All about annuities
The benefits of a diversified
retirement portfolio.
How to diversify your retirement investments with annuities.
What is retirement portfolio diversification?
At its core, diversification is simple—it means making different kinds of investments so you're not overly reliant on any single one.
Different investments have different levels of potential risk and return. Typically, as risk rises so does your potential payout. And the reverse is true as well: Safer investments tend to come with lower return expectations.
Different types of investments (think stocks and bonds) are called "asset classes," and they often perform in different ways at the same time. For example, if stocks are increasing in value, bonds may be decreasing in value, or vice versa.
A potential disadvantage of investing in a single risky stock, or even a number of risky stocks, is that you could lose money if it doesn't do well. But having too many conservative investments, like low-risk government bonds, can also present challenges. For example, if your savings grow too slowly, you may not make enough to last through retirement. Of course, you can still lose money with a diversified portfolio, but spreading your investments across several asset classes can help balance your risk and return expectations.
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Balancing risk and return
Typically, as risk rises so does your potential payout. The reverse is true, as well: Less risky investments tend to come with lower return expectations. For example, stocks are generally considered riskier investments, while guaranteed asset classes, like fixed annuities, are considered less risky.
How to diversify your portfolio
How to diversify your investments is a personal decision, but you can think about the interplay between three inputs: how much money you'll need to retire, how long you have before retirement, and your ability to withstand market ups and downs, also called "risk tolerance."
One common way to estimate how much you’ll need each year during retirement, is to start with approximately 70% of your current income. Then subtract what you’ll receive each year from Social Security (the Social Security Administration has an online calculator you can use to calculate how much you'll receive) and, if you have one, your yearly pension income. What's left will be approximately how much you’ll need each year, either from your retirement savings, investments or elsewhere.
Your retirement time frame should be another factor to help guide how much risk you want to take on in your investments. When saving for retirement, it’s common to take on more risk when you’re younger to increase the odds that your investments will grow over the years. If a market slumps, you'll have time to stick around for it to bounce back and potentially still reach your goal. As you get closer to retirement, advisors usually recommend pulling back on riskier investments so you can be sure your savings will last through the end of your life.
A final consideration is how comfortable you are taking risks. Are you willing to lose money in the short term, if you have the potential to make more money in the long term? Or would you prefer not to lose money, even though you might not have as much at the end?
A final consideration is how comfortable you are taking risks.
Annuities and diversification
Annuities can play an important role in diversification. A fixed annuity, like TIAA Traditional,* grows at a steady rate while you save and, if you choose to convert a portion into lifetime income, guarantees you'll have money coming in each month throughout retirement.1
Variable annuities like CREF or TIAA Real Estate are riskier. As the name implies, payouts are variable—they are based on how well the underlying investments in stocks, bonds and real estate do. However, these annuities can also give bigger payouts if their investments do well. Variable annuities can also help protect against inflation.
Combining fixed and variable annuities helps diversify your portfolio by balancing potential risk and return levels. Independent research firm Morningstar has determined that you can receive more income when you combine fixed and variable annuities in your retirement plan.2 This combination can also provide protection against other risks that can impact retirement savings and income, like outliving your savings, or cognitive declines that make it harder to properly manage money.
*TIAA Traditional is issued by Teachers Insurance and Annuity Association of America (TIAA), New York, NY.
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15% higher payouts
Long-term TIAA Traditional savers received 15% higher payout rates compared with savers who transferred money to TIAA Traditional at retirement.2
Lifetime income
We’ve created a brand-new way to learn about lifetime income.
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.
Investment products may be subject to market and other risk factors. See the applicable product literature or visit TIAA.org for details.
Any guarantees under annuities issued by TIAA are subject to TIAA's claims-paying ability. TIAA Traditional is a guaranteed insurance contract and not an investment for federal securities law purposes.
Lifetime income payments from TIAA Traditional may include a TIAA Loyalty BonusSM which is discretionary and determined annually.
TIAA may declare additional amounts of interest and income benefits above contractually guaranteed levels. Additional amounts are not guaranteed beyond the period for which they are declared.
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.
Transfers and withdrawals from TIAA Traditional are restricted by its underlying agreements that can affect the liquidity of the product. 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.
A variable annuity is an insurance contract and includes underlying investments whose value is tied to market performance. When markets are up, you can capture the gains, but you may also experience losses when markets are down. When you retire, you can choose to receive income for life and/ or other income options.
The real estate industry is subject to various risks including fluctuations in underlying property values, expenses and income, and potential environmental liabilities. In general, the value of the TIAA Real Estate Account will fluctuate based on the underlying value of the direct real estate, real estate-related investments, real estate-related securities and liquid, fixed income investments in which it invests. The risks associated with investing in the Real Estate Account include the risks associated with real estate ownership including, among other things, fluctuations in underlying property values, higher expenses or lower income than expected, risks associated with borrowing and potential environmental problems and liability, as well as risks associated with participant flows and conflicts of interest. For a more complete discussion of these and other risks, please consult the prospectus.
- Morningstar, “The Benefit of Diversified Income for Retirees: Combining Fixed and Variable Annuities,” November 2019
- Based on an analysis of income benefits available to participants who have made level monthly contributions for 30 years to TIAA Traditional, relative to participants who deposited the same accumulated balance into TIAA Traditional just before converting to lifetime income. Assumes a participant age 67, singlelife annuity with a 10-year guaranteed period, and average payment differentials each month for retirement dates over the last 30 years ending Dec. 31, 2023.