Filbrandt Reports

Get More Out of the Sleeping Giant

Volume 17, Issue 2



Executive Summary:

  • TIAA Traditional can be an excellent choice for plan participants seeking preservation of principal.
  • This report lists six unique benefits of having a portion of a retirement account invested in TIAA Traditional.
  • For estate planning purposes, at the death of the account owner, the TIAA  Traditional account can be paid in one lump sum to the  beneficiary free of probate expense.
  • TIAA Traditional  account interest compounds income-tax deferred. This is an advantage over personally held savings accounts and certificates of deposit, where  interest paid is subject to ordinary income tax.

TIAA Traditional Provides Guaranteed Returns

Looking for guarantees in a volatile investment environment? TIAA Traditional might be a good option. TIAA has been a primary investment provider in university retirement plans, since Andrew Carnegie founded TIAA in 1918. TIAA is now offered in almost every university retirement system in the U.S.   

With its long history, one would think that university retirement plan participants would have a reasonable, if not good, understanding of the strengths and weaknesses of TIAA. However, our research indicates that university professionals have a difficult time  understanding TIAA and which investments to use to optimize their retirement portfolio. In this context, TIAA seems almost like a sleeping giant — very large and visible, but relatively quiet and mysterious.

To complicate matters, in recent years Fidelity and Vanguard, two major investment companies, are now also approved vendors for most university retirement plans. Now, as investment companies go, Fidelity and Vanguard are two of the best. But at one level they absolutely cannot compete with TIAA.

You see, TIAA is a life insurance company; and not just any life insurance company. It is one of the strongest life insurance companies in the United States. And since TIAA is a life insurance company, it is totally different from Fidelity and Vanguard, which are mutual fund and investment companies.

Life insurance companies exist to provide death benefits. As a consequence, life insurance companies are generally more conservative with their investments because of state regulatory systems that they must report to. As a result, life insurance companies generally are better at investing in fixed-income investments such as bonds and fixed annuities.

Get More Out of the Sleeping Giant

Benefits of Investing in TIAA Traditional

TIAA Traditional, a fixed annuity, is one of the many choices that TIAA provides its university retirement plan participants. It is very unique, not only within the TIAA offerings, but also when compared to choices offered by Fidelity and Vanguard. The following are the unique differences and benefits of having a portion of a retirement account invested in TIAA Traditional:

  1. TIAA Traditional is an asset of TIAA Life Insurance Company. This is very different than an investment in the CREF Bond or Stock fund, which are not assets of TIAA Life Insurance Company.
  2. A significant benefit of TIAA Traditional (as an asset of TIAA Life Insurance Company) is that the principal sum is guaranteed by the full faith and credit-worthiness of the insurance company. So, regardless of what the stock market or the bond market does, the   participant’s investment in TIAA Traditional will not fluctuate in value and can only be lost if the insurance company goes out of business. (There are some 8,000 life insurance companies in the United States. TIAA is one of a handful of companies that have the highest ratings given by the insurance industry.)
  3. The interest rate on TIAA Traditional, within most university retirement plans, is guaranteed not to go below 3 percent. This is an advantage over money market accounts, savings accounts and other interest-bearing accounts that have no interest guarantees.
  4. The interest attributable to a TIAA Traditional account compounds income-tax deferred. This is an advantage over personally held savings accounts and certificates of deposit, where interest paid is subject to ordinary income tax immediately.
  5. For estate planning purposes, at the death of the account owner, the TIAA Traditional account can be paid in one lump sum to the beneficiary free of probate expense.
  6. The internal costs of TIAA Traditional are very low when compared to other major insurance companies. In addition, there is no penalty for moving money from a TIAA Traditional account into another investment.

TIAA Traditional can be an excellent choice for plan participants seeking preservation of principal. However, it is very important to note that there are certain restrictions on TIAA Traditional when it is purchased within primary retirement accounts. We encourage you to consult a TIAA representative or a fiduciary advisor who has specific knowledge of university retirement plans and benefit systems.

If you would like to speak with an adviser at Filbrandt Investment Advisers about TIAA, please call 800-431-9740 or state your request via e-mail at clientservices@filbrandtco.com.

 

By Michael J. Filbrandt, CLU®, ChFC®          

Chairman of the Board of Filbrandt & Company 


Volume 17, Issue 2

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