How to turn retirement savings into more guaranteed income

The TIAA Annuity Payout AdvantageSM offers even more income in 2025—33% more in the first year of retirement than from a 4% withdrawal alone.

4.5-min read

Summary

  • TIAA’s flagship fixed annuity boasts a 33% Annuity Payout Advantage in 2025, meaning a retiree who converted one-third of their savings into guaranteed income would receive significantly more first-year retirement income than a retiree who followed the 4% withdrawal rule alone.
  • For a 67-year-old with $1 million in savings, this advantage translates to an additional $13,154 in first-year cash flow ($1,096 monthly) compared with $40,000 to spend from a 4% withdrawal alone.
  • Long-term TIAA Traditional contributors have historically received even more through the TIAA Loyalty BonusSM, which on average has boosted the starting payout for 30-year contributors by 15%.

Boosting retirement income by 33%

Financial news in 2025 has been vexing for almost everyone who’s retired or nearing retirement. Tariff turmoil has stoked fears of stagflation, leading to declines in prices of both stocks and bonds. Market turmoil has been especially worrisome for older investors, who don’t know if they’ll have time to recoup losses. They may be wondering if they’ll still be able to afford the lifestyle they’d hoped for once they stop working.

But there are some guarantees amid the chaos: Converting even a modest portion of your retirement savings to a TIAA fixed annuity ensures guaranteed income and can deliver more spending power in retirement than savings alone. We call this extra spending power the TIAA Annuity Payout AdvantageSM,1 and in 2025, that advantage is 33%—up one percentage point from a year ago.

Last year, we introduced the TIAA Annuity Payout Advantage in the spirit of simplifying one of life’s most daunting financial decisions—how much to withdraw from your savings each year without running out of money in retirement.

The TIAA Annuity Payout Advantage is a metric, based on real inputs and realistic assumptions, that illustrates the first-year retirement income benefits of a TIAA fixed annuity. In percentage terms, it measures the difference between what a first-year, 67-year-old retiree can spend by withdrawing 4% per year alone versus what they could get by converting a third of their savings into lifetime income with the TIAA Traditional2 fixed annuity and then applying the 4% rule to the remainder of their savings. (The 4% rule3 is a popular retirement spending formula for how much savers can withdraw every year in retirement.)

More money, more spending power

For a 67-year-old with $1 million in total savings, the 33% TIAA Annuity Payout Advantage is the difference between being able to spend $53,154 in their first year of retirement versus just $40,000. In other words, it works out to an extra $13,154 for the year—or $1,096 more per month. That’s concert tickets, vacations or gifts for grandkids that might otherwise be out of reach.

TIAA launched the metric with a promise to update it each year, and we knew the result would fluctuate along with the economic environment. Our 2025 number is one tick higher from 2024’s 32% and remains squarely within its historical range of 16% to 44% since 1994, which is the year research on the 4% rule was first published.4

“A ton of information gets baked into this number,” says Benny Goodman, vice president with the TIAA Institute. “Understanding that you can get more income—guaranteed income—is a huge help when planning how to fund your future lifestyle, or even when to retire.”

What it means to annuitize

Quick refresher: A fixed annuity is an agreement that comes with a guaranteed minimum interest rate backed by the financial strength of the issuer. If your employer uses TIAA as part of its workplace retirement plan, you can direct a portion of your paycheck into the TIAA Traditional fixed annuity in your saving years like any other investment option in the plan, except a fixed annuity guarantees steady growth, regardless of the market. There’s never an obligation to convert this balance into guaranteed income (in other words, annuitize). 

If and when you opt to annuitize and receive retirement checks, the agreement comes with certain income options or guarantees, including a lifetime income option. Other decisions involve how many years to guarantee payments and who is covered (for just you, or a spouse too?). Your specific payout is determined in part by these choices. Younger people typically receive lower payouts than older people, and couples get lower payouts than single people. To calculate the TIAA Annuity Payout Advantage, we assume a 67-year-old person picks a single-life annuity with payments guaranteed for a minimum of 10 years, a popular choice.  

