<p>DW has a block of money in the TIAA Traditional Annuity account, most of it invested prior to 1993. This money was supposedly invested in long-term bonds, thus insulating it from short-term interest rate fluctuations. In the latest report (mid-year 2009) I was very surprised to see that the interest rate had declined from 5.5% to 3.75%. Does anyone know what’s going on here? Does TIAA still insist on a 10-year schedule for converting annuity funds to CREF investments?</p>
<p>I’d be very happy to get your interest rate for longterm money, provided that the rate is net. Even if the rate is net, I’d still be happy just to breakeven rather than see the disaster returns on our 401k and IRAs.</p>
<p>My DH works for TIAA!</p>
<p>The answer to your 10 year schedule question is yes, it requires a 10 year payout to move money out of TIAA, including transferring it to CREF.</p>
<p>As for the interest rate, interest rates in general have dropped. Being invested in long-term bonds does not completely insulate the fund from interest rate fluctuations, although the fund holds many bonds to maturity so the interest rate changes are not as volatile as most bond funds. This buy-and-hold long-term bond investment strategy is the reason for the 10-year payout schedule, the fund needs to be able to predict its cash flows if it’s going to tie up money in long term bonds and hold them to maturity. The fund does also own some other investments. To see exactly what the TIAA traditional is invested in, DH suggests you visit the TIAA-CREF website ([TIAA-CREF</a> - Retirement planning for those in the academic, medical, cultural & research fields.](<a href=“http://www.TIAA-CREF.org%5DTIAA-CREF”>http://www.TIAA-CREF.org)). It should also show you the interest rates that the fund is paying. </p>
<p>Your DW has not lost any principal, and is still getting a positive return on her investment. In today’s market, this is enviable.</p>
<p>Thank you for your helpful responses. They are appreciated. I’m not sure I sufficiently understand what’s going on … it seems a bit counterintuitive when “The money is invested in long-term financial instruments which is why we can only pay out over a 10-year period” (which I completely understand) is combined with “Yes the money was invested many years ago at high interest rates, but at the moment we’re paying (much) lower interest rates.”</p>
<p>I’m wondering if something happened to those long-term investments that suddenly made them pay 30 percent less compared to last year (after having declined just 8 percent over the in the prior ten years).</p>
<p>From TIAA-CREF’s website:</p>
<p>"Why have the TIAA Traditional Annuity interest rates decreased in recent months?</p>
<p>TIAA Traditional Annuity returns are determined based on a number of factors, including investment performance, expenses, and the need to maintain adequate contingency reserves. While the investment returns of TIAA’s general account do not flow directly to participants via the declared crediting rates, such additional amounts of interest do, in part, reflect the yields that TIAA obtains on bonds and other fixed-income investments. The recent decline in the rates TIAA is crediting reflects, in part, prevailing interest rates in the marketplace and expected returns from other investments.</p>
<p>In addition, while TIAA has a strong capital base and very limited exposure to the types of highly leveraged securities that have produced large losses for some financial companies, we are investing for the long term and are not immune from the continuing economic downturn. As stated previously, however, current and future portfolio holdings are still subject to risk.</p>
<p>The lower interest rates also reflect TIAA’s commitment to meet participants’ income needs over the long term. The Trustees of TIAA set the interest rates at a level that allows TIAA to guarantee and pay lifetime income to millions of retirees. The interest rates TIAA credits are based on conservative assumptions to help ensure that we can fulfill our commitment to participants who choose the security of lifetime retirement income."</p>
<p>Also from TIAA’s website:</p>
<p>“The TIAA Traditional Annuity is a guaranteed fixed annuity, whose returns are supported by the TIAA general account. The TIAA general account primarily invests in corporate and government bonds, structured finance instruments (such as mortgage-backed securities) and real estate. The returns and payment obligations of the TIAA Traditional Annuity are backed by TIAA’s claims-paying ability. It is important to note, however, that participants do not participate in the performance of the TIAA general account holdings. Instead, those who choose to allocate a portion of their retirement savings to the TIAA Traditional Annuity make contributions that purchase a specific amount of future lifetime income, based on the contractual-rate schedule in effect at the time the contribution is made.”</p>