Study Shows Adding TIAA Traditional Annuities Improves Risk-Adjusted Portfolio Performance

Compared to commonly used fixed income funds, TIAA Traditional reduces exposure to interest rate risk

NEW YORK (January 25, 2022) – Adding TIAA Traditional Annuities[1] to a retirement plan investment portfolio improves the portfolio’s risk-adjusted returns, according to new research from the TIAA Institute. The benefits are especially notable for plan participants whose risk tolerance would lead to higher fixed-income allocations.

The study examines how Traditional affected portfolio results for 10 distinct time frames between March 1970 and February 2021. The researchers compared Traditional to six investment alternatives: large U.S. stocks, small U.S. stocks, 10+ year high-quality corporate bonds, 20+ year U.S. Treasury bonds, intermediate-term U.S. government/credit instruments, and money market funds.

“By comparing Traditional’s returns over the past 50 years to those of other asset classes, we found that retirement plan participants would have improved their portfolios’ risk-adjusted performance by replacing some of their allocation to commonly used fixed-income funds with allocations to Traditional,” said Conrad S. Ciccotello, Professor of Finance and the Director of the Reiman School of Finance in the Daniels College of Business at the University of Denver.

Traditional improves risk-adjusted performance by reducing participants’ exposure to interest-rate risk, which TIAA manages through its general account by holding investments with varying liquidity, duration and credit characteristics.  This allows TIAA to offer Traditional participants higher and smoother returns over time compared to returns of fixed income and money market funds, whose market value fluctuates daily.

“Abundant economic and public policy data suggest that many Americans will struggle to maintain an adequate income in retirement,” said David P. Richardson, head of the TIAA Institute. “This study provides solid evidence that adding TIAA Traditional Annuities can help diminish that risk and provide ‘pension-like’ guaranteed lifetime income for living expenses in retirement.”

Expanding on a study conducted in 2015, this latest research, “A Cohort Analysis of the Investment Performance of TIAA Traditional Annuities during Working Life,” was conducted by Conrad S. Ciccotello of the University of Denver, David F. Babbel of the University of Pennsylvania, and Miguel Herce and Mark F. Meyer of Charles River Associates.

The full report can be found here.

Press contact: TIAA Media Team, 888-200-4062, media@tiaa.org

About the TIAA Institute
The TIAA Institute helps advance the ways individuals and institutions plan for
financial security and organizational effectiveness. The institute conducts
in-depth research, provides access to a network of thought leaders, and
enables those it serves to anticipate trends, plan future strategies and maximize
opportunities for success. For more information about the TIAA Institute, visit
www.tiaainstitute.org.

About TIAA
TIAA is a leading provider of secure retirements and outcome-focused
investment solutions to millions of people and thousands of institutions. It is the
#1 not-for-profit retirement market provider, paid more than 1 $3.6 billion to
retired clients in 2020 and has $1.3 trillion in assets under management (as of
9/30/2021). 

[1] TIAA Traditional is available in multiple versions offering varying degrees of liquidity and credited interest rates. The research studied the impact to three different versions of TIAA Traditional – the Retirement Annuity (RA) from 1970 into 2021, the Supplemental Retirement Annuity (SRA) from its inception in 1973 into 2021, and Retirement Choice Plus Annuity (RCP) from its inception in 2006 into 2021.