Annuities: more liquid than you think
Annuities get a bad rap for locking up your money. But in-plan annuities allow people access to their money without losing sight of a secure retirement.
Time to read: 7 minutes
Key takeaways
- Many people think they lose control of their money when they contribute to an annuity. But most in-plan annuities offer immediate access or allow withdrawals over time.
- Annuities with delayed liquidity encourage disciplined, long-term saving—helping employees build lasting retirement income instead of spending down too quickly. Delayed liquidity also usually means higher guaranteed returns.
- Why this matters: Liquidity makes it easier for people to manage their savings, can help increase returns, and keep participants on track.
NOBODY LIKES BEING separated from their money, even for a minute. So when retirement savers can’t access their savings, there might be some questions. Perhaps you’ve gotten a few from employees on the topic of annuities. They want to know why some annuities in their retirement plans cannot be instantaneously converted to cash.
Concerns around liquidity feed some of the biggest misconceptions about annuities. Fact is, not all annuities are the same, and the annuities offered in retirement plans tend to be more liquid. (Definition of liquidity: how easily you can convert an investment into cash.) And when they’re not, they’re reinforcing why people save in a retirement plan in the first place.
First, some annuity basics: Unlike mutual funds, annuities are a type of insurance contract. Annuities are designed to help you grow your savings, and come with the option of turning that savings into monthly income over a specified period of time, including your lifetime or beyond. The annuities found in retirement plans are often fully liquid, just like other financial products on the plan menu. Some in-plan annuities have “delayed liquidity,” which means money can only be gradually withdrawn over a certain number of years. These less-liquid versions, however, come with advantages, usually higher interest rates. This setup is similar to another common financial product, a Certificate of Deposit, or CD, which is also a contract but with a bank instead of an insurance company.
Annuities in retirement plans tend to be more liquid.
TIAA has fully liquid and delayed liquidity versions of TIAA Traditional, our fixed annuity. Employee contributions are always fully liquid, but employer contributions tend to go into delayed liquidity contracts, which specify withdrawals must happen incrementally over either seven or 10 years. (This is for money that has not been annuitized; more on that later.) There is an upside to this restriction, however, that benefits participants.
Advantages of delayed liquidity
What are the benefits for participants? For starters, the delayed-liquidity contracts earn higher interest rates (again, like CDs, where longer maturities typically offer higher rates). As of June 2025, the interest rates for TIAA’s delayed-liquidity contracts were three-quarters of a percentage point higher than for fully liquid contracts.
Then there are the behavioral benefits. According to Brenda St. Arnaud, TIAA’s head of institutional annuities and product management, delayed liquidity encourages participants to turn some savings into guaranteed lifetime income—i.e., annuitizing—which can help ensure they won’t run out of money in retirement. “It reminds people the money is for their long-term retirement goals, which include having income they won’t outlive,” says St. Arnaud. Even for people who save in an annuity but then opt not to annuitize at retirement, delayed liquidity creates guardrails that require gradual withdrawals, instead of all at once. It also preserves their opportunity to annuitize down the road.
Both the forced discipline and the option to annuitize align with TIAA’s core mission of providing more secure retirements to everyone we serve—a goal shared by the universities, hospitals, and other organizations with whom we work. “Retirement savings is supposed to last you 30 years, so not every dollar in your retirement portfolio has to be liquid all the time,” says Benny Goodman, a vice president with TIAA Institute. “Delayed liquidity provides a gentle nudge toward making smarter retirement choices, and earning potentially higher returns in exchange.”
Delayed liquidity provides a gentle nudge toward making smarter retirement choices, and earning potentially higher returns in exchange.
Differences between full and delayed liquidity
Before going further, let’s explain what delayed liquidity means in the context of
Most money contributed by employees to TIAA Traditional today is fully liquid, which means it can be withdrawn or transferred before they would annuitize it. Outside the standard IRS penalties for early withdrawals, there’s no surrender fee or penalty. This includes TIAA Traditional in TIAA RetirePlus® (our target-date-like solution for default investments) and TIAA individual retirement accounts (IRAs).1
For workplace retirement plans set up since 2010, employee contributions to TIAA Traditional typically go into Retirement Choice Plus (RCP) and employer contributions go into Retirement Choice (RC). The distinction between the two is loosely analogous to different types of share classes for mutual funds, each with its own rules.
