Should Professors Annuitize a TIAA Balance? Retirement Income Planning

A formula pension makes the income decision for its members. A defined-contribution balance - the KBOR Mandatory Retirement Plan in Kansas, CURP at Missouri's nine regional institutions, the University of Missouri System's DC plan - leaves it to the faculty member. The choice is often presented at the point of retirement as a form with boxes, and the default box is rarely the one a household would choose after understanding what each structure does and does not do.

This article is aimed at faculty aged 55 and over in Kansas and Missouri approaching the decision of how to turn an institutional defined-contribution balance into lifetime income. It describes the four structures neutrally, the mechanics of the annuity forms, the coordination points with Social Security timing and Required Minimum Distributions, and the questions that decide the split. It does not say which structure is right for anyone, and it does not present payout figures or rates. Which plan a faculty member is in is covered in the companion article on Kansas and Missouri faculty retirement plans; the income-phase tax questions are in the companion tax article.

The decision landscape: four structures, three thingstraded

A retirement balance can become income in four ways: full annuitization (the entire balance exchanged for lifetime payments), partial annuitization (part exchanged, the rest kept as an account),systematic withdrawal (the balance kept as an account and drawn on a schedule the retiree sets), or a blend that changes over time. Each is a different proportion of three things - protection against outliving the money, flexibility, and what is left for heirs - and none delivers all three.

Full annuitization maximises longevity protection: the contract's guarantee of payments for life - a contractual guarantee of the issuing insurance company, subject to its claims-paying ability, and not a guarantee by the plan or any adviser - means the retiree cannot outlive that income. In exchange, access to the capital is gone, the payment schedule is fixed by the contract, and what remains at death is governed by the contract's survivor and period-certain terms rather than by a will. Systematic withdrawal is the mirror image: full access and full flexibility, and full exposure to the risk that the money runs out, to market sequence, and to the retiree's own withdrawal discipline.

Partial annuitization and blends sit between the two - for example, annuitizing enough to cover fixed living costs alongside Social Security while keeping the rest as an account for irregular spending, inflation, and legacy. That structure is common precisely because it is a compromise; it is not thereby the right answer for any given household, and the proportion is the entire question.

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Annuity mechanics: the forms and what each one decides

An annuity's form decides who is paid and for how long. Publication 575 describes annuities for a single life ("You receive definite amounts at regular intervals for life. The payments end at death"), joint and survivor annuities ("After they die, a second annuitant receives a definite amount at regular intervals for life"),fixed-period annuities (definite amounts "for a specified length of time"), and variable annuities (payments that "may vary in amount").

A single-life form generally pays more per month than a joint form on the same balance because it covers one life rather than two, with the actual difference set by the contract's actuarial terms - the first of several trades built into the form.

Three features recur in plan annuity contracts and each is a trade. A joint and survivor form continues payments toa spouse, at a survivor percentage set by the contract, in exchange for a lower starting payment. A period-certain feature pays for a minimum number of years to a beneficiary if the annuitant dies early, again for a lower starting payment. Some contracts offer payment-increase or inflation-related features; where they exist, they are contract terms to read closely, and a rising payment is paid for somewhere in the structure - usually in a lower starting amount.

Then there is irreversibility. Once anannuity begins paying, the choice of form, the survivor percentage, and the decision to annuitize at all typically cannot be undone; the contract decides what happens at death. Provider-specific terms - payout options, any liquidity or transfer restrictions on particular contracts, and how a balance can be moved before annuitization - are set out in the plan and contract documents, and this article deliberately does not summarise any provider's product rules. Read them, and ask the provider in writing about anything unclear.

Where TIAA fits - and where it does not

TIAA's role depends on the plan. Under the Kansas Board of Regents (KBOR) Mandatory and Voluntary Retirement Plans, TIAA is one of two providers - the other is Voya Financial - and the member chooses. Under Missouri's College and University Retirement Plan (CURP), TIAA is the third-party administrator. The University of Missouri System's plans are record kept by Fidelity, not TIAA. The decision structure in this article applies to all three; the contract terms do not.

