How Trustworthy Are TIAA’s Predictions of Future Retirement Income?

Beacon Broadside
October 17, 2016

The ad from TIAA-CREF, the company that administers university and other retirement plans, which ran alongside my Yahoo inbox was too enticing to ignore. I clicked on the bait: “You could get 90% of your income and maintain your lifestyle in retirement.” The click brought me to another eye-catching claim: “On average, participants in TIAA-administered plans are on track to replace over 90% of their income in retirement.”

These were eye-catching claims because I had been in TIAA for over 35 years and would be replacing nowhere near 90% of my preretirement income. Nor would anyone else I knew who was in TIAA. They were also eye-catching because according to Federal Reserve data, the average family approaching retirement in 401(k)-like plans that TIAA and other financial service companies administer has only accumulated $104,000. That amount is only sufficient to generate an annual retirement income of $4,000 to $6,000, depending on how it is distributed–hardly enough to replace 90% of their preretirement income, that is, unless they were living on a sub poverty income of $7,000 or less.

How then could TIAA make such a claim? The advertisement included a footnote to its claim, literally in fine print. Being a researcher, I read the footnote.

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