• Question
  • Annuities- any comments?

    Asked on 7/10/2007

    Hi all-
    I'm a 60 year old high school teacher and have been with TIAA-CREF, a private penion company, since 1977. TIAA has the highest ratings in the USA, so it is quite trustworthy.

    My assets with TIAA-CREF are 84% TIAA-Traditional annuity, 12% Real Estate,and 4% CREF stock. That is about as conservative as you can get! Keep in mind, I did not pay real attention to the different TIAA-CREF accounts, but instead just kept adding on a monthly basis via my own self-remitters (after-tax).
    I'm going to supposedly begin my first annuity payment on September 1st unless I change my mind. The paperwork was sent in, but I can still cancel it all a week or so before September 1st if I feel the need to. What are my concerns?

    First, I tell people my net worth, and it is pretty satisfactory for a single guy like myself, but when I annuitize PART of my TIAA Traditional, I sacrifice my net worth for an initial guaranteed lifetime income of $41,500, but increasing about $400 per year. If I annuitize everything, the initial income would be more like $53,000/year. However, I will only annuitize enough to give me the initial $41,500 and hold off on the rest until later on.

    Here is my concern--> You really have to trust an insurance company to give them this sum of money for an annuity, and I guess I do with TIAA, but I it hurts to lose control of my money in place of this guaranteed lifetime income. Once I begin receiving monthly income, I cannot change my mind. Boy- do I hate losing control of that money!!! However, I love having this income stream coming in for the rest of my life.

    Second- there is a part of me that likes to delay one more year. However, the increase in my annuity payment if I annuitize in Septemeber 2008 (versus September 2007) is only $3,204. If I annuitize in September 2009, then my increase is about $3,400. Annuitizing now means that I get less per year, and annuitizing a year later means that it would take me at least 10 years to catch up to losing the 42,500 by not annuitizing now.

    Third - I have looked at the cost of living all over the USA. In a pinch, I guess I wonder if a person can get by on $42,500/year (initially) in many areas of the US, even with paying rent. I plan on teaching or working part-time, as mentioned, and might conceivably close up my new home and venture overseas again. I even did a budget (I'm not a big spender) and came out that my budget is less is about $39,000/year in most areas of the US. Am I wrong?

    Fourth- Having a constant stream of money from my TIAA Traditional psychologically gives me the courage to continue to put 100% of the rest of my contributions into CREF stock and TIAA Real Estate, so when I am 66 to 70, that will add significantly as a variable annuity to my TIAA traditional annuity, or by that time, I might simply withdraw that money and re-invest.

    Any comments on one or all of what I have written is appreciated. I am slightly burned out as a teacher, and desire to look for more altruistic teaching positions that offer something different, so money in the future will not be the attraction if and when I accept teaching positions.

    Regards,
    Rob

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  • Categories: How to Choose, Annuities

Answers

  • Editorial 

    Editorial 
    NewRetirement

    San Francisco, CA

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  • Congratulations on being so well informed and aware of the issues of retirement planning and the pros and cons of annuities.

    You are right to be concerned about whether or not a company will be there for you. Luckily TIAA CREF has strong industry ratings. You can find their ratings here:
    --> http://www1.tiaa-cref.org/public/land/industry_ratings/index.html

    However, as you probably are aware, ratings agencies have been proven to be fallible.

    To answer your more specific questions:
    1) Most financial planners agree that guaranteeing adequate lifetime income is critical to any retirement plan and worth the potential loss of liquid assets.
    ----> You can use the NewRetirement Annuity Calculator to compare your annuity costs to others: https://www.newretirement.com/Services/Annuity_Calculator.aspx

    ----> You might also benefit from talking with a financial advisor about your situation. We can offer you a FREE consultation to explore ideas: https://www.newretirement.com/free-retirement-consultation.aspx

    2) 10 years is not that much time. These days people are living 15-30 plus years in retirement which means that the bigger yearly paycheck will really end up paying dividends to you in the long run.

    3) Downsizing to a less expensive community and watching your budget is a great way to make your retirement more secure!

    4) Again, this question is probably BEST answered by a Certified Financial Planner who could look at your overall goals and financial resources to create the best plan for you. You are extremely well informed and conscientious -- which should make any consultation with a planner fairly straightforward.

    Also, have you used our automated online retirement planner? It can really help you plan a secure retirement.
    https://www.newretirement.com/retirement-calculator/default.aspx

    Finally, I thank you for your service in teaching! And of course understand why you might be a little burned out but do encourage you to keep working in positions that might not be as financially secure, but where you can enjoy your life.

    Wishing you all the best!
    http://www.NewRetirement.com

  • Login to rate this answer:   Answered on 6/7/2013
**All above answers are provided as general information only. No warranty is made regarding the fitness or accuracy of the information provided in this answer. You should seek advice from a licensed CPA, attorney or CERTIFIED FINANCIAL PLANNER™ as to your unique financial situation.