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Annuities

Annuities. Life Insurance - expense Owner Annuitant Beneficiary Back-end load Aftertax deposits. “Wrap account” Fixed Variable Investment accounts Management fees, other expenses. Life Cycle. Accumulation Withdrawal Periodic withdrawal Life Life with period certain

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Annuities

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  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. Yield Curve www.wsj.com 11/11/12

  6. Money Market Funds • Maturity < 1 year • Pure discount securities • Started because of Regulation Q • pre 1980 • NAV = $1 • not guaranteed • May change to variable rate NAV • Check writing

  7. Money Market Securities Treasury bills Commercial paper Jumbo CDs – Negotiable CDs Eurodollar CDs Banker’s Acceptances Repurchase agreements (Repos)

  8. Types US Treasury US government General Tax-free

  9. MM Risks • “Breaking the buck” • 2008 • Reserve US Government fund • Treasury set up insurance program like FDIC • Inflation • Income risk – changing returns

  10. MM uses Short-term, safe investment Cash alternative Liquidity

  11. MM Information • http://www.bankrate.com • http://www.ibcdata.com

  12. What to Look For • Expenses, expenses, expenses • Turnover not important • No capital gains

  13. New Rules? • Floating NAV • Fund can impose a liquidity fee • If liquidity falls below a specific level, redemptions are suspended.

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