For a KBOR or CURP participant, then, the annuitization options are those in the TIAA (or, for KBOR, Voya) contracts under the plan. For a University of Missouri System participant, they are whatever the plan offers through Fidelity - which may include an in-plan annuity option or may mean purchasing an annuity outside the plan with a rollover. In every case the questions are the same: which forms are offered, on what terms, and with what restrictions.

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Coordinating with Social Security and RMDs

Annuitization is one of three income decisions that interlock. Social Security can be claimed from 62 to 70: a benefit claimed at 62 with a full retirement age of 67 is reduced by 30%, and delayed retirement credits add 8% per year from full retirement age to 70.Required Minimum Distributions begin at 73 for those born 1951 through 1958 and75 for those born in 1960 or later. Each decision changes the job the others have to do.

The Social Security interaction is about the floor. A household that delays Social Security is funding the bridge years with its own money in exchange for a larger lifetime benefit that carries annual cost-of-living adjustments - which changes how much, if any, of the plan balance needs to be annuitized to reach the same fixed-cost coverage. Conversely, annuitizing early to fund the bridge years is a permanent decision made to solve a temporary problem, and the trade deserves to be seen in those terms. Missouri PSRS households face a different Social Security story; faculty in covered employment generally do not.

The RMD interaction is about which dollars count. Publication 575 addresses minimum distributions from an annuity plan: annuity payments under the plan generally count toward the requirement for the annuitized portion. How the plan treats any remaining, non-annuitized balance for RMD purposes - and how the two portions are reported - is a plan-administrator question this article does not answer. Annuity payments from a pre-tax balance are ordinary income; where there is after-tax cost in the contract, part of each payment may be excluded under the Simplified Method. The companion article on faculty retirement income tax covers the wider ordering picture.

A hypothetical illustration of two structures

What follows compares two hypothetical structures for one fictional household, constructed only to show how the trade-offs differ in kind. It names no balances, no payout amounts, no crediting rates, and no returns, because the point is the shape of each choice and not a number. Illustrative only; individual facts differ. This is not a projection of outcomes or a recommendation.

Structure A - full annuitization. A hypothetical professor retires at 66 and exchanges the entire institutional balance for a joint and survivor annuity with a spouse. Household income is fixed for both lives; Social Security is claimed at 67 alongside it. Nothing remains accessible for a large one-off expense, the income does not change with markets, and what passes to children at the second death is set by the contract, not by the household.

Structure B - partial annuitization with systematic withdrawal. The same hypothetical professor annuitizes only the portion that, together with Social Security claimed at 70, covers the household's fixed costs, and keeps the remainder as an account drawn on a schedule. The account carries the bridge years to 70, absorbs irregular spending, and passes to beneficiaries under the account's designations; in exchange, the household carries market and longevity exposure on that portion and must manage withdrawals for decades.

Neither structure is better in the abstract. A household with a second pension, a spouse with a strong Social Security record, or a defined legacy intention may weigh the same trade-offs entirely differently - which is why the proportion, the form, and the timing are questions for advice on actual facts.

The questions that decide the split

The decision usually turns on four factual questions, none of which an article can answer. What are the household's fixed costs, and how much of them do Social Security and any other lifetime income already cover? Who needs protecting after the first death, and for how long? What other income floors or reserves exist? And what do health and family longevity history suggest about the horizon?

On the last question, the Social Security Administration's average life expectancy for someone reaching 65 in 2026 is84.2 for men and 86.8 for women - averages that many people live well beyond. These questions are not criteria to be scored; they are the facts an adviser needs before the trade-offs in the table above can be applied to a real household. The answers, together with the plan's and provider's actual contract terms, are what turn a structure on paper into a decision.