How much to annuitize is a personal decision, and every situation is different. Many people consider a range of 10% to 40% of savings depending on income needs and desire for potential growth in the rest of the investment portfolio. We chose one-third of savings as our baseline assumption because it’s a common proportion TIAA sees. It could be higher or lower depending on whether someone has pension income or how much of their living expenses they expect Social Security to cover. Annuitizing is a big decision and, once income payments begin, you can’t change your options.

But wait, there’s more

This year’s 33% Annuity Payout Advantage is the baseline: It would be available to any 67-year-old retiree who transferred money into TIAA Traditional—either within a workplace retirement account or via a TIAA IRA—and began taking payments in March 2025. This action is akin to purchasing a single premium immediate annuity (SPIA) outside your retirement plan or TIAA IRA. But 33% is only the starting payout. For long-time TIAA Traditional account holders, the payout rate can be significantly higher. We call this exclusive feature the TIAA Loyalty BonusSM. 

Historically, the longer someone has saved in TIAA Traditional, the larger their Loyalty Bonus has been. The Loyalty Bonus isn’t guaranteed, but someone who’s had money in TIAA Traditional for the previous 30 years has received a 15% larger payout upon annuitizing. For those who’ve had money in TIAA Traditional for 5, 10 or 20 years, the extra payout has been 3%, 5% and 9%, respectively.5

This can be significant: Applying the historical average for the 30-year Loyalty Bonus to the March 2025 payout rate, a 67-year-old annuitant with $1 million in savings could receive $57,127 per year compared with the $40,000 they would get by making 4% withdrawals alone. Instead of a 33% Annuity Payout Advantage, they’re getting 43% more first-year income.

Getting a higher annuity payout in retirement through our Loyalty Bonus has major implications for savers—someone’s ambitious retirement income goals could still be met, even if they haven’t saved as much as they’d hoped. 

Consider a 67-year-old targeting $40,000 in first-year retirement income (not counting Social Security). Using the 4% rule, they’d need $1 million in savings (since 4% of $1 million is $40,000). But if the same person annuitized one-third of their savings and received the historical 30-year Loyalty Bonus, they'd need only $700,200 in savings to generate the same $40,000 in the first year. 

“It might sound like alchemy, but it’s simple math,” says TIAA’s Goodman. “Earning more retirement income means you can potentially still afford the lifestyle you wanted even if you finish working with less savings than you planned on.”

Important note

Not everyone will save a million dollars. But everyone can get an income advantage with TIAA Traditional. This table shows how it works at different savings levels.

TIAA generally recommends retirees cover two-thirds of their expenses with lifetime income sources. Social Security isn't enough for most people. The TIAA Annuity Payout Advantage not only can give retirees more money to spend, but it covers more expenses with guaranteed income.

Table is hypothetical and for illustrative purposes only. Past performance isn’t a guarantee of future results. TIAA Annuity Payout Advantage: Calculation uses the TIAA Traditional “new money” income rate for a single-life annuity with a 10-year guarantee period at age 67 using TIAA’s standard payment method beginning income on Mar. 1, 2025 (7.9462%). Calculation assumes annuitization of one-third of total savings and 4% withdrawal of remaining two-thirds of total savings. Loyalty Bonus: In this table, TIAA Loyalty Bonus results are based on historical averages for retirement dates each month from Jan. 1, 1995, to Jan. 1, 2025, comparing “long-term contributors” vs. “new contributors” to highlight the difference in initial income. The long-term contributors in this table represent participants who’ve accumulated savings in TIAA Traditional for 30 years. Social Security: The U.S. Social Security Administration estimated the average monthly Social Security retirement benefit for January 2025 is $1,976, or $23,712 for the year.

Annuity contracts may contain terms for keeping them in force. We can provide you with costs and complete details.

TIAA Traditional is a fixed an annuity issued by TIAA, New York, NY, 10017: Form series including but not limited to: 1000.24; G-1000.4; IGRS-01-84-ACC; IGRSP-01-84-ACC; 6008.8. Not all contracts are available in all states or currently issued.

We’re here to help.

Talk to your TIAA Wealth Management advisor if you need help understanding annuitization or determining how much lifetime income you may need. Don’t yet have an advisor? Schedule an appointment.

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*TIAA Traditional is issued by Teachers Insurance and Annuity Association of America (TIAA), New York, NY.

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1The 2025 Annuity Payout Advantage is hypothetical and for illustrative purposes only. The Annuity Payout Advantage calculation uses the TIAA Traditional “new money” income rate for a single-life annuity (SLA) with a 10-year guarantee period at age 67 using TIAA’s standard payment method beginning income on March 1, 2025. Individual results may vary. Example: Participants A and B both are aged 67 and had retirement savings balances of $1 million as of March 1, 2025. Participant A withdrew 4% ($40,000) in year 1. Participant B made a one-time transfer to TIAA Traditional and selected an SLA with a guarantee period of 10 years, starting on March 1, 2025. Participant B received an income rate of 7.9462% ($26,487) on $333,333 annuitized in year 1; Participant B also withdrew 4% ($26,667) from the $666,667 remaining savings balance in year 1. The result ($53,154) is initial income for Participant B in year 1 that is 33% higher than the initial income of Participant A ($40,000). Income rates for TIAA Traditional annuitizations are subject to change monthly. TIAA Traditional Annuity income benefits include guaranteed amounts plus additional amounts as may be declared on a year-by-year basis by the TIAA Board of Trustees. The additional amounts, when declared, remain in effect through the "declaration year," which begins each January 1 for payout annuities. Additional amounts are not guaranteed beyond the period for which they are declared. TIAA has paid more in lifetime income than its guaranteed minimum amount every year since 1949. Over the past 30 years, TIAA has given 18 income increases to existing annuitants (as of January 2025). Past performance is not a guarantee of future results.

2TIAA Traditional is issued by Teachers Insurance and Annuity Association of America (TIAA), New York, NY.; The annuity in the example uses an option that guarantees payments for at least 10 years, even if the primary beneficiary dies prematurely.

3Investopoedia, What Is the 4% Rule for Withdrawals in Retirement?, June 11, 2024, https://www.investopedia.com/terms/f/four-percent-rule.asp, Accessed April 30, 2025.

4Bengen, William P. 1994. “Determining Withdrawal Rates Using Historical Data.” Journal of Financial Planning 7, 4 (October): 171-180.

5Results based on averages for retirement dates each month from 1/1/1995 to 1/1/2025, comparing “long-term contributors” vs. “new contributors” to highlight the difference in initial income. The long-term contributor represents a participant who has accumulated savings in TIAA Traditional. The new contributor represents a participant who has accumulated savings outside of TIAA Traditional. The new contributor annuitizes the same dollar amount as a long-term contributor when both participants reach retirement. The new contributor deposits their savings into TIAA Traditional the day before annuity payments begin, when both the new and long-term contributors are age 67. Both select a single-life annuity with a 10-year guaranteed period. 361 individual retirement month cohorts were analyzed. The long-term contributor assumes level monthly premiums over the stated investment periods. Percentage represents the average difference in initial income over each of the time periods for a long-term contributor vs. a new contributor.

This material is for informational or educational purposes only and is not fiduciary investment advice, or a securities, investment strategy, or insurance product recommendation. This material does not consider an individual’s own objectives or circumstances which should be the basis of any investment decision.

Any guarantees under annuities issued by TIAA are subject to TIAA’s claims-paying ability.

Investment products may be subject to market and other risk factors. See the applicable product literature or visit TIAA.org for details.

The TIAA General Account is an insurance company account and is not available to investors as an investment.

Investment, insurance and annuity products are not FDIC insured, are not bank guaranteed, are not deposits, are not insured by any federal government agency, are not a condition to any banking service or activity, and may lose value.

Annuity contracts may contain terms for keeping them in force. We can provide you with costs and complete details.

TIAA Institute is a division of TIAA.

Lifetime income payments from TIAA Traditional may include a TIAA Loyalty BonusSM which is discretionary and determined annually.

TIAA-CREF Individual & Institutional Services, LLC, Member FINRA, distributes securities products.

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