than TIAA.

                For example, an ETF with a basket of preferred stocks based on an index is now paying close to 7%. Corporate bonds with good to excellent ratings should pay well beyond 3%. I don't think that TIAA is not buying low rate CD's like we might do. And if inflation comes back, interest rates above 3% should be a snap for TIAA.