Variable annuities not so bad?


W

Will Trice

In the past, Moshe Milevsky has been an outspoken critic of variable
annuities. He's singing a different tune now. What changes in VAs do
you think changed his mind, and is he right?

From
http://money.cnn.com/2008/09/05/retirement/minds_money.moneymag/index.htm

-----------------
If today's variable annuities looked like the product of the same name
10 years ago, I'd still be opposed to them. They used to promise to make
up losses only if you died while the market was down.

But the new ones deliver benefits you can claim while you're still
alive. And the protection they provide against market losses would be
very expensive if you tried to buy it some other way - say, in the
options market.

So I used to be something of a crusader against variable annuities, but
now I fall back on what the economist John Maynard Keynes said when
someone challenged him for supposedly flip-flopping. "When the facts
change," he said, "I change my mind. What do you do, sir?"
------------------

-Will

william dot trice at ngc dot com

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J

Jean Keener

Will Trice said:
In the past, Moshe Milevsky has been an outspoken critic of variable
annuities. He's singing a different tune now. What changes in VAs do you
think changed his mind, and is he right?

From
http://money.cnn.com/2008/09/05/retirement/minds_money.moneymag/index.htm
I suspect he's talking improving options of minimum payments for life and
new lower cost options. Vanguard, Fidelity, Ameritas, TIAA Cref are all
offering lower cost variable annuities. It doesn't mean a VA now suddenly
makes sense for someone's entire portfolio or in every situation, but using
annuities for 10% - 30% of someone's portfolio can make sense some of the
time. Some individuals in high-liability professions are also choosing them
more because a VA may provide asset protection in some states. That said,
you still need to be on the look-out for excessive commissions, lower
returns, pay-out delays, surrender fees and long lock-in periods with a lot
of products on the market.

Jean Keener
www.keenerfinancial.com
Keller, TX

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Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
to keep the conversations on-topic for financial planning. Other posting
guidelines include a request for brevity and another for trimming posts to
which we respond. For all of the other tips and suggestions, see "FROM THE
MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the
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M

Mark Freeland

Jean Keener said:
I suspect he's talking improving options of minimum payments for life and
new lower cost options.
You are correct that he's talking about the guaranted life benefit riders.
Here's a link to a google-cached version of a post I made on the subject at
Fundalarm:
http://64.233.169.104/search?q=cache:_GBBrZiTYmAJ:66.223.18.76/wwwboard/messages/234094.html

(In case that doesn't work, here's the link I included in that post to a
relevant working paper by Milevsky and Kyrychenco, "Asset Allocation within
Variable Annuities: The Impact of Guarantees", Version June 28, 2007"
http://www.ifid.ca/pdf_workingpapers/WP2007JUNE28_AAVA.pdf )

As to whether he's right, he's concerned that the riders are priced too low,
not too high (see links above)

Mark Freeland
(e-mail address removed)

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guidelines include a request for brevity and another for trimming posts to
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R

rick++

I know someone who baought one three years wrapped around
a lifecycle account. The overheads of both accounts is .3%, less
than some managed mutual funds.
However, it is below purchase value now and the investor wont
be able to take a loss on that should they withdraw this year.
On the positive side there is no income tax or early withdrawal
penalty
on widthdrawal of principal only.

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Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
to keep the conversations on-topic for financial planning. Other posting
guidelines include a request for brevity and another for trimming posts to
which we respond. For all of the other tips and suggestions, see "FROM THE
MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the
Newsgroup.
 

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