Which TIAA Contract Should You Use for Lifetime Income First?
Description: Choosing which TIAA Traditional contract to use for lifetime income requires more than comparing payout rates. Learn how liquidity, transfer periods, and future growth can change the answer.
Which TIAA Contract Should You Use for Lifetime Income First?
Imagine you have accumulated more than $1 million in TIAA Traditional across several different contracts.
You want to use approximately $500,000 to create guaranteed lifetime income, but you do not want to annuitize the entire balance.
Which contracts should you use?
At first glance, the answer may seem simple: choose the contracts offering the highest lifetime-income payout rates.
However, that is only one part of the calculation.
You also need to evaluate:
Which contracts are liquid or illiquid
How much of each contract should be used
What happens to the money left behind
How long it will take to transfer the remaining balance
What return the transferred assets may earn elsewhere
How the alternatives compare over time
In some cases, the best strategy is not the one with the highest immediate payout rate. It is the one that creates the strongest combination of lifetime income, liquidity, and long-term growth potential.
A Real-World TIAA Planning Scenario
A TIAA participant recently contacted me with more than $1 million in TIAA Traditional spread across multiple contracts.
Some of the contracts were relatively liquid. Others were subject to more restrictive withdrawal provisions.
For planning purposes, the participant wanted to use approximately $500,000 for lifetime income while preserving the remaining assets for other retirement objectives.
The two most relevant contracts were:
| Contract | TIAA Traditional Balance | Estimated Lifetime-Income Payout Rate |
|---|---|---|
| Group Retirement Annuity, or GRA | $516,000 | 7.91% |
| Retirement Annuity, or RA | $355,000 | 7.81% |
These payout rates were specific to this participant, the available income election, and the assumptions used in TIAA’s illustration. Another participant could receive very different results.
Together, the two contracts held approximately $871,000—far more than the participant wanted to use for lifetime income.
That meant we needed to decide how much to annuitize from each contract.
You Do Not Necessarily Have to Annuitize an Entire Contract
One important feature of TIAA planning is that lifetime income does not always have to be an all-or-nothing election.
Depending on the contract and plan provisions, a participant may be able to use only a portion of a TIAA Traditional balance for lifetime income.
In this case, the participant could potentially:
Use all of one contract for lifetime income
Use only part of the second contract
Leave the remaining balance subject to that contract’s applicable withdrawal provisions
That flexibility created two primary options.
Option One: Use the Entire GRA Contract First
Under the first option, the participant could use the full $516,000 GRA balance for lifetime income.
Because the desired lifetime-income amount was approximately $500,000, this option would satisfy most or all of the objective using the GRA contract alone.
If a slightly larger amount were needed, a small portion could potentially come from the RA contract.
The GRA offered the higher projected payout rate:
7.91% from the GRA versus 7.81% from the RA.
Viewed only through the lens of lifetime-income payout rates, this option appeared attractive.
However, it would leave most or all of the $355,000 RA balance outside the lifetime-income election.
That remaining RA balance would then need to be transferred according to the RA contract’s more restrictive payout rules. In this particular analysis, extracting the remaining RA money was projected to take approximately nine years.
During that transfer period, the assets remaining in TIAA Traditional were expected to earn roughly 3.5%, subject to TIAA’s future declared rates and contract provisions.
Option Two: Use the Entire RA Contract First
The second option was to use the entire $355,000 RA balance for lifetime income.
The participant would then use approximately another $150,000 from the GRA contract to reach the desired lifetime-income amount.
Under this approach:
Approximately $355,000 from the RA would generate lifetime income at an estimated 7.81% payout rate.
Approximately $150,000 from the GRA would generate lifetime income at an estimated 7.91% payout rate.
The remaining GRA balance would stay outside the lifetime-income election.
That remaining balance could be transferred over approximately five years under the applicable contract provisions.
Although this option used more money from the contract with the slightly lower payout rate, it allowed the remaining non-annuitized assets to be moved more quickly.
That distinction ultimately became more important than the 0.10-percentage-point difference in payout rates.
