Partial annuitization: A useful planning strategy

Ed Moslander is senior managing director and head of TIAA-CREF’s Institutional Client Services organizationin New York City. He estimates that about 40 percent of the firm’s DC participants start an annuity payment upon retirement and the majority of them do it with a partial annuitization. Among that group, 57 percent will annuitize again in the future in a form of “serial” annuitization.

So how does TIAA-CREF manage to get such a high percentage of its DC-plan participants to partially annuitize? Moslander cites several factors. Many of the participants work in higher education and do not have DB plans. Consequently, they become accustomed to thinking of their DC plan as their pension plan, not an additional pot of money. 

TIAA-CREF also encourages them to focus on lifetime income by illustrating in their statements how the plan balance will translate to an income stream. “In partnership with the plan sponsors, (we) have always tried to keep the participants focused on this as an income replacement vehicle, very much like we’ve always thought of defined benefit pension plans as an income replacement vehicle, not kind of a wealth accumulation, lump-sum vehicle,” he explains.

Another factor is TIAA-CREF’s emphasis on pre-retirement consultations with plan participants before their retirement date. Those consultations between clients and the firm’s financial consultants consider how much income the retiree would receive based on the amount annuitized. It’s an iterative process, he says, and the parties go back and forth over illustrations until the participant decides the level of guaranteed or variable retirement income they want to receive.

Partial annuitization is attractive for several other reasons, Moslander adds: “One is to maintain access to funds in case they need it for an emergency, especially of course, a medical emergency. And, the second, although this used to be a little more prevalent perhaps than it is today, is as an inflation-protection matter; that I can serially annuitize, if you would, in an inflationary environment to maintain purchasing power.”