TIAA-CREF Is the Pension Plan for College Professors

Essay

TIAA-CREF is the pension plan for college professors. Professors can direct their contributions entirely to the TIAA part of the plan which offers a guaranteed, but generally relatively low, return or entirely to the CREF part of the plan, which invests in the stock market, or they can divide their contributions between the two parts of the plan. Funds invested in the CREF part of the plan will on average earn a higher rate of return than funds invested in the TIAA part of the plan, but the return is not guaranteed and in some years the value of funds invested in the CREF part of the plan will decline. How would you expect each of the following professors to divide his or her contributions between the TIAA and CREF parts of the plan: (a) a 28-year-old professor just beginning her career; (b) a 58-year-old professor who is about 10 years from retirement; and (c) a 68-year-old professor on the verge of retirement?