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greygreen writes,

I have never met Mr. Zinzow and I will confess that the last four editions of Contingencies are sitting in Dallas where I cannot get to them. However, Mr. Zinzow is an FSA from 1973, so he is probably at the right age to be making that decision (55-60).

6% seems an overly conservative assumption, even for an actuary <grin>. Having not read the article, I would hope that there is a tax play there or another consideration that drove him to this choice. You are correct that a truly indexed product would produce indexed payouts for a price less than Mr. Zinzow paid for a guaranteed 6% index. On the other hand, he knows enough about the pricing to determine whether or not the 6% contract was a good deal! He may have gotten a bargain. Contracts with unusual terms often sell for less than "fair value" where their purchasers tend to be wealthy and risk averse.

I have a couple of other questions that might occur to a well-informed layman considering an annuity purchase:

(1) What is the "crossover point" for a truly indexed annuity? I define this as the point where an annuity with a COLA of "x" percent will be the same price as an annuity indexed to the CPI. Does this crossover point vary with the age of the annuity applicant. For example, is the crossover point higher for a 40-year-old annuity applicant vs. a 55-year old?

(2) You pointed out earlier in this thread that one of the "perversities" of annuity underwriting is that poor health actually improves the price offered to an annuity applicant. What's to prevent a "non-smoking teatotaler" from claiming he smokes 3 packs of cigarettes and drinks a quart of scotch each day in an effort to get a better deal. <grin>


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