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Author: robertdg1 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 72  
Subject: Re: Variable Annuities Date: 10/1/2005 1:05 AM
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hello downisland,

what your brother recently purchased is a variable annuity with a GMIB (guaranteed minimum income benefit)rider. the basic concept is that with your initial deposit (lets say 100k) the company creates a "real" and "hypothetical" subaccount within your annuity. The "real" account is subject to market volatility so obviously your balance can go up or down and as such we don't know what the balance would be after 10yrs. on the other hand, you "hypothetical" account is predetermined from day 1 - in this case 7% compound each year which would leave you with 197k after the 10 yrs.

after 10 years assuming you are of retirement age you have several options:

1. take the "real" account with a lump sum payment (your getting taxed on the whole thing i would not recommend it), take withdrawals on any schedule you like (monthly, annual), annuitize (would not recommend either), or transfer the balance completely to another account - depending on what your plans are for the money this last is usually the best option

2. take the "hypothetical" account - however you MUST annuitize, your payment will be based on the 197k

the key here is that you must be willing to take some risk with your money in order to outperform the "hypothetical" side. this rider costs 50 basis points usually plus all the other fees your looking at about 2.00 - 2.50 % in fees
it's a very interesting product if you want additional details let me know.

r
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