How do TIAA-CREF Participants Annuitize? David P. Richardson, Ph.D. Senior Economist

Transcription

1 How do TIAA-CREF Participants Annuitize? David P. Richardson, Ph.D. Senior Economist

2 Some background What is TIAA-CREF? Teachers Insurance and Annuity Association Founded in 1918 College Retirement Equities Fund Founded in 1952 New York chartered insurance company Historically: Hybrid employer-based system akin to a money purchase pension plan. Today: full range of financial services, including bank, brokerage, wealth management, etc. ICPM Discussion Forum: October 8, 201 2

3 System Snapshot: December 31, 2011 Asset Class and Investment Account Date of Inception Assets ($ mil.) % of Total Guaranteed TIAA Traditional April 23, 1918 $237, % Equity CREF Stock July 1, 1952 $96,883 CREF Global Equities March 1, 1990 $13,158 CREF Growth April 29, 199 $13,26 CREF Equity Index April 29, 199 $10,691 TIAA-CREF Equity Mutual Funds (27) October 1, 2002 $27,37 Fixed Income CREF Money Market April 1, 1988 $12,396 CREF Bond Market March 1, 1990 $13,36 CREF Inflation Linked Bond May 1, 1997 $9,96 TIAA-CREF Retirement Class Fixed Income Mutual Funds (10) March 31, 2006 $10,78 Real Estate TIAA Real Estate October 2, 1995 $13,327 TIAA-CREF Real Estate Securities Mutual Funds (2) October 1, 2002 $1,033 Balanced/Multi-Asset CREF Social Choice March 1, 1990 $10,335 Lifecycle funds (22) October 15, 200 $8,72 Lifestyle Funds (5) December 9, 2011 $50 TIAA-CREF Managed Allocation Mutual Fund March 31, 2006 $57 Source: TIAA-CREF SEC Financial Reporting and Corporate Acturarial 33.7% 9.7% 3.0%.1% ICPM Discussion Forum: October 8, 201 3

4 Who Annuitizes and How? The extensive margin: Do I annuitize? A working life, as opposed to at retirement, decision for many participants. The intensive margin: How do I annuitize? A during retirement decision for most participants. Financial considerations Pricing/interest rate Estate planning Psychological considerations Inertia/Uncertainty Mental Accounting ICPM Discussion Forum: October 8, 201

5 Percent Contributing to Asset Class Recent Contribution Allocations at TIAA-CREF 90 Percent of Participants Contributing to Asset Classes Year Guaranteed Equity Fixed Income Real Estate Multi-Asset Source: Richardson, David P. (2013) Trends in Premium and Asset Allocations by TIAA-CREF Participants: TIAA-CREF Institute Research Dialogue ICPM Discussion Forum: October 8, 201 5

6 Average Premium Dollar Recent Contribution Allocations at TIAA-CREF Average Premium Allocation by Asset Class 2005 to 2011 $1.00 $0.90 $0.80 $ $0.60 $0.50 $ $0.30 $0.20 $ $ Year TIAA Traditional CREF TIAA Real Estate Retirement Mutual Funds Lifecycle Funds Source: Richardson, David P. (2013) Trends in Premium and Asset Allocations by TIAA-CREF Participants: TIAA-CREF Institute Research Dialogue ICPM Discussion Forum: October 8, 201 6

7 Conditional Average Premium Allocation Recent Contribution Allocations at TIAA-CREF Conditional Average Premium Allocations 2005 to Year Guaranteed Equity Fixed Income Real Estate Lifecycle Source: Richardson, David P. (2013) Trends in Premium and Asset Allocations by TIAA-CREF Participants: TIAA-CREF Institute Research Dialogue ICPM Discussion Forum: October 8, 201 7

8 Recent Asset Allocations at TIAA-CREF Average Asset Allocations by Age December 2006 and December Under Under December 2006 December 2011 TIAA Traditional CREF TIAA Real Estate Retirement Mutual Funds Lifecycle Funds Source: Richardson, David P. (2013) Trends in Premium and Asset Allocations by TIAA-CREF Participants: TIAA-CREF Institute Research Dialogue ICPM Discussion Forum: October 8, 201 8

