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Getting Started in annuities

One of the most ordinary retirement investment options, annuities are also amongst the most difficult to comprehend. This handy volume provides an in-depth, easy-to-understand look at these complex instruments, revealing incisively what they are, how they work, and what vantages they have over other investment vehicles. Along with performance tables, sample portfolios, and a helpful Q & A section, you’ll find up-to-date details on tax law changes, as well as finish info on:

From the PublisherAnnuities are amongst the most frequent retirement investment options. This handy volume provides a indepth examination of annuities, revealing precisely what they are, the kinds available, how they work, and what vantages they have over other investments.

From the Back CoverGetting Started in annuities

One of the most general retirement investment options, annuities are also amongst the most difficult to comprehend. This handy volume provides an in-depth, easy-to-understand look at these complex instruments, revealing incisively what they are, how they work, and what vantages they have over other investment vehicles. Along with performance tables, sample portfolios, and a helpful Q & A section, you’ll find up-to-date details on tax law changes, as well as finish info on:

About the AuthorGORDON K. WILLIAMSON is an attorney, financial planner, and branch manager of LPL Financial Services. He is the author of fifteen books on annuities, mutual funds, and other investment topics.

Most helpful client reviews

7 of 7 persons found the following review helpful.
An satisfactory primer on annuities
By Dale C. Maley
I wanted to do some exploration on variable annuities, and I was amazed to find very few books on the subject.

I found Williamson’s writing style acceptable, but not actually gratifying to read.

I found this book informative, with galore attention to the pros and cons of annuities, but with a good deal of major issues.

When I initial read the author’s example of two investors (one invests $1M in a variable annuity and the other invests $1M in a regular stock mutual fund), my gut said something was defective with his math. On page 65, he runs through these 2 cases and pronounces the variable annuity man the huge winner over the regular mutual fund investor….$11M to $6.829 after 24 years.

The author mentions a 15% pretax rate of return and an intermediate 12% return. From what I may tell he didn’t use either number in his calculations.

My analysis of his example goes like this….

For the usual mutual fund capitalist to end up with $6.829M after taxes in 24 years, this gives an after tax return of 8.334% (using compound interest formula of FV = PV x (1+i)^n). This 8.334% after tax return equates to a pre-tax return of 12.5% if the capitalist is in the 33% marginal tax bracket. Note that my calculated return of 12.5% doesn’t match the author’s 12% or 15% numbers at all.

The variable annuity man invests $1M at a pre-tax rate of 12.5% for 24 years which gives $16.891M. The variable annuity man nets $11.26M after being taxed at a 33% marginal tax rate.

My introductory complaint is that the author employed the faulty inputs for his model. My second complaint is that this example portrays an inaccurate picture of variable annuities. The author assumes 0% expense ratios for both the annuity capitalist and regular mutual fund investor. He points out in the right way elsewhere in his book the intermediate expense ratio of variable annuities is when it comes to 2.0%, yet he chose 0% expense rate for variable annuities. The intermediate mutual fund expense ratio is with regards to 1.38% with index funds from Vanguard at only 0.18% expense ratio. My third complaint is the author in the right way applied an popular income tax rate of 33% to the variable annuity, but incorrectly employed the same 33% to the mutual fund investor. In 2007, the long term capital gains rate is only 15% and not 33%.

If we redo the author’s example using a 2% expense proportionality for the variable annuity man, a 0% expense symmetry for the mutual fund capitalist (he uses Vanguard’s stock index fund with 0.18% expense ratio), and a 15% capital gains rate to the regular mutual fund investor…..then the story reverses. The regular mutual fund man wins with $11.28M after taxes equated to the variable annuity man’s 7.32M!

I was also very disappointed to see the author did not publicize single payment prompt annuities as essential tools in retirement portfolios. Many studies have been done which show that prompt annuities are beneficial to investors because they help prevent investors from outliving their money. The reason for missing this vantage of prompt annuities may be the book publication date of 1999. A lot of the key exploration papers on using prompt annuities in retirement portfolios did not start out until around 2001 (Milevsky’s papers).

I did recognise that most states guarantee annuities in the event the insurance company declares bankruptcy. I thought the limit was $100,000 per insurance company, but the author says 80% or $100,000….whatever is less……of the annuity is paid by the state. This state insurance guarantee only applies to fixed annuities because your cash is mixed with other people’s money. In variable annuities, your cash is kept distinguished and you own the underlying investments within the annuity.

I found numerous of the author’s logic a little ironic, or perverse, depending on how you look at it. Many studies (e.g. Dalbar) have found that investors only achieve a fraction of the stock markets return…….due to switching mutual funds in an undertake to chase the winners. The author contends that an capitalist would be better off in a variable annuity indexed to the S&P 500 or Wilshire 5000 because they will be assured of getting at least the frequent stock market return. I found this an odd way to advertize the use of stock index funds.

One thing you realize reading this book is how complex variable annuities are. They are likewise laden with fees of all types. Uneducated investors have no prospect of ever understanding or being competent of comparing variable annuities.

The general idea of variable annuities is that their tax free compounding vantage out-weighs their less favorable advantages of lower returns (2.0% equated to 1.38% expense ratios) and lower after-tax returns (33% marginal rate for annuities, 15% long term capital gains) when equated to taxable mutual funds.

