Mutual Funds by x9dIT3Z


 Brett Salzer
• What is an Annuity?
  – The term annuity is used in finance to refer to any terminating stream of
    fixed payments over a specified period of time.
  – This usage is most commonly seen in academic discussions of finance,
    usually in connection with the valuation of the stream of payments,
    taking into account time value of money concepts.

• Annuities as a Financial Product
  – An annuity contract is a product, typically offered by a financial
    institution or insurance company, that may accumulate value and
    take a current value and pay it out over a period of years.

• Old Fashion Annuities
                   Types of Annuities
• Two major types of annuities
  – Immediate
    • Life Annuities
    • Period Certain
  – Deferred
    • Fixed Annuities
    • Variable Annuities
    • Equity Indexed Annuities
                     Deferred Annuities
• What are they?
  – Chiefly a vehicle for accumulating savings with a view
    to eventually distributing them either in the manner of
    an immediate annuity or as a lump-sum payment.
• Taxation
  – All growth is tax deferred
  – FIFO and LIFO
• Guarantees
  – Insurance Company Ratings
                    Fixed Annuities
•   Introductory Rates
•   Minimum Rates
•   Free Withdrawal
•   Bailout Rates
•   CD Comparison
•   CDSC
                    Variable Annuities
•   Tax Deferral in amounts > than IRS Code
•   Living Benefits
•   Death Benefits
•   Insurance component
    – Insuring success
    – Protecting Investment Portfolio
                           Why VAs?
• Tax Deferral
• Insuring Success
  – Other forms of insurance
• Professional Mgmt of Sub Accounts
• Riders and Benefits
• Personal Pensions
  – Income can’t outlive
                                  2 ways of Investing
•Individual Stocks                     •Variable Annuities   +96.0%

•Separately Managed Accounts
•Mutual Funds


                              Living Benefits
• Guaranteed minimum income benefit (GMIB)
   – a guarantee that one will get a minimum income stream upon
     annuitization at a particular point in the future
• Guaranteed minimum accumulation benefit (GMAB)
   – a guarantee that the account value will be at a certain amount at
     a certain point in the future
• Guaranteed minimum withdrawal benefit (GMWB or GWBL)
   – a guarantee similar to the income benefit, but one that doesn't
     require annuitizing
• Guaranteed-for-life income benefit (GLIB)
   – a guarantee similar to a withdrawal benefit, but will pay you for
     as long as you live and does not require annuitization
                     Death Benefits
• Return of premium
  – a guarantee that you will not have a negative return
• Roll-up of premium at a particular rate
  – a guarantee that you will achieve a minimum rate of
    return, greater than 0
• Maximum anniversary value
  – looks back at account value on the anniversaries, and
    guarantees you will get at least as much as the
    highest values upon death
• Greater of MAV or particular roll-up
                      VA Components
• 3 “Buckets” of Values
  – Account Value
     • Floats with market performance
  – Income Base
     • Increase determined by Living Rider
  – Death Benefit
     • Determined by Death Rider
Declining Markets
Upside Participation
Zero Return
Market Return
Market Return
Market Return
                            Age 85?
• Three Choices at Age 85
  – Continue Annuity
    • DB will start to decrease
    • Free to take any % withdrawal
  – Annuitize
    • Period Certain
    • Give up DB
  – Stop taking income
  – Surrender Contract
                        Criticism of VAs
•   High Fees
•   High Surrenders
•   Lack of Liquidity
•   Lack of Return
    – Long Term vs Short Term
                    Market Indexed
•   Linked to various benchmarks
•   Large Upside fee
•   Have shelf or floor returns
•   Also have ceiling returns


To top