Annuities

1
Annuities

• Life Insurance - expense
• Owner
• Annuitant
• Beneficiary
• Back-end load
• Aftertax deposits

2

• Wrap account
• Fixed
• Variable
• Investment accounts
• Management fees, other expenses

3
Life Cycle

• Accumulation
• Withdrawal
• Periodic withdrawal
• Life
• Life with period certain
• Life with refund option
• Joint and last survivor
• Fixed period
• Fixed amount

4

• Aftertax deposits (tax on withdrawal)
• Tax deferred
• 59 ½ withdrawal (10 penalty)
• Never (99.999999999999) in a retirement account
• Probably last investment choice
• High tax individuals
• Average of 2.37 annual expenses

5
Bonds

• Interest rate risk
• Default risk
• Call risk
• Purchasing power risk
• Reinvestment rate risk
• Foreign currency risk

6

• Taxes and return
• Aftertax return Pretax return(1 tax rate)
• Liquidity
• Duration

7
Yield Curve
http//finance.yahoo.com/bonds/composite_bond_rate
s
8
Money Market Funds

• Maturity
• Pure discount securities
• Started because of Regulation Q
• pre 1980
• NAV 1
• not guaranteed
• Check writing

9
Money Market Securities

• Treasury bills
• Commercial paper
• Jumbo CDs Negotiable CDs
• Eurodollar CDs
• Bankers Acceptances
• Repurchase agreements (Repos)

10
Types

• US Treasury
• US government
• General
• Tax-free

11
MM Risks

• Breaking the buck
• 2008
• Reserve US Government fund
• Treasury set up insurance program like FDIC
• Inflation
• Income risk changing returns

12
MM uses

• Short-term, safe investment
• Cash alternative
• Liquidity

13
MM Information

• http//www.bankrate.com
• http//www.ibcdata.com

14
What to Look For

• Expenses, expenses, expenses
• Turnover not important
• No capital gains

15
Corporate Bonds

• Determinants of bond yields and returns
• Maturity
• Credit risk

16

• Call provisions
• Convertibility
• Other bonds
• CAT bonds
• Floating rate bonds
• Collateralized bonds (CDO, CMO, etc.)

17
Junk Bonds

• Below BB or Ba rating
• Higher likelihood of default
• Price can be more like a stock price

18
Quasi Corporate Bonds

• MIPS, TOPrs, QUIDS, etc.
• Preferred stock on a bond trust
• 25 par value
• Gradually disappearing Tax reform

19
Municipal Bonds

• Federal tax free
• State tax free
• Taxable equivalent yield
• Tax-free yield / (1-
  tax rate)

20
Types

• General obligation
• Revenue bonds
• Airport and seaport
• College dormitory
• Industrial development
• Multifamily housing
• Highway and road tax
• Student loan
• Lottery

21

• Credit ratings
• Insurance (Insurers credit rating)
• Credit enhancement Line of credit guarantee
• Less liquidity Wider spreads

22
What to lok for

• Type of bond Corporate or muni
• Maturity (Duration)
• Credit rating
• Callable, convertible
• Foreign/Domestic
• Fees and expenses