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lightwaves · 09-16-2008, 10:39 AM

What do you think about these new VAs?

http://finance.yahoo.com/focus-retir...nt-preparation

Sarah in SC · 09-16-2008, 10:41 AM

The relevant part of the interview, which BTW, is quite interesting.
Note to OP: please provide some commentary or a snippet when linking an article. Thanks!

Q. How do you hedge those risks?
A. No one kind of investment works against all three. So you need to diversify among investment products, just as you need to diversify among stocks and bonds and so on. This matters more than most people think.
Q. What investment products are we talking about?
A. One category is pensions or annuities, typically a fixed monthly check that an insurance company or pension fund guarantees to keep sending you as long as you live. That's a great solution to longevity risk.
But it's not much help against inflation, which will erode the value of any fixed payment over time. So you also need the traditional mutual fund portfolio that you manage and from which you withdraw funds over an extended period. You can choose high-returning assets like stock funds, which you'd expect to stay ahead of inflation over time.
On the other hand, those are exactly the assets that leave you vulnerable to a market downturn early in your retirement. That's where the third category comes in: the new generation of variable annuities with living benefits. They essentially promise you some upside linked to the stock market but at the same time guarantee you a minimum income for the rest of your life, regardless of when a bear market lands during your retirement.
Q. Your own research years ago showed variable annuities to be way overpriced for the benefits they provided. What changed your mind?
A. If today's variable annuities looked like the product of the same name 10 years ago, I'd still be opposed to them. They used to promise to make up losses only if you died while the market was down.
But the new ones deliver benefits you can claim while you're still alive. And the protection they provide against market losses would be very expensive if you tried to buy it some other way - say, in the options market.
So I used to be something of a crusader against variable annuities, but now I fall back on what the economist John Maynard Keynes said when someone challenged him for supposedly flip-flopping. "When the facts change," he said, "I change my mind. What do you do, sir?"

Nords · 09-16-2008, 12:56 PM

Quote:

Originally Posted by Sarah in SC

So I used to be something of a crusader against variable annuities, but now I fall back on what the economist John Maynard Keynes said when someone challenged him for supposedly flip-flopping. "When the facts change," he said, "I change my mind. What do you do, sir?"[/I]

Gosh, I was hoping to hear about an actual financial analysis proving that they were cheaper and didn't have such high commissions. Instead it reads more like Ben Stein than Moshe Milevsky...

saluki9 · 09-16-2008, 01:16 PM

Quote:

Originally Posted by Nords

Gosh, I was hoping to hear about an actual financial analysis proving that they were cheaper and didn't have such high commissions. Instead it reads more like Ben Stein than Moshe Milevsky...

He did a 10 pager (single spaced) with lots of fancy equations for the June edition of the Financial Analyst Journal. I'd post it here but it's subscription only.

Nords · 09-16-2008, 03:44 PM

Quote:

Originally Posted by saluki9

He did a 10 pager (single spaced) with lots of fancy equations for the June edition of the Financial Analyst Journal. I'd post it here but it's subscription only.

Well, thank goodness, I thought we had us another one o' them there annuity shills...

Milevsky and Taleb should collaborate.