“Retirement advice tends to focus on how much to save, but determining how much can be spent safely in retirement is the far tougher problem. The result is that a top retirement fear is outliving savingsⁱⁱⁱ,” said Kourtney Gibson, chief institutional client officer for TIAA.  “First-year retirees can think of the TIAA Annuity Paycheck Advantage as a new ‘North Star’ that can help them achieve a higher guaranteed payout potential and greater certainty around how much to safely spend in retirement.”

The TIAA Annuity Paycheck Advantage presents, in percentage terms, the difference between what a first-year retiree can withdraw using a conventional retirement spending formula and what they could get by converting one-third of their retirement savings into lifetime retirement paychecks^iv, guaranteed by TIAA through its flagship TIAA Traditional annuity, in addition to taking a 4% withdrawal on the remaining balance. The conventional formula is the so-called 4% rule, under which new retirees who want a reasonable chance to make their savings last for three decades withdraw at most 4% of their savings the first year they retire.

A 32% Income Advantage in 2024

For 2024, if a 67-year-old new retiree dedicates one-third of their savings to lifetime income with a 10-year guarantee period through TIAA Traditional and takes a 4% withdrawal on the remaining balance, they will receive 32% more to spend each month in their first year of retirement than if they applied only the 4% withdrawal rate.

“We can show that a retiree who has opted to annuitize, alongside a 4% withdrawal, has historically been in a better financial position than the person who simply pulled money out of their accounts each year,” said Colbert Narcisse, chief product officer for TIAA.

TIAA will update the Annuity Paycheck Advantage metric annually to provide current information that demonstrates how lifetime income helps ensure more Americans can retire with security and dignity.

“In addition to enhancing income, TIAA Traditional offers the opportunity for interest above guaranteed minimums while saving and income above guaranteed minimums while retired. It also offers the opportunity for higher income the earlier and longer one contributes to the annuity^v,” Narcisse continued. “We believe our metric will help retirement savers feel more confident about their fundamental financial security in retirement.” 

A Consistent Income Advantage

The Annuity Paycheck Advantage has been consistent over time, with TIAA Traditional providing an income advantage between 16% and 44%,^vi compared with 4% savings withdrawals every month since at least 1994, the year research on the rule was first published.

“The 4% rule is a starting point and isn’t right for everyone. It also is difficult to apply as one gets older, might require a riskier asset allocation than retires are comfortable with, and under some of the market conditions we have experienced in recent years it may not even have worked,” said Benny Goodman, vice president with the TIAA Institute. “We believe in a more tailored and holistic approach to financial planning and have seen that including some annuitization offers more diversification, with additional safety and security, all while maximizing their total retirement income.”

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About TIAA

TIAA is a leading provider of secure retirements and outcome-focused investment solutions to millions of people and thousands of institutions. It is the #1 not-for-profit retirement market provider^vii, paid more than $5.6 billion in lifetime income to retired clients in 2022 and has $1.28 trillion in assets under management (as of 12/31/2023)^viii.

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­­­­TIAA Traditional is issued by Teachers Insurance and Annuity Association of America (TIAA), New York, NY.

This point of view is designed to be a starting point for the retirement income conversation. It is not a recommendation.

Annuity contracts may contain terms for keeping them in force. TIAA can provide you with costs and complete details.

TIAA Traditional is a fixed annuity product issued through these contracts: Form series including but not limited to: 1000.24; G-1000.4; IGRS-01-84-ACC; IGRSP-01-84-ACC; 6008.8. Not all contracts are available in all states or currently issued.

Retirement paycheck refers to the annuity income received in retirement.  Guarantees of fixed monthly payments are only associated with TIAA’s fixed annuities.

Any guarantees under annuities issued by TIAA are subject to TIAA’s claims-paying ability.

TIAA Traditional Annuity interest and income benefits include guaranteed amounts plus additional amounts as may be declared on a year-by-year basis by the TIAA Board of Trustees. The additional amounts, when declared, remain in effect through the “declaration year”, which begins each March 1 for accumulating annuities and January 1 for payout annuities. Additional amounts are not guaranteed beyond the period for which they are declared. 

Converting some or all of your savings to income benefits (referred to as “annuitization”) is a permanent decision.  Once income benefit payments have begun, you are unable to change to another option.

This material is for informational or educational purposes only and is not fiduciary investment advice, or a securities, investment strategy, or insurance product recommendation. This material does not consider an individual’s own objectives or circumstances which should be the basis of any investment decision.

Annuities are designed for retirement or other long-term goals, and offer a variety of income options, including lifetime income. Past performance is no guarantee of future results.

ⁱ The 2024 Annuity Paycheck Advantage is hypothetical and for illustrative purposes only. The Annuity Paycheck Advantage calculations use the TIAA Traditional “new money” income rate for a single life annuity (SLA) with a 10-year guarantee period at age 67 using TIAA’s standard payment method beginning income on March 1, 2024. Individual results may vary. Example: Participants A and B both had a retirement savings balance of $1 million as of March 1, 2024. Participant A withdrew 4% ($40,000) in year 1. Participant B made a one-time transfer to TIAA Traditional and selected an SLA with a guarantee period of 10 years at age 67, starting on March 1, 2024. Participant B received an income rate of 7.8% ($26,000) on $333,333 annuitized in year 1; Participant B also withdrew 4% ($26,667) from the $666,667 remaining saving balance in year 1. The result ($52,667) is initial income for Participant B in year 1 that is 32% higher than the initial income of Participant A ($40,000). Income rates for TIAA Traditional annuitizations are subject to change monthly. TIAA Traditional Annuity income benefits include guaranteed amounts plus additional amounts as may be declared on a year-by-year basis by the TIAA Board of Trustees. The additional amounts, when declared, remain in effect through the “declaration year”, which begins each January 1 for payout annuities. Additional amounts are not guaranteed beyond the period for which they are declared. TIAA has paid more in lifetime income than its guaranteed minimum amount every year since 1949. Over the past 30 years, TIAA has given 19 income increases to existing annuitants (as of January 2024). Past performance is not a guarantee of future results. An annuity is a product issued by an insurance company. It is an agreement that comes with a contract outlining certain guarantees. Fixed annuities guarantee a minimum rate of interest while you save and, if you choose lifetime income, a minimum monthly amount in retirement. Converting some or all of your savings to income benefits (referred to as “annuitization”) is a permanent decision. Once income benefit payments have begun, you are unable to change to another option.

ⁱⁱ The 2024 Annuity Paycheck Advantage uses the income rate on a new money annuitization as of March 1, 2024. TIAA Traditional income rates are subject to change monthly. Additionally, the exact amount of spending money available to both a retiree who uses a withdrawal strategy and one who combines that with an annuity of one-third of their portfolio may rise or fall in subsequent years based on the performance of financial markets and annuity income rates.

ⁱⁱⁱ Cerulli Associates, “The Cerulli Edge Retirement Edition,” Second Quarter 2023

^iv Example assumes taking withdrawals on the remaining balance.

^v Lifetime income payments from TIAA Traditional may include a TIAA Loyalty Bonus^SM which is discretionary and determined annually.

^vi Bengen, William P. 1994. “Determining Withdrawal Rates Using Historical Data.” Journal of Financial Planning 7, 4 (October): 171-180.

^vii As of July 21, 2022. Based on data in PLANSPONSOR’s 403(b) 2022 DC Recordkeeping Survey, combined 457 and 403(b) data.

^viii As of December 31, 2023, assets under management across Nuveen’s investment specialists and TIAA investment management teams are $1.28 trillion.

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SOURCE TIAA