I am in the process of finishing the chapter on annuities here are some excerpts. Comments are appreciated.

This chapter will focus on the income producing aspect of an annuity of which there are two. The first, self-design and the second, an insurance company annuity.

The insurance company annuity offers a variety of guaranteed lifetime income options for you with or without different secured time-periods for the designated beneficiary. Each will be discussed in detail. The same options can be duplicated in the self-design annuity but not on a guaranteed basis.

This chapter will not discuss annuities as tax-deferred products that are being used to accumulate money. That I will leave to those who recommend this type of a purchase—I do not.

The insurance company annuity alleviates the need for you to become an expert in managing money. The essence of which requires in-depth knowledge regarding present-value, future-value, time, payment, and interest. These five ABCs of finance are the components, which must be entered into either a hand-held calculator or the proper software in order to compute, a stream of retirement income for X dollars per month for X years.

The ability to perform this task is absolutely necessary if you wish to self-design your own annuity and by-pass an insurance company.

THE ANNUITIZATION PRINCIPLE

Simply put this is a process whereby your principal e.g., $1,000,000 is converted into a guaranteed monthly payment for as long as you live. As stated previously as the “bedrock of an annuity” it is impossible under this system for you to outlive your income. It will last as long as you do. This is the essential reason why insurance companies believe that their annuity is the choice over the self-design annuity. It avoids all of the negative aspects of the self-design annuity, and could provide some of the positives. On the other hand, insurance companies being in the money management business as owners of broker-dealers offer self-design annuities through their registered representatives and/or registered investment advisers.

Consumers have overlooked this time-honored principle of “annuity income” as the financial markets have thundered into new highs. This type of a continuing economic attitude depends on an ongoing market boom to keep people clear of the barriers in their path to a stream of retirement income.

A prudent person like the wife in the hypothetical case study may want no part of managing money. And dealing with a constant interest average formula versus actual investment performance. And likes the idea of receiving a check every month either in the mailbox or by way of direct deposit—without any effort on her part.

LIBC
William D. Brownlie, CLU, ChFC, CIP, LIA