RCP contracts are fully liquid. If participants choose not to annuitize their RCP funds, they can get their retirement savings in a lump sum or shift some or all of it to another investment. The same is true for money in RCP’s predecessors, Supplemental Retirement Annuity and Group Supplemental Retirement Annuity, which are in employer retirement plans set up before 2010.2
RC contracts, the employer-contribution counterparts to RCP, are the ones with delayed liquidity. Generally speaking, all withdrawals and transfers from an RC contract must be made in 84 monthly installments if not annuitized. (Older contracts specify 10 annual payments if not annuitized.)
Delayed liquidity = higher interest
TIAA Traditional’s different contract interest rates mean more long-term savings compared with bonds. This example is based on contributing $100 a month to RC, RCP, and bond investments from June 2006 to June 2025.
Sources: TIAA, Bloomberg U.S. Aggregate Bond Index
The financial trade-off for delayed liquidity: higher interest rates. For money contributed in June 2025, the interest rate for TIAA Traditional’s RC contracts was 5.5% vs. 4.75% for RCP.3 Why is RC’s interest rate higher? Because funds in delayed liquidity contracts are held for longer, the portfolio managers in charge of TIAA’s General Account (GA) have the flexibility to invest in longer-term investments and
For participants, the potential difference adds up over time: From RCP’s launch on June 1, 2006, through June 30, 2025, accounts in RC contracts earned 8% more than RCP contracts. (For the record, RCP’s returns are quite competitive compared to other fixed income products: The ending balance in RCP would be 14% more than the same amount invested in the Bloomberg U.S. Aggregate Bond Index over the same time period.5)
If you choose to annuitize the RC contract (i.e., the money your employer contributes), you get the same potential benefit. Your income would be 8% more compared to annuitizing what’s in your RCP contract (what you save yourself).6
The benefits of a delayed-liquidity annuity
Even as delayed liquidity can work to your benefit, it's also important to know that delayed liquidity affects only a small portion of the typical TIAA participant’s total retirement savings—usually no more than 15%, according to St. Arnaud.7 Thus, it’s fairly easy for most clients to fit that portion of their savings into their broader financial plans.
For clients who haven’t saved enough or are really worried they could outlive their money, Melody Evans, a financial advisor with TIAA Wealth Management, generally advises they annuitize as much of TIAA Traditional as possible, regardless of contract type. For a hypothetical 67-year-old, the initial payout rate on annuitization is 7.8% or $7,800 a year for every $100,000 annuitized.8 That’s nearly twice as much income as the first-year $4,000 she’d get using the so-called
Delayed liquidity only affects a small portion of a typical retiree's savings—usually no more than 15%.
“We’re just trying to generate as much income as possible,” says Evans. “That’s where the annuity can be really helpful. We can squeeze more water out of the sponge, so to speak."
For clients with more retirement savings, Evans suggests a more targeted strategy. She advises they annuitize the delayed-liquidity RC contracts, while keeping the RCP money liquid and using it either as a retirement rainy-day fund (which can be used to annuitize more later if needed) or for discretionary expenses such as vacations and gifts. One reason: Every dollar contributed to a delayed-liquidity contract has grown more and thus will provide more income.
“It's difficult for people who just stopped working to budget what life’s going to cost them in retirement. So get a very good sense of your spending needs before annuitizing,” Evans says. “Once you know your fixed expenses—things like property taxes or what it costs to heat and cool your home—then we can see how well money saved in a delayed liquidity contract covers them."
Evans’ thinking: When clients decide to turn some of their TIAA Traditional into
“Most people like knowing the income they have coming in will cover their fixed expenses regardless of what the stock and bond markets are doing,” says Evans. “It gives them peace of mind. Then we can use the liquid TIAA Traditional savings or variable investments to cover expenses that are more discretionary or variable.”
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1 Income and withdrawal options are subject to the terms of the employer plan. Withdrawals prior to age 59½ may be subject to a 10% federal tax penalty, in addition to ordinary income tax.
2 Refers to installments under TIAA Retirement Annuity (RA), Group Retirement Annuity (GRA), and Retirement Choice (RC) contracts. A lump-sum withdrawal within 120 days after termination with a 2.5% surrender charge under GRA and RC contracts is not paid in installments. Any guarantees under annuities issued by TIAA are subject to TIAA’s claims-paying ability. TIAA Traditional is a guaranteed insurance contract and not an investment for federal securities law purposes.
3 This interest rate is the amount credited on contributions and principal for a specified time period and guaranteed through the next annual renewal date of March 1.
