TIAA Traditional: How Does it Work?

TIAA Traditional was the original investment offered by TIAA when it was founded in 1918 as a retirement provider for teachers and professors.  While TIAA has evolved into an enormous financial services company, participants in TIAA’s retirement plan still love the guaranteed rate and safety offered by TIAA Traditional…and, they should.  TIAA Traditional is a great diversifier when used correctly with other asset classes. With a complex system of interest rates and possible distribution restrictions, investors in TIAA Traditional should understand the intricacies to fully feel comfortable with this annuity as part of a portfolio.

Understanding TIAA Traditional

TIAA Traditional is not an investment under federal securities law.  It is an annuity offered through a contract with TIAA insurance company.  Due to this, no prospectus is required or issued.  This makes it hard for investors to truly understand the TIAA Traditional Annuity – yes, it is an annuity. TIAA Traditional offers a guaranteed rate and then pays dividends on top of the guarantee.  Dividends have been paid above and beyond the guaranteed rate since 1948 – a more than substantial track record. How does TIAA accomplish this? If we peel back the curtain behind the massive TIAA Traditional annuity, there is a vast amount of investments including farmland, real estate, bonds, and much more.  In order to place money in these long-term investments, TIAA has restrictions on many of the contracts that offer TIAA Traditional.  It is important for investors to understand these restrictions.  A list of these restrictions and the availability to take funds out of TIAA Traditional can be found here.

Vintages and Impact

Investors earn an interest rate according to when money was placed into TIAA Traditional.  TIAA can change the interest rate for new money placed in TIAA Traditional on a monthly basis.  Periods of time with the same interest rates are called vintages.  New money into TIAA Traditional can come in the form of contributions or transfers.  Also, interest earned from TIAA Traditional “rolls forward” into the new vintages.  With this in mind, each investor in TIAA Traditional has a different interest rate according to the weighted average of the vintages (when money was placed into TIAA Traditional).  Each investor will also have an accumulation in every vintage from the time money was contributed into TIAA Traditional.  Please note, TIAA-CREF also may change the interest rates of past vintages annually the end of each February.  The net impact of this is a lag with interest rates.  In a rising interest rate environment, TIAA Traditional investors will find that their interest rate will lag the current interest rate.  The opposite is true in a declining interest rate environment.  TIAA Traditional investors will find that they are receiving more than the prevailing interest rates.


TIAA Traditional provides stability and diversification to a portfolio which is unique to TIAA participants. It is extremely important for TIAA participants to understand the restrictions associated with TIAA Traditional as it relates to the type of contract. Along with this, investors should have a basic understanding of how TIAA Traditional reacts in varying interest rate environments. Used correctly, TIAA is an asset and great diversifier available only to TIAA participants.

*Note, this article addresses the accumulation phase of TIAA Traditional.

Kevin McNab

This article is written by Kevin J. McNab. Kevin is President of ACE Wealth Partners, LLC and is a CFP®, ChFC®, and CRPC®. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by ACE Wealth Partners, LLC unless a client service agreement is in place. If you have any questions regarding this Blog Post, please Contact Us. Please read our website DISCLOSURE carefully for additional information.