Annuities and the Hundred Thousand Dollar Challenge

Last Updated Oct 11, 2009 8:13 PM EDT

Last week, I wrