One Participant's Retirement Income

Past results do not indicate future performance! Your results may differ!

Readers at the Morningstar TIAA-CREF Message Board have shown interest in the results I've mentioned for the actual retirement payouts of a person in my family. To protect his/her privacy, I'm not telling you the name, age, or the precise dollars invested. Naturally, investment choices made in the 1960s and payout choices made in 1990 may not be representative of results for your own funds, at other times.

But this does provide a rare, real-world glimpse of a "typical" TIAA-Participant of the 20th Century. I say "20th Century" because I think the CREF Variable Annuities are of less interest to today's participants. Whether that's a good change may depend on actual individual retirement needs.

This person chose a "50%-50%" investment scheme, starting when there were only two fund choices at TIAA-CREF, TIAA Traditional and the CREF Stock Account. The employer was a tiny Presbyterian elementary school on the East Coast, with low pay. There was a partial employer match, probably in the 5% or 6% area. Retirement was at a normal retirement age in 1990.

All funds were annuitized where they were, 2-life, with a 50% benefit to the second annuitant. Standard TIAA payout (not "graded") was elected. The reason for this report is to consider the question of whether it's better to rely more in retirment on TIAA Traditional or on one of the CREF variable annuity accounts.

The two columns headed PAYMENT are the monthly payments from the two retirement accounts for a twelve-month period (not always the calendar year), which are adjusted (by the annuitant's choice) once a year. In the TIAA columns, "contract" is sometimes called the "guaranteed" interest, and the "dividends" are sometimes called "additional amounts". Their sum makes the monthly payment, for the next year. The last column is the percentage of the total monthly payout that is represented by the CREF Stock Account payment.

		T I A A T R A D I T I O N A L			C R E F S T O C K A C C O U N T
		Annuitized:	$60,000	(29% of total)	Annuitized:	$150,000	(71% of total)

Year	Payout:	Payout:	MONTHLY	CUMULATIVE	MONTHLY	CUMULATIVE,	Cum. Pct of
	Contract	Dividends	PAYMENT	(End of Yr.)	PAYMENT	(End of Yr.)	Ann. Income
1990	251	332	$583	$6,996	$866	$10,392	60%
1991	251	325	$576	$13,908	$886	$21,024	60%
1992	251	314	$565	$20,688	$940	$32,304	61%
1993	251	282	$533	$27,084	$1,029	$44,652	62%
1994	251	275	$526	$33,396	$1,045	$57,192	63%
1995	251	275	$526	$39,708	$1,104	$70,440	64%
1996	251	275	$526	$46,020	$1,104	$83,688	65%
1997	251	275	$526	$52,332	$1,377	$100,212	66%
1998	251	276	$527	$58,656	$2,093	$125,328	68%
1999	251	276	$527	$64,980	$2,237	$152,172	70%
2000	251	276	$527	$71,304	$2,683	$184,368	72%
2001	251	280	$531	$77,676	$1,964	$207,936	73%
2002	251	284	$535	$84,096	$1,866	$230,328	73%
2003	251	285	$536	$90,528	$1,327	$246,252	73%
2004	251	285	$536	$96,960	$1,826	$268,164	73%
2005	251	285	$536	$103,392	$1,898	$290,940	74%
2006	251	285	$536	$109,824	$2,131	$316,512	74%
2007	251	285	$536	$116,256	$2,319	$344,340	75%
2008	251	290	$541	$122,748	$2,131	$369,912	75%
2009	251	290	$541	$129,240	$1,184	$384,120	75%

There was nothing strategic about the proportion of the two amounts annuitized in each account. It was just the total accumulation in each account at the time of retirement. You are allowed to reallocate these, however. There are more restrictions on reallocating TIAA than on CREF money. It is also possible to make some changes after you begin receiving payments (.PDF file link.)

The first chart shows the monthly payments during each year, with CREF Stock on the top and TIAA Traditional on the bottom.
Monthly Payout Totals by Account

Please do not forget that these data are for one participant over one particular period of stock market and interest rate performance. There is no reason to assume that your own results would be similar!

This chart shows cumulative lifetime totals by payout account.
Cumulative Lifetime Payments by Account

In this case of this particular Participant, it appears that putting more than half the accumulation into CREF Stock produced considerably more than half the payout over a twenty-year retirement. This was despite two very disturbing stock market declines during the period. Of course there is no assurance that the result would be as good over a different period of stock market results. (Remember that there was a scary stock market event in November, 1987, not too long before this person retired.)

This decision does involve risks. In any given month, the proportion of current income from the CREF Stock Account payout has varied from 60% (in the first year of retirement) to 84% (in 2000.) With the payout reduction for 2009, that proportion is down to 69% for 2009, the lowest it's been since 1996. If you chose a variable income, you have to be prepared for it to vary.

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Published: July 6, 2009
Modified: July 6, 2009