9 Recent Asset Allocations at TIAA-CREF 100% 90% Average Asset Allocations by Gender December 2006 and December % 70% 3 60% % % 30% 20% 10% % Women Men Women Men December 2006 December 2006 TIAA Traditional CREF TIAA Real Estate Retirement Mutual Funds Lifecycle Funds Source: Richardson, David P. (2013) Trends in Premium and Asset Allocations by TIAA-CREF Participants: TIAA-CREF Institute Research Dialogue ICPM Discussion Forum: October 8, 201 9

10 Allocation of Average Asset Dollar Recent Asset Allocations at TIAA-CREF Average Asset Allocations 2005 to 2011 $1.00 $0.90 $0.80 $ $0.60 $ $0.0 $0.30 $0.20 $ $ Year TIAA Traditional CREF TIAA Real Estate Retirement Mutual Funds Lifecycle Funds Source: Richardson, David P. (2013) Trends in Premium and Asset Allocations by TIAA-CREF Participants: TIAA-CREF Institute Research Dialogue ICPM Discussion Forum: October 8,

11 Percent of Assets Number of Years Since Inception Recent Asset Allocations at TIAA-CREF 30.0% Average Participant Asset Allocation by Account and Number of Years from Account Inception, Dec 31, % % % % % % TIAA Traditional CREF Stock Money Market Bond Market Social Choice Global Equities Growth Account Equity Index Real Estate Inflation linked Bond Retirement MF Lifecycle Funds 0 Investment account Source: Richardson, David P. (2013) Trends in Premium and Asset Allocations by TIAA-CREF Participants: TIAA-CREF Institute Research Dialogue ICPM Discussion Forum: October 8,

12 Does Working Life Investment in Deferred Annuities Make Sense? YES! The deferred annuity model can enhance retirement security along two dimensions: Financial: TIAA Traditional provides a superior anchor for an investment portfolio during working life. Psychological: Deferred annuities menu can help overcome uncertainty, inertia and other behavioral biases related to annuitization decisions. ICPM Discussion Forum: October 8,

13 TIAA Traditional: Relative Performance Source: Babbel, David, Miguel Herce and Mark Meyer (2012). The Performance of TIAA s Traditional Annuity. Unpublished grant presentation. ICPM Discussion Forum: October 8,

14 TIAA Traditional: Relative Performance Source: Babbel, David, Miguel Herce and Mark Meyer (2012). The Performance of TIAA s Traditional Annuity. Unpublished grant presentation. ICPM Discussion Forum: October 8, 201 1

15 TIAA Traditional: Relative Performance Source: Babbel, David, Miguel Herce and Mark Meyer (2012). The Performance of TIAA s Traditional Annuity. Unpublished grant presentation. ICPM Discussion Forum: October 8,

16 TIAA Traditional: Relative Performance Source: Babbel, David, Miguel Herce and Mark Meyer (2012). The Performance of TIAA s Traditional Annuity. Unpublished grant presentation. ICPM Discussion Forum: October 8,

17 TIAA Traditional: Relative Performance Source: Babbel, David, Miguel Herce and Mark Meyer (2012). The Performance of TIAA s Traditional Annuity. Unpublished grant presentation. ICPM Discussion Forum: October 8,

18 TIAA Traditional: Relative Performance Source: Babbel, David, Miguel Herce and Mark Meyer (2012). The Performance of TIAA s Traditional Annuity. Unpublished grant presentation. ICPM Discussion Forum: October 8,