In today’s comparatively low tax world, with high variable annuity expense ratios, I’m hard pressed to see where variable annuities make economic sense equated to conventional stock and bond mutual funds.

Over-all an worthy of acceptance or satisfactory primer on annuities.

I would suggest associate books to supplement this book including:

The Richest Man in Babylon
Bogle on Mutual Funds: New Perspectives for the Intelligent Investor
The Millionaire Next Door
The Four Pillars of Investing: Lessons for Building a Winning Portfolio
A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing, Ninth Edition

The Coffeehouse Investor: How to Build Wealth, Ignore Wall Street, and Get On With Your Life
The Bogleheads’ Guide to Investing.

5 of 5 persons found the following review helpful.
A little helpful, but very poorly written
By Debbie the Book Devourer
If what the author says is true, I desperation of ever in truth learning regarding annuities. He claims that, as of the writing of this book, there have been four books on annuities, and he’s written three of them. Ugh.

First, the positive, because there’s closely always something positive. The green ink they used for the print is very easy on the eyes. And I did manage to learn a little when it comes to the very mixing up world of annuities.

But that’s regarding it for the positive. The book was not very without doubt or question written or organized. Some subsections didn’t seem to pertain to the chapter title. The examples were largely un-helpful. So to make up for his lack of clarity, the author resorted to repetition, which only made matters worse.

The other thing that troubled me was how gung-ho the author was when it comes to annuities. I closely felt like I was reading a sales pitch rather than an instructional book.

Maybe annuities actually are so mixing up that no one may make them clear. If that’s the case, then possibly this author shouldn’t have even bothered. (He in all likelihood shouldn’t have bothered regardless, because he’s hopeless as a writer.) You might get something from this book, but I’d advise versus genuinely buying it.

3 of 4 persons found the following review helpful.
Well informed talking about the pros and cons of annuities
By Robert Nichols
This was a very well written book covering everything a novice would want to know in regards to investing in annuities. However, I would have liked to see a direct comparison of an employer sponsored 401k to a variable annuity. Overall, I would not invest in an annuity due to the complex rules and regulatings coupled with their ongoing high fees. I would rather put my cash into a Roth IRA, Traditional IRA and/or 401K.

See all 6 client reviews…

Settlement Payment

Ending a months-long dispute over oil payments, Iran has now resumed oil shipments to India, with Turkey stepping in as a key facilitator to resolve the impasse. The tripartite arrangement, by which Turkey will rout Indian payments to Iran, comes amid territorial tensions over Syria and suggests that India’s energy interests are emergent as a key variable in the strategic calculus of Middle Eastern capitals.

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From the Back Cover

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About the Author

Esme Faerber, C.P.A. is professor of business and accounting at Rosemont College. She is the author of galore standard books for person investors, including All About Stocks and All About Bonds, and Bond Mutual Funds.

Most helpful client reviews

0 of 0 people found the following review helpful.
practical guide for college kids and parents
By J.Delaune
This is the perfective reference book for all of the financial formulas one learns but quickly forgets. From Net Present Value to the Rule of 72, this is a book that you may give to your kids then refer to it when they (or you) have questions.

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Annuity Buyers

This digital document is an article from National Underwriter Life & Health, published by The National Underwriter Company on November 8, 2004. The length of the article is 2357 words. The page length shown above is based on a typical 300-word page. The article is delivered in HTML format and is available in your Amazon.com Digital Locker without delay after purchase. You may view it with any web browser.

Citation Details
Title: Annuities buyers’ guide.(Illustration)
Publication: National Underwriter Life & Health (Magazine/Journal)
Date: November 8, 2004
Publisher: The National Underwriter Company
Volume: 108 Issue: 42 Page: 18(4)

Article Type: Illustration

Distributed by Thomson Gale

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Most helpful client reviews0 of 0 humans found the following review helpful.
Note from the Author
By Dale C. Maley
If you are a variable annuity salesperson, you will in all probability not like my short story. It is written from the investor’s perspective, not from a commissioned insurance salesperson’s perspective.I tried to as somewhat as possible compare variable annuities to mutual funds. If anybody has an issue with my comparison methodology, please email me with your issue.ThanksDale C. MaleySee all 1 client reviews…

Annuity Buyer Settlement Structured

Not numerous people recognise this, but you may in truth use your annuity funds to get extra cash to meet your current financial needs. Do you need instant cash for any of the following reasons? • Pay off unexpected medical bills • Settle your home mortgage • Pay for your child’s college education • Pay off personal debts to stay clear from going bankrupt • Start your own business • Start a new financial investment Then, you have an instant solution. You may trade your annuities, in whole or in part, and get lump sum cash quickly. All you have to do is find a reputable settlement company that may aid you with all the processing involved and with great success cash out all or percentage of your future payments. An annuity is a significant financial investment. But, if you see that you’re losing out in the long run, it may be best to choose assorted choices that will grant you to take out your cash early and put it to good use. That’s extra cash for you to make better investments with. This book will help you understand what annuities are, how they work and what your choices are for retail or cashing out so that you may get the most out of your payments.