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October 1, 2015

TIAA rep advises retirees to take smaller monthly payouts

TIAACref benefitsNew single recordkeeping for holders of TIAA-CREF and Vanguard retirement accounts has revealed that more Pitt employees need to annuitize their benefits — choose to receive smaller monthly payouts through their lifetime, rather than a single lump-sum payment on retirement, according to a representative of TIAA-CREF.

Jay Mahoney, relationship manager in TIAA-CREF’s Pittsburgh office, spoke to a meeting of the University Senate benefits and welfare committee on Sept. 17. He said Pitt, which helped create TIAA in 1918, has a large number of employees participating in the service, with $4.5 billion in assets invested between it and Vanguard.

The average retirement account balance for Pitt employees is $186,933 today.

Mahoney said that new hires increasingly are investing their retirement income in targeted-date funds, also known as life-cycle funds, which use more conservative investments as the participant gets older. But usually this more cautious approach will not produce enough interest to provide retirement income for the rest of the retiree’s life, he said.

About 1,700 current retirees take annuities, with $36.95 million a year going to former Pitt employees. But only 70 of those people are getting monthly income from Vanguard funds; the other 1,630 of the annuities are from TIAA-CREF.

“So that’s a real challenge for us: We have the education to do” to convince particularly Vanguard participants of the wisdom of annuitizing their payouts, Mahoney said.

He pointed to TIAA’s traditional fund as one potential fund that will let current employees in effect create their own pension plan. That means gaining enough interest to allow a monthly 4 percent withdrawal upon retirement, which should last the average lifetime.

TIAA-CREF participants on average live to 88, Mahoney said. If the participant is married, at least one spouse is expected to live to 95. And the median retirement age is 68 for faculty and 65 for staff, noted John Kozar, assistant vice chancellor for Human Resources.

“In general, faculty live two years longer than the general populace,” Mahoney added.

In several months, the TIAA-CREF/Vanguard recordkeeping site will begin to show participants their potential income replacement — what their funds will generate as retirement income, including their Social Security — which today can only be done with the use of a special site tool.

—Marty Levine      

Filed under: Feature,Volume 48 Issue 3

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