4 Participants don’t invest in the TIAA General Account portfolio, which supports the minimum guaranteed returns, additional amounts, and payout obligations under the TIAA Traditional annuity. The TIAA General Account is an insurance company account and is not available to investors as an investment.
5 For more information on the differences between fixed annuities and bonds, please see below.
6 Converting some or all of your savings to income benefits (referred to as “annuitization”) is a permanent decision. Once income benefit payments have begun, you are unable to change to another option.
7 Based on the total dollar amount in the RC contract and other delayed liquidity contracts as of June 2025.
8 Reflects the July 2025 payout rate for a single-life annuity with a 10-year guarantee period.
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.
Not all contracts are available in all states or currently issued.
Restrictions on TIAA Traditional transfers and withdrawals can affect the liquidity of the product.
TIAA Traditional is a fixed annuity issued by Teachers Insurance and Annuity Association of America (TIAA), New York, NY.
TIAA RetirePlus® model portfolios are asset allocation recommendations developed in one of three ways, depending on your plan structure: i) by your plan sponsor, ii) by your plan sponsor in consultation with consultants and other investment advisors designated by the plan sponsor, or iii) exclusively by consultants and other investment advisors selected by your plan sponsor whereby assets are allocated to underlying mutual funds and annuities that are permissible investments under the plan. Model-based accounts will be managed on the basis of the plan participant’s personal financial situation and investment objectives (for example, taking into account factors such as participant age and risk capacity as determined by a risk tolerance questionnaire).
No registration under the Investment Company Act, the Securities Act or state securities laws – a model is not a mutual fund or other type of security and will not be registered with the Securities and Exchange Commission as an investment company under the Investment Company Act of 1940, as amended, and no units or shares of the model will be registered under the Securities Act of 1933, as amended, nor will they be registered with any state securities regulator. Accordingly, the model is not subject to compliance with the requirements of such acts, nor may plan participants investing in underlying investments based on the model avail themselves of the protections thereunder, except to the extent that one or more underlying investments or interests therein are registered under such acts.
TIAA RetirePlus Select® and TIAA RetirePlus Pro® are administered by Teachers Insurance and Annuity Association of America (“TIAA”) as plan recordkeeper. Transactions in the underlying investments invested in, based on the models, on behalf of the plan participants are executed through TIAA-CREF Individual & Institutional Services, LLC.
More information about TIAA RetirePlus model portfolios can be found at tiaa.org/public/plansponsors/investment-solutions/custom-default-options.
TIAA RetirePlus®, TIAA RetirePlus Pro®, and TIAA RetirePlus Select® are registered trademarks of Teachers Insurance and Annuity Association of America.
Fixed annuities and bonds are distinct financial products. Both provide reliable credited interest and income, but may not protect against inflation. A fixed annuity is an insurance contract issued by an insurance company offering tax-deferred guaranteed interest accumulation, principal protection, guaranteed income for a specific period or for life to protect against longevity risk, and may include a death benefit. Guarantees are subject to the financial strength of the insurer. Some fixed annuities are complex, with additional benefits available for an extra cost, and have liquidity restrictions or charges. The TIAA Traditional fixed annuity expenses are reflected in its credited rate - there are no additional fees and charges. TIAA may increase income throughout retirement. A bond is a market-based investment issued for a specified duration that is more liquid than most annuities, has transparent pricing/yield data, disclosed expenses, and is subject to credit risk of the issuer. There is a wide variety of credit qualities and maturities available and flexibility in choice of issuer, maturity, and duration. Principal is usually returned upon maturity, but bond value can fluctuate and be subject to volatility risk due to interest rate changes, market sentiment and bond duration sensitivity. Income from some bonds may be tax-exempt. Bonds do not protect against the risk of outliving your savings and include risk you cannot reinvest at similar/better rates when a bond matures. Bonds have no death benefit but can be passed directly to heirs with a step-up basis.
The Bloomberg U.S. Aggregate Bond Index reflects the average experience of only the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market. Over the long-term, the credited interest rates of TIAA Traditional have been similar to returns of this Index, with less volatility due to the diversified investments of TIAA’s large general account which support TIAA’s fixed annuity credited rate, and which invests in nearly every type of portfolio asset available in the market, not just the bond market. You cannot invest in an index; nor can you invest in TIAA’s general account.
Annuity contracts may contain terms for keeping them in force. A TIAA financial consultant can provide you with costs and complete details.
TIAA Traditional is a fixed an annuity issued by Teachers Insurance and Annuity Association of America (TIAA), New York, NY: 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.