Why the Higher Payout Rate Did Not Automatically Win
Many participants would initially choose the GRA because its projected payout rate was 7.91%, compared with 7.81% from the RA.
But the payout-rate difference was relatively small.
The more significant difference involved the assets left behind.
Under Option One, the remaining RA balance could take approximately nine years to transfer.
Under Option Two, the remaining GRA balance could be transferred over approximately five years.
That meant Option Two allowed the participant to move the non-annuitized money out of a lower-crediting TIAA Traditional position and into a rollover IRA approximately four years sooner.
For the comparison, we assumed:
The remaining TIAA Traditional balance would earn approximately 3.5% to 3.7%.
The rollover IRA would earn an average annual return of 6.25%.
Actual investment returns would fluctuate and would not be guaranteed.
The opportunity to move money sooner from an assumed 3.5% return into an investment portfolio assumed to earn 6.25% created a meaningful long-term advantage.
The Approximate Lifetime-Income Difference
Using the stated balances and payout rates, the approximate first-year lifetime income under Option Two would be:
$355,000 × 7.81% = approximately $27,726
$150,000 × 7.91% = approximately $11,865
That produces estimated total annual income of approximately:
$39,591 per year
This is a simplified illustration. Actual TIAA income payments depend on several factors, including the participant’s age, income start date, annuity option, spouse or survivor election, guarantees selected, contract terms, and TIAA’s calculations.
The purpose of the example is not to recommend a specific payout option. It is to show why each contract must be analyzed separately.
The Break-Even Analysis
When we compared the two strategies, Option Two produced the stronger projected outcome for a very long period.
The approximate break-even point was around 40 years.
In other words, it could have taken approximately four decades before the benefit of using more of the slightly higher-paying GRA contract under Option One overcame the advantage of transferring the remaining assets more quickly under Option Two.
That is an important planning lesson.
A payout rate that is 0.10% higher may look better on the surface, but it may not compensate for leaving hundreds of thousands of dollars in a lower-returning and less-liquid contract for several additional years.
Based on the assumptions used in this analysis, the more mathematically favorable strategy was:
Use the entire RA balance for lifetime income.
Use only the necessary portion of the GRA balance for additional lifetime income.
Transfer the remaining GRA balance over its shorter payout period.
Invest the transferred assets within a rollover IRA according to the participant’s broader retirement plan.
Start With the Most Restrictive Contracts—But Verify the Math
A useful starting principle is to consider using the most restrictive TIAA Traditional contracts for lifetime income first.
That can make sense because annuitization may be one of the primary ways to derive value from money that would otherwise be difficult to access.
Using restrictive contracts first may also preserve more flexible assets for:
Future withdrawals
Emergencies
Tax planning
Beneficiary objectives
Portfolio management
Changing retirement-income needs
However, this should not be applied as an automatic rule.
The analysis should also account for:
The payout rate offered by each contract
The contract’s current crediting rate
The length of the applicable transfer period
Any liquidity or withdrawal restrictions
The assumed return on transferred assets
The participant’s income and estate-planning goals
The principle helps identify where to begin. The math determines whether the strategy actually makes sense.
Why the Retirement Income Illustrator Matters
TIAA’s Retirement Income Illustrator can help participants compare the income available from individual contracts.
When reviewing the illustration, consider running several versions:
Each contract by itself
Multiple contracts combined
The entire balance of a contract
Only a portion of a contract
Different survivor and guarantee options
Different income start dates
Do not assume two contracts holding TIAA Traditional will produce identical income.
Contract-specific factors can affect the illustrated payout, even when the underlying balances appear similar.
The illustrator provides valuable information, but it should be incorporated into a broader retirement analysis rather than viewed in isolation.
The Return Assumption Must Be Reasonable
The 6.25% rollover IRA return used in this example was an assumption—not a guarantee.
A higher assumed return will make transferring money sooner appear more advantageous. A lower return will reduce that advantage.
The comparison should therefore be tested using multiple assumptions, such as:
A conservative return scenario
A moderate expected-return scenario
A lower-return stress test
A period of poor early market performance
The rollover portfolio would also introduce market risk that does not apply in the same way to TIAA Traditional.
