The U-M retirement savings plans provide an important source of income in retirement in addition to Social Security and your personal savings. U-M does not have a pension plan. Here is a summary of your retirement income options.
TIAA Income Options
A lifetime annuity is the only income option that is guaranteed to last as long as you live. You can start a TIAA one-life or two-life annuity at any age once you have terminated employment with the University of Michigan. If you are on phased retirement, you may start a lifetime annuity of up to 99% of accumulations. A lifetime annuity may be appropriate if you want a regular income to replace your salary once you have retired. It is also an irreversible arrangement. Once you begin receiving payments, you can’t stop them.
With a one-life annuity, you receive an income for as long as you live. At your death, payments can continue to a designated beneficiary if you include a guaranteed period.
This option pays lifetime income to you and an annuity partner (spouse or any other person you name) for as long as either of you live. At the death of both you and your annuity partner, payments can continue to your designated beneficiary if you include a guaranteed period. TIAA offers three kinds of two-life annuities. All three are available to you if your spouse is your annuity partner; otherwise, your annuity partner’s age might restrict the use of some options.
Full Benefits to Survivor
You and your annuity partner receive lifetime income. The income to your survivor doesn't change at your death. This is the only option that doesn't reduce income for the survivor when the annuitant dies. However, since it pays more to the surviving partner than the other two options listed below, the income payments are smaller.
Half Benefit to Second Annuitant
You and your annuity partner receive lifetime income. If your annuity partner dies first, your income remains the same. If you die first, payments to your annuity partner continue at half the amount.
Two-Thirds Benefit to Survivor
You and your annuity partner receive lifetime income. At the time of your death or your annuity partner’s death, income drops to two-thirds of the amount to the survivor. This is the only two-life annuity option that reduces your monthly income if your annuity partner dies first.
With a guaranteed period, if you die (under the one-life option) or both you and your annuity partner die (under the two-life option) during the guaranteed period, income continues to your beneficiary for the remainder of the period. If you and your partner both outlive the guaranteed period, no payments will be made to your beneficiaries when you and your annuity partner die. TIAA offers guaranteed periods of 10, 15, or 20 years. In some cases, federal tax law affects your choice of a guaranteed period. You are generally not allowed to select a period that would continue payments beyond your life expectancy, based on the Internal Revenue Service’s (IRS) mortality tables.
TIAA Traditional Transfer Payout Annuity
You may start receiving income from your contributions and earnings under the TIAA Traditional Transfer Payout Annuity at any age once you have terminated employment. University contributions and earnings may be turned into income once you have terminated employment and have reached age 55 or older or at any age if you have officially retired from U-M.
This option allows you to take distributions from TIAA Traditional accumulations in the Basic Retirement Plan in annual installments over 9 years. Each year, you’ll receive about 10% of the total amount you chose to withdraw. In addition, you can convert the value of your remaining payments to lifetime annuity income at any time. If you die while receiving income under the TIAA Traditional Transfer Payout Annuity, your beneficiaries can either receive the income for the rest of the period or take the commuted (discounted) value of the remaining payments in a lump sum.
TIAA Traditional Interest Payment Retirement Option (IPRO)
This option provides monthly payments drawn only from the current interest credited to your TIAA Traditional accumulation in the Basic Retirement Plan. Since only the interest is paid to you, your accumulation remains untouched. This option is available to those who are age 55 to 69½ and have terminated employment, retired, or employees on phased retirement. After 69½, you can choose it only if you are on phased retirement and plan to continue working for at least another year. In general, you must convert from the interest-only option to a lifetime annuity, a fixed-period annuity, or to the Minimum Distribution Option by April 1 following the year you turn 72 (70½ if you are 70½ by December 31, 2019) — if you are no longer working — or following the year you retire or terminate, whichever is later.
You may begin receiving income from your contributions and earnings under a fixed-period annuity at any age once you have terminated employment. University contributions and earnings may be turned into income once you have terminated employment and have reached age 55 or older or at any age if you have officially retired from U-M.
A fixed-period annuity makes regular payments over a specific number of years (generally 2-30 years), which you choose in advance. By the end of the period, you will have received all of your principal and any earnings. If you live beyond this period, your annuity payments will not continue. If you die during the payment period, payments continue to your beneficiary. Fixed-period annuity payments of less than 10 years are subject to 20% federal tax withholding and may also be rolled over.
TIAA and Fidelity Income Options
You may elect a cash withdrawal of your contributions and earnings at any age once you have terminated employment. The university’s contributions and earnings are available for a cash withdrawal at age 55 or older. Faculty and staff who have officially retired from the University may take a withdrawal of all earnings and contributions regardless of age. There are three types of cash withdrawals:
Single-sum (partial) cash withdrawal
You withdrawal a portion of your accumulations and allow the balance to remain in the account to preserve its tax-deferred status. You may take further withdrawals as your needs indicate or convert the balance into one of the other income options.
Lump sum (total) cash withdrawal
If eligible, you may elect to receive your entire account balance in a single, lump sum payment. However, this may dramatically increase your tax liability and there will be no further income benefits available to you from the plan.
Systematic Cash Withdrawals
This allows you to create your own income plan by specifying the amount and frequency of payment (monthly, quarterly, annually, etc.). Payments continue until:
You tell TIAA or Fidelity to stop;
You change the amount of the payments;
You convert the remaining accumulation to a lifetime annuity or to another income option such as minimum distribution;
Your money (including earnings) runs out;
You die (if you die while receiving systematic withdrawals, the remainder goes to your beneficiary).
You can change your request at any time, and there's no limit as to the number of times you can change a systematic withdrawal that's already under way. Plus, your remaining accumulations remain tax-deferred and continue to experience the investment returns of your chosen funds. It also allows you to postpone final decisions about annuitization.
Required Minimum Distributions
The IRS requires that you begin receiving distributions from your retirement plan by April 1 of the calendar year following the calendar year you reach age age 72 (age 70½ if you reached age 70½ by December 31, 2019) once retired or terminated. If you are already over age 72 (age 70½, if applicable) when you retire or terminate, then you must take a distribution by April 1 of the following year. Any 403(b) accumulations that accrued as of December 31, 1986 are grandfathered under a special rule. Distributions of these amounts do not have to begin until age 75 once retired or terminated. This special rule does not apply to 401(a) or 457(b) accumulations.
When you elect this option, TIAA and Fidelity will calculate and pay you the minimum amount of income you are legally required to take each year. The balance of your accumulations remains tax-deferred and continue to experience the investment returns of your chosen funds. This plan allows you to meet federal minimum distribution requirements without having to request payments each year or start a lifetime annuity. This may be an appropriate income plan if want to preserve your accumulations as long as possible and maximize benefits for your beneficiaries.