How to Get the Most out of TIAA Traditional in Today’s Retirement Landscape
After working with university professionals for more than three decades, one investment option continues to generate widespread confusion in retirement accounts: TIAA Traditional. This is the portion that is generally described as “guaranteed” on the pie chart you see on your TIAA statements.
Many of you may have been advised by colleagues early in your careers to place half of your retirement contributions in this account and the other half in the stock market. But what exactly is TIAA Traditional, and how can it be used in today’s environment?
TIAA Traditional is a fixed annuity that is designed to provide interest payments and a level of principal protection. Most university retirement plans commonly include a guaranteed base interest rate of approximately 1–3%, with the potential for additional interest depending on the prevailing interest rate environment. Money invested in this option can earn a steady interest rate each year and is designed to provide principal protection.
It is important to note that this account is not FDIC insured. Instead, the guarantee is backed by TIAA itself, meaning the security of the investment ultimately depends on the financial strength of the institution.
This fixed annuity stands out to some investors because they can benefit from the key advantages of an annuity, which can include principal protection and contractually specified interest—without necessarily committing to a traditional annuity contract. This can help you maintain control of your principal, potentially passing those assets on to heirs, and continuing to draw income from the account during retirement.
Historically, many plans required participants to convert their TIAA Traditional balances into an annuity contract upon retirement. In doing so, retirees received a contractually determined income stream but relinquished access to the principal in their accounts. Today, that requirement doesn’t generally exist. In many cases, you may be able to leave the assets invested in the market throughout retirement.
How can you take advantage of this flexibility?
One approach some investors consider is maintaining a portion of their overall portfolio in TIAA Traditional without annuitizing it. Instead, think of it as a safety net within your retirement income plan.
The appropriate allocation depends largely on your broader investment strategy. For example, if your target portfolio consists of 50% stocks and 50% fixed income, you might allocate roughly 15–25% of your total portfolio to TIAA Traditional. In this framework, TIAA Traditional functions as part of the fixed-income portion of your portfolio.
Your overall allocation might look something like this:
- 50% diversified stocks
- 35% diversified bonds
- 15% TIAA Traditional
This example is for illustrative purposes only and is not intended to represent an appropriate allocation for any specific investor.
This strategy can help in difficult market environments. In a year like 2022, when both stocks and bonds declined, the generally more stable value of TIAA Traditional can help serve as a source of income. This may allow you to withdraw from the guaranteed portion of your portfolio while giving market-based investments time to recover.
At the same time, it is important not to over allocate to TIAA Traditional. Long-term returns are typically limited to roughly 3–4%, which is only modestly above the historical average rate of inflation. Over-reliance on lower-return investments may reduce long-term purchasing power and portfolio growth, particularly during extended retirement periods.
One of the more complicated aspects of using TIAA Traditional effectively involves understanding its liquidity restrictions, which vary depending on the contract. While you may not be required to annuitize the account, the funds are not necessarily fully liquid.
Retirees commonly access income from TIAA Traditional by:
- Taking interest-only payments
- Withdrawing required minimum distributions (RMDs)
- Starting a Transfer Payout Annuity (TPA), which distributes the balance over 7–10 annual payments
Some plans offer a more liquid version of TIAA Traditional for voluntary retirement contributions, but these accounts typically pay a slightly lower interest rate in exchange for greater flexibility.
Because many university professionals have multiple retirement accounts, the differing liquidity rules can make this strategy difficult to navigate. Consider working with a financial advisor who understands the complexities of TIAA Traditional and can help you design a retirement plan intended to help support your income needs, help build a financial safety net, and preserve your ability to maintain control of your assets—and potentially pass them on to heirs. To begin reviewing how TIAA Traditional may fit within your personal retirement plan, contact us to speak with one of our university wealth management specialists.
TIAA Traditional is a fixed annuity issued by Teachers Insurance and Annuity Association of America (TIAA). Any guarantees are subject to the terms and conditions of the contract and the claims-paying ability of TIAA, and do not apply to any advisory services provided by Savant Wealth Management. TIAA Traditional is not FDIC insured and may have liquidity restrictions that vary by contract and plan.
This is intended for informational purposes only. You should not assume that any discussion or information contained in this document serves as the receipt of, or as a substitute for, personalized investment advice from Savant. Please consult your investment professional regarding your unique situation.
James M. Haygood
Financial Advisor
CFP®, AWMA®