A mathematically higher expected return does not automatically make an option suitable for every retiree. The participant must be comfortable with the investment risk required to pursue that return.
Other Factors That Could Change the Decision
Although the numbers favored Option Two in this case, another participant could reach a different conclusion.
The result could change based on:
Income needs
A retiree who prioritizes the highest possible guaranteed income may make a different decision from someone who wants greater liquidity.
Survivor protection
The selected joint-life or survivor option can affect the lifetime-income payout rate.
Estate goals
Assets committed to lifetime income may be treated differently from assets remaining in an IRA or other account.
Investment risk tolerance
The projected benefit of transferring money assumes the participant is willing to invest the rollover assets and accept market volatility.
Current TIAA Traditional rates
Contract crediting rates can vary and may change over time.
Health and longevity
Lifetime income becomes more valuable when payments continue for a long period. Life expectancy and family longevity should be considered carefully, while recognizing that longevity cannot be predicted with certainty.
Tax considerations
The timing and taxation of income payments and transfers may affect the overall strategy.
Common Mistakes to Avoid
When deciding which TIAA contract to use for lifetime income, avoid these common mistakes:
Choosing solely based on the highest payout rate
Assuming all TIAA Traditional contracts are identical
Annuitizing more money than necessary
Ignoring the transfer period on the remaining assets
Using an unrealistic return assumption for a rollover IRA
Failing to consider market risk
Overlooking survivor and beneficiary objectives
Treating an irreversible election as a simple investment decision
Lifetime-income elections can have long-lasting consequences. The contracts should be analyzed individually before any paperwork is submitted.
Frequently Asked Questions
Should I use my RA contract for lifetime income first?
Often, the RA deserves serious consideration because it is commonly one of the more restrictive TIAA contracts. However, the correct choice depends on payout rates, transfer rules, current crediting rates, and your broader retirement goals.
Can I use only part of a TIAA contract for lifetime income?
Depending on the contract and plan provisions, you may be able to elect lifetime income using only part of the eligible balance. Confirm the available options with TIAA before making a decision.
Should I always choose the contract with the highest payout rate?
No. The highest payout rate may not produce the best total outcome. You should also evaluate what happens to the remaining balance and how quickly those assets can be transferred or repositioned.
Why does the transfer period matter?
A longer transfer period may leave assets earning a lower crediting rate for additional years. A shorter period may allow the money to be reinvested sooner, although doing so may introduce market risk.
Is a 6.25% return in a rollover IRA guaranteed?
No. It is only a planning assumption. Actual returns could be higher or lower, and investment losses are possible.
Can I reverse a TIAA lifetime-income election?
Lifetime-income elections are generally intended to be permanent or difficult to reverse. Participants should carefully verify the election terms with TIAA before proceeding.
Final Thoughts
Deciding which TIAA Traditional contracts to use for lifetime income is a puzzle.
The answer requires more than identifying the contract with the highest payout rate.
You need to determine:
How much guaranteed income you want
Which contracts should fund it
How much of each contract should be used
What will happen to the remaining balances
How quickly those balances can be transferred
What risks and returns may apply afterward
In this case, using the entire RA contract and only part of the GRA contract produced the more favorable projected result—not because it generated the highest immediate payout, but because it allowed the remaining assets to be repositioned sooner.
That is the kind of contract-level analysis many TIAA participants do not realize is available.
Before committing a substantial TIAA Traditional balance to lifetime income, make sure the decision is supported by both the income illustration and the long-term math.
About Greg Shepard
I’m Greg Shepard, founder and creator of TIAA Simplified. I specialize in helping higher education professionals and retirees across the country understand their TIAA contracts, evaluate lifetime-income options, and make informed retirement decisions.
If you have multiple TIAA Traditional contracts and want help determining which assets may be best suited for lifetime income, contact S&A Financial Services to learn more about the planning options available.
This example is for educational purposes only. The figures, payout rates, crediting rates, transfer periods, and investment returns are based on one hypothetical or individual scenario and should not be interpreted as a guarantee or recommendation for another participant.