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Jeffrey Brown (Photo: University of Illinois at Urbana-Champaign)

Life Health > Annuities > Fixed Annuities

RMDs Crowd Out In-Plan Annuities for Older TIAA Retirees

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What You Need to Know

  • The TIAA 403(b) program served 4.3 million participants in 2018.
  • About 900,000 were drawing retirement income.
  • New retiree use of in-plan lifetime annuities to draw income for the first time fell to 18% in 2018, from 62% in 2000.

The required minimum distribution rules may be pushing older U.S. retirees away from setting up guaranteed streams of lifetime income.

Only 5% of new TIAA 403(b) plan retirees ages 70 and older used lifetime annuities to begin tapping their accounts in 2018, researchers say.

The share of new, older retirees who used annuities to start drawing income was down from 41% in 2000.

The percentage of new, older retirees who used RMDs to draw income increased to 85%, from 52%, over that same period.

Three economists — Jeffrey Brown, James Poterba and David Richardson — have included those figures in a new working paper on retirement income choices published on the website of the National Bureau of Economic Research.

The Study

The lead author, Brown, is the dean of the business college at the University of Illinois at Urbana-Champaign and a TIAA trustee.

TIAA is a New York-based nonprofit institution that is best known for providing retirement plans for teachers, researchers and other employees at nonprofit and government organizations.

TIAA has been offering defined contribution retirement plan services since 1918. In 2018, its main 403(b) plan program served 4.3 million participants, including 898,990 participants who were drawing income.

The researchers say they based their study on TIAA data because TIAA has a large, well-established defined contribution retirement plan program and can provide more detailed information than many other sources of U.S. retirement income data, such as federal income tax return databases.

The researchers looked only at retirees who used in-plan income and asset-withdrawal strategies, not at retirees who rolled assets into IRAs or individual annuities. TIAA found in 2017, for example, that about 13% of the working-age U.S. adults it surveyed said owned annuities.

Income Annuities

Most 401(k) plan sponsors use investment funds held outside annuities to fund the plans.

A 403(b) plan is more likely to use a variable annuity as the funding vehicle, and it’s more likely to offer access to lifetime annuities as income distribution options when participants retire.

The annuity provider converts some or all of the participant’s assets into a stream of income that is guaranteed to reach or exceed a minimum level throughout the participant’s life, or, in the case of a couple, as long as at least one of the spouses or partners is alive.


The federal government sees tax exemptions for cash contributed to or earned by retirement plans as “tax expenditures” by the federal government.

To limit tax expenditures on 403(b) plans and other retirement plans, the government requires participants to begin taking RMDs, to convert some of the plan assets into taxable income, by a specified age.

In 2018, the IRS required participants to begin taking RMDs by age 70½.

The Setting Every Community Up for Retirement Enhancement Act, or Secure Act, increased the RMD age to 72 in 2020.

The new Secure Act 2.0 bill would increase  the RMD age to 75.

A plan participant is supposed to calculate the RMD amount by dividing the asset total by a life expectancy factor provided by the IRS.

Participants who draw only the RMD should be able to hold withdrawals steady through age 100, but Edward McQuarrie, a Santa Clara University researcher, acknowledged in an RMD paper posted in January that, in theory, if retirees in some countries outside of the United States had been using similar arrangements in hard times, and especially during periods affected by natural disasters, they might have had trouble sustaining the level of income drawn at age 72 through age 100.

RMD analysts tend not to address the situation of retirees who live for several years past age 100.

More TIAA Study Details

One sign that RMD rules are driving TIAA 403(b) plan income distribution choices is that the trends for participants under the RMD age look much different from the trends for participants over the RMD age.

For new retirees of all ages, the percentage using RMDs to start tapping income increased to 52% in 2018, from 10% in 2000, as the percentage using annuities fell to 18%, from 62%.

For new retirees under age 70, who are not subject to RMD requirements, the percentage using annuities to begin tapping plan assets fell much more slowly: to 38% in 2018, from 67% in 2000.

Brown and his colleagues also included data on trends in use of other income distribution options, such as an interest payment retirement option and a systematic withdrawals and transfers contract.

An IPRO gives a retiree a mechanism for pulling interest income from a retirement plan account but leaving the principal in the account.

A SWAT contract gives a retiree a tool for pulling cash out based on a schedule the retiree designs.

For new TIAA 403(b) plan retirees of all ages, for example, the percentage using an IPRO to begin tapping plan assets increased to 3% in 2018, from 1% in 2000.

The percentage using SWAT contracts to begin tapping income increased to 17%, from 6%.

Jeffrey Brown (Photo: University of Illinois at Urbana-Champaign)


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