TIAA is taking its annuity products to the masses.
The company long known for the annuities it offers in the 403(b) retirement plans of colleges, universities and other nonprofits and more recently company 401(k) plans is now offering its annuities to everyday investors, TIAA announced in a news release March 10.
The company will make the products available to all Americans through the TIAA IRA.
“Americans need these kinds of solutions,” said David Hughs, managing director, TIAA IRA, explaining that more than 55 million Americans don’t have access to a retirement plan at work.
“What was an exclusive club now isn’t,” he said in an interview.
Hughs described the IRA market as “the natural next step” in the company’s evolution. The company spent the first 100 years of its history serving the not-for-profit market, moved into the 401(k) market in 2022, and now the IRA market, he explained.
“It’s an opportunity for us to meet the needs of more and more Americans,” Hughs said.
The move comes at a time when baby boomers are retiring in massive waves, many without the benefit of traditional pension plans that would provide them with predictable monthly payments for the rest of their lives.
TIAA is marketing the annuities as a way for Americans to secure more income in retirement than they otherwise would by withdrawing 4% of their retirement savings annually. Someone who annuitizes part of their savings and uses the so-called 4% rule to draw down the rest would be considerably better off than someone who spent down their entire savings at 4% annually, TIAA contends.
The company uses the hypothetical example of a 67-year-old retiree with $1 million in savings. If the retiree were to use the 4% rule, he or she could spend $40,000 in the first year of retirement. If, however, he or she were to use one-third of their savings to buy the company’s TIAA Traditional fixed annuity and withdrew 4% of the remaining two-thirds, he or she would get $53,154 to spend in the first year of retirement, or 33% more.
The first-year payout could potentially be even more if the TIAA Traditional “loyalty bonus” is factored in. The loyalty bonus is a special feature that awards annuitants for years when TIAA earns a profit.
“In general, annuities are going to provide more income,” said Benny Goodman, a vice president at TIAA Institute. “People without the annuities will spend less. They’re always worried about outliving their income.”
The cost of the annuities, whether offered inside or outside retirement savings plan, is built into the crediting rate, or the interest rate at which the annuities credit interest to the contracts, Goodman said.
In general, the crediting rate within a fully liquid fixed annuity in the IRA is a little bit lower than in a retirement plan to account for differences in investor behavior, Hughs added.
With TIAA Traditional, however, there are currently no differences. Today, investors in TIAA Traditional, whether in a retirement plan or an IRA, are receiving the same 4.75% rate, Hughs said.
