Maximize your retirement income with TIAA Annuity Paycheck Advantage

TIAA's retirement annuity provides the opportunity to unlock more income than the traditional 4% rule.

  • Interested in the potential for more income in the first year of retirement?
  • Talk to your wealth advisor about the TIAA Annuity Paycheck Advantage.

Most people know they need to save for retirement, but far fewer know where to start when it comes to figuring how much to spend. After all, there’s no way to know how much money you’ll need or want, much less how long you’ll need it to last in retirement.

The conundrum is why TIAA created a new metric that can offer perspective on whether your savings will be enough to maintain your lifestyle once you stop working. The TIAA Annuity Paycheck Advantage metric, or TAPA, compares how much a new retiree would get to spend if they annually withdrew 4% of their investment savings (a dominant rule of thumb for new retirees) versus how much they could potentially get if they converted one-third of their savings into income provided by TIAA Traditional, a fixed annuity issued by Teachers Insurance and Annuity Association of America (TIAA), and then used the 4% rule on the remaining balance.

For 2024, the TIAA Annuity Paycheck Advantage is 32%. The income advantage means if a new retiree dedicates one-third of their savings to lifetime income through TIAA Traditional, they would get 32% more to spend each month in their first year of retirement than if they applied only the 4% withdrawal rate.1

TIAA's retirement income bonus

Two steps to get a 32% bigger retirement paycheck in 2024

There are two important steps to our methodology. But first, recall how a fixed annuity such as TIAA Traditional works. It’s an agreement that comes with a guaranteed minimum rate of interest while you save and, if you choose lifetime income, a minimum monthly amount in retirement that pays out for the rest of your life. TAPA focuses on that last bit—what happens if you choose to convert a portion of savings into guaranteed lifetime income at retirement.

Imagine you have $1 million in retirement savings. According to the 4% rule, you would withdraw a total of $40,000 in your first year of retirement. That $40,000 amounts to $3,333 per month to live on. A retiree following the 4% rule will typically withdraw the same dollar amount each subsequent year, adjusted only for inflation.

For step two, compare that $40,000 against a scenario where you elect to convert, or annuitize, one-third of your savings into monthly paychecks with TIAA Traditional. As of Mar. 1, 2024, for a 67-year-old who selects a single-life annuity with payouts ensured at least 10 years, the TIAA Traditional income rate was 7.8%. In a year, this retiree would get $26,000 in annuity checks from the $333,333 they converted into guaranteed income, plus $26,667 based on withdrawing 4% of the remaining $666,667. All in, by annuitizing one-third of your savings with TIAA Traditional, you’d get a total of $52,667 in 2024—32% more than $40,000.

No voodoo, just math

Benny Goodman, vice president with the TIAA Institute, notes that, with TIAA Traditional, there has been a TAPA of between 16% and 44% every month since at least 1994—the year the pioneering research on the 4% rule was first published.

“There’s no voodoo here. It’s just math,” Goodman says. “A retiree who has opted to annuitize has historically been in a better financial position than the person who simply pulled out money each year from their accounts.”

Imagine the possibilities

Consider that, with annuity income coming from one-third of a million-dollar nest egg, a new retiree would bring in an extra $1,056 per month in their first year compared with a 4% withdrawal strategy. That's no small change. A trip to see your kids and grandkids. A new appliance or piece of furniture. More meals out with family and friends.

We’ll continue to update the TAPA to give savers nearing retirement a real-life snapshot of the potential income benefits associated with annuitizing a portion of their savings. How much to annuitize is a highly personal decision, however, and no two situations are the same. Talk to your financial advisor about TAPA and the potential benefits of annuitizing with TIAA.

 

1 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 on Mar. 1, 2024. Individual results may vary.

Example: Participants A and B both had a retirement savings balance of $1 million as of Mar. 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 Mar. 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 savings 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 Jan. 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.

The 2024 Annuity Paycheck Advantage uses the income rate on a new money annuitization as of Mar. 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.

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.

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

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.

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

TIAA Traditional is a fixed annuity product issued through these contracts by Teachers Insurance and Annuity Association of America (TIAA), 730 Third Avenue, New York, NY, 10017: 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.