BMS wrote:
- quote -

Maybe you should check out these:

http://www.dallasnews.com/sharedcont....2c86e1eb.html

http://www.dallasnews.com/sharedcont....98b11dec.html

Dave

"jIM" <noreplysoccer[at]hotmail.com> writes:

- quote -

Since variable annuities are invested in things
which may go up or down in value, a typical death
benefit guarantees that the account will have at least
a certain value should the holder die before he
annuitizes the value of his contract.

- quote -

An immediate annuity pays a given (or, potentially variable)
amount for any of a variety of terms in time (until the
owner dies, until the owner *and* spouse die, a minimum
of 10 years or until the owner dies, etc. etc.).

A deferred annuity is a product that one keeps adding money
to (or just puts money into and leaves) so that the money
can grow - tax deferred - until such a time as one "annuitizes"
it by converting it into that payout stage.

VAs may be immediate or deferred, but in the context of
talking about them here, the intention is as a deferred
annuity to supplement other tax-favored forms of retirement
savings.

- quote -

All annuities are forms of insurance product.

Deferred VAs usually have a whole slew of options that
may be tacked onto them - for various fees - and the
most common form of VA includes a death benefit.

The interesting thing about the Fidelity one I mentioned
earler is that it has pretty much no bells or whistles
at all and as a result may be sold by Fido with extraordinarily
low (for an insurance product) expenses - 25 basis points.

Most VAs have a death benefit and are subject to substantial
fees should the by surrendered (ie. cashed in or exchanged
tax-free for another annuity).

It's worth a few minutes to hit Google for "variable annuity
death benefit" - the first severallinks that came up were
some good reading. Fidelity has some interesting reading,
too and, of course, there are other places which sell annuities
with a much wider range of options than Fidelity's low-cost
offering. Vanguard, for easy example, lists three different
variations of death benefit available for their VAs (and
expense ratios associated with them of 0.20, 0.25 and 0.32%)



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BMS wrote:
- quote -

That's an old (1999) article that's gotten a lot of criticism for the
assumptions Huggard used in the study, which favor VAs. Eg:
http://finance.baylor.edu/reichenstein/research.htm

I have this link handy because oddly this (1999) study came up just
yesterday on financial planning magazine's discussion boards. Hmm.

Huggard's is just one article of course...more generally the studies
showing VAs with clear advantages for long term accumulation often
assume a high tax bracket for the VA holder, and make comparisons to
awful, high-turnover mutual funds that only a complete nitwit would buy
and hold for 20+ years. The flip side of this is that if you have a high
tax bracket and use high-turnover mutual funds (or are a nitwit?) you
might end up with more money at the end of the pipe by holding that
stuff in a VA.

Especially interesting are things like that Fidelity VA where the annual
cost of the contract is low. That's always a problem with VAs...the
argument goes, "sure you get tax deferral but the cost drag of the
contract is bigger than the tax advantage."

But let's say that cost is low, and you have a lot of "long-term" money
in taxable accounts, and you're going to put 5% or 10% of it in REITs.
Make it simple: a Vanguard REIT index fund. You can make a case for
holding at least part of the REIT allocation in a VA instead of in the
taxable account. REITs by nature spit out a bunch of taxable income each
year, and you don't get the benefit of the 15% tax rate on dividends
because REIT dividends don't qualify. If you hold long enough it could
pay off to hold that REIT fund in a VA where the dividends are
reinvested in full, i.e., without being taxed.

It's not a clear choice because looking at the end of the pipe, you lose
long-term capital gains for the appreciation portion of REIT returns -
which history says is somewhere from roughly 40% to 60% of the return.
And you could end up avoiding a lower tax bracket "now" but face a
much-higher one in the future when you annuitize. And if it's going to
be inherited you lose basis step-up.

-Tad

please explain "death benefit" of a VA?

I assume an "annuity" pays a given amount of income to someone for a
given amount of time.

not sure what a "variable annuity" does to change this.
death benefit makes this sound like an insurance product. I thought an
annuity was for income.

"BMS" <mcfarland[at]yahoo.com> writes:

- quote -

The big hole in logic there is the assumption of a high-turnover
mutual fund which makes substantial annual taxable distributions.

That said, I've been wondering a bit more about VAs
(*outside* of qualified accounts, of course) lately.
Fidelity, for example, has a "Personal Retirement Annuity"
which they are now marketing which has a 0.25% annual
annuity charge, no death benefit, no surrender charge and
a choice of decent funds, some of them pretty low-cost.

Other than the 25 basis points, I don't see much of the
normally assumed downsides on this thing - costs are
very slim overall and the tax deferral and wrapper gives
the investor the freedom to do things like rebalance
or buy dividend-paying stocks or bonds inside the thing
without the tax consequences that they'd have without
the annuity wrapper. ie. this might make sense for someone
who's already maximized his 401k, IRA, etc.

I'd sure like to hear what you folks think about it.

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Check out this article:

http://www.thestreet.com/funds/hayden/764247.html