19 Recent Income Distribution Decisions Initial Income Selections by TIAA-CREF Participants 100% 10% 11% 10% 9% 8% 9% 9% 11% 12% 10% 1% 9% 9% 15% 7.0% 6.0% 80% 21% 2% 26% 30% 33% 3% 33% 18% 36% 0% 2% 5.0% 60% 10% 10% 52% 7% 3%.0% 0% 30% 13% 15% 15% 13% 11% 11% 25% 23% 20% 20% 19% 19% 16% 13% 13% 9% 8% 8% 16% % 10% % % 11% 11% 3.0% 2.0% 20% 2% 29% 27% 26% 25% 26% 27% 29% 28% 27% 26% 25% 28% 28% 1.0% 0% 0.0% Single Joint IPRO MDO SWAT Source: Brown, Jeffrey, James Poterba, and David Richardson (201). Trends in Retirement In come Distributions by TIAA-CREF Participants: Forthcoming. ICPM Discussion Forum: October 8,

20 Fraction Starting First Life Annuity Income Recent Income Distribution Decisions First Life Annuity Issue Ages, %.3%.5% 5.2% 8.7% 6.3% 6.5% 6.3% 6.3% 6.3% 8.1% 9.% 10.0% 9.3% 9.1% 80% 10.7% 10.% 10.9% 10.7% 11.1% 9.9% 9.7% 9.7% 9.6% 9.6% 9.3% 10.3% 10.6% 10.2% 22.6% 21.5% 20.9% 21.7% 22.0% 22.6% 23.8% 23.3% 23.5% 2.5% 26.8% 26.5% 26.7% 27.1% 60% 17.7% 18.1% 17.9% 17.% 16.5% 16.8% 16.2% 16.2% 16.1% 15.7% 12.7% 11.8% 12.% 15.9% 0% 20%.7% 5.5% 5.1% 1.%.2%.3%.0%.5%.5% 2.1% 1.7% 1.% 1.1% 37.7% 0% Source: Brown, Jeffrey, James Poterba, and David Richardson (201). Trends in Retirement In come Distributions by TIAA-CREF Participants: Forthcoming. ICPM Discussion Forum: October 8,

21 Recent Income Distribution Decisions 100% First Time Annuitants by Total Assets 6% 6% 7% 6% 5% 6% 5% 90% 13% 13% 13% 12% 11% 12% 11% 80% 70% 19% 20% 19% 19% 20% 20% 20% 60% 50% 0% 30% 28% 29% 29% 30% 29% 29% 30% 20% 10% 32% 33% 33% 35% 3% 33% 3% 0% Less than 100k $100k to $250k $250k to $500k $500k to $1m $1m and over Source: Brown, Jeffrey, James Poterba, and David Richardson (201). Trends in Retirement In come Distributions by TIAA-CREF Participants: Forthcoming. ICPM Discussion Forum: October 8,

22 Recent Income Distribution Decisions 80% Joint Life Annuity Selection, by Gender 70% 69% 67% 66% 60% 63% 62% 60% 58% 50% 0% 5% 51% 9% 5% 3% % 2% 30% 20% 30% 29% 29% 27% 26% 26% 25% 22% 20% 20% 18% 18% 18% 18% 10% 0% Male Female Source: Brown, Jeffrey, James Poterba, and David Richardson (201). Trends in Retirement In come Distributions by TIAA-CREF Participants: Forthcoming. ICPM Discussion Forum: October 8,

23 Recent Income Distribution Decisions 100% Percent with Guarantee Provision, by Gender and Contract Type 95% 90% 85% 80% 75% 70% 65% 60% SL Male SL Female JL Male JL Female Source: Brown, Jeffrey, James Poterba, and David Richardson (201). Trends in Retirement In come Distributions by TIAA-CREF Participants: Forthcoming. ICPM Discussion Forum: October 8,

24 Final Thoughts Having annuities in the investment menu during the accumulation phase is important. Working life instead of at retirement decision. Can help participants overcome behavioral biases. Default provisions are growing in importance. Help overcome behavioral biases. May reinforce the underlying cause of the problem. Better financial guidance and advice is needed. Annuity menu complexity behavioral tools? Misconceptions around estate impact. ICPM Discussion Forum: October 8, 201 2