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Fixed Income for Retirement Saving: TIAA Traditional’s Lessons on Quality, Duration, Risk, and Gradual Withdrawals

Gabriel A. Lozada
The Journal of Retirement Spring 2020, 7 (4) 39-59; DOI: https://doi.org/10.3905/jor.2020.1.064
Gabriel A. Lozada
is an associate professor of economics in the Department of Economics at the University of Utah in Salt Lake City, UT
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Abstract

TIAA’s Traditional annuity has supported retirements for a century. It resembles a stable-value fund. The author investigates the holdings supporting it, constructs readily available alternatives resembling those holdings, compares the returns of those alternatives with Traditional, and constructs a new measure of risk to compare Traditional’s risk with that of its alternatives in a more appropriate way than by using short-term standard deviation of returns. Under this new measure of risk, which is appropriate for retirement investors, some alternatives exhibited second-degree stochastic dominance over Traditional using 1987–2015 data. However, Traditional may still be a better choice for unsophisticated investors.

TOPICS: Retirement, portfolio construction, legal/regulatory/public policy

Key Findings

  • • TIAA has reported Traditional Annuity’s returns in nonstandard, sometimes incorrect ways. Its short-term volatility is irrelevant because withdrawals require 9 years.

  • • The duration and quality of TIAA’s General Account can be matched by mutual funds for which feasible historical payouts over 9 years can be inferred.

  • • Over 1987–2015, Traditional’s 9-year payouts were second-degree stochastically dominated, reversing results using shorter-term volatility measures.

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The Journal of Retirement: 7 (4)
The Journal of Retirement
Vol. 7, Issue 4
Spring 2020
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Fixed Income for Retirement Saving: TIAA Traditional’s Lessons on Quality, Duration, Risk, and Gradual Withdrawals
Gabriel A. Lozada
The Journal of Retirement Apr 2020, 7 (4) 39-59; DOI: 10.3905/jor.2020.1.064

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Fixed Income for Retirement Saving: TIAA Traditional’s Lessons on Quality, Duration, Risk, and Gradual Withdrawals
Gabriel A. Lozada
The Journal of Retirement Apr 2020, 7 (4) 39-59; DOI: 10.3905/jor.2020.1.064
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  • Article
    • Abstract
    • OBTAINING DATA
    • BENCHMARKING: MATCHING THE DURATION AND QUALITY OF TIAA’S GENERAL ACCOUNT
    • ASSESSING RETURN
    • RISK AND OVERALL EVALUATION
    • CONCLUSION
    • ADDITIONAL READING
    • APPENDIX
    • ENDNOTES
    • REFERENCES
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