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URL:  http://boards.fool.com/bond-and-f-i-faqs-part-4-d-25173460.aspx

Subject:  Bond and F-I FAQs: Part 4 D Date:  2/14/2007  2:33 PM
Author:  Lokicious Number:  19774 of 35909


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Someone Is Always Trying to Sell Me a Lifetime Annuity. Should I Buy?
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• Lifetime annuities have been aggressively hyped, by the insurance industry and some financial planners and advisors, because of the high stake typically taken out for “costs,” compared to many do-it-yourself investment options.

• Naturally, this has led those who view such costs as excessive to dismiss annuities as “bad-buys.”

• However, under certain circumstances, putting some or all of remaining assets into a lifetime annuity may be a desirable or necessary option.


Are all annuities lifetime annuities?

• Lifetime annuities should not be confused with buying an after-tax variable annuity as a tax shelter and simply putting money into the same assets (i.e., stock and bond funds) you would have in a taxable account, usually for a higher expense ratio, with an age restriction for when you may start withdrawing assets.
---Since stock dividends and capital gains are taxed at your marginal rate when you withdraw the money, whether such after-tax variable annuities are worth it is unclear, but that isn't a “fixed-income” issue.

• There are “fixed-income” options for after-tax annuities, usually with a rate guaranteed for a period of time, such as 5 years, that can then be rolled over to a new rate.
---If you are interested, shop around for the best deal (and don't be fooled by introductory offers, if you can't easily switch to somewhere else, later).
---Here is the link to Vanguard's “Single 5”: https://flagship.vanguard.com/VGApp/hnw/content/AccountServ/Retirement/ATSFixedDefAnnOverviewContent.jsp
---And to TIAA-CREF's fixed after-tax annuity: http://www.tiaa-cref.org/performance/after_tax/profiles/4003.html

• See Vanguard on different types of annuities: https://flagship.vanguard.com/VGApp/hnw/VanguardViewsArticle?ArticleJSP=/freshness/News_and_Views/news_ALL_annuities_06262006_ALL.jsp


What are lifetime annuities?

• Lifetime annuities are an insurance product aimed at protecting you from the misery of outliving your savings and investments.
----Annuities insure you will have a steady income stream, even if you live past the point when you would otherwise have used up all your assets (or all of a particular asset).

• A lifetime annuity allows you to draw upon the principal with which you buy the annuity, plus income or returns, until the end of your life, with the insurance company taking the risk that you will outlive when the money is calculated to run out.
---If you die before the money runs out, the insurance company keeps what is left.
---If you live past when the money runs out, the insurance company keeps up the payments.
---Of course, the insurance company has the actuarial projections set in their favor, so they have plenty of leeway (usually 2-3 years) between when you are expected to die, statistically speaking, and when they start losing money on you.

• There are joint annuity options, so a surviving spouse won't run out of money, and some options allow you to leave assets to your heirs, both for lower monthly/annual payouts than for an individual annuity with no legacy.


How much does a lifetime annuity pay?

• Your annuity payment will depend on how much you invest, what kind of annuity you choose, whether you want an individual or joint annuity, and how old you are when you purchase it, as well as on prevailing interest rates at time of purchase (for fixed and inflation adjusted annuities).

• You may choose a variable lifetime annuity, usually using stock and bond funds, with your monthly/annual payments dependent on the return, plus the portion of your principal being drawn down.

• You may also choose a fixed lifetime annuity or an inflation-adjusted lifetime annuity.
---Vanguard, which uses American International Group to provide annuities, has an easily accessible, anonymous, calculator, without having to risk inquiring of an insurance agent:
http://www.aigretirementgold.com/vlip/VLIPController?page=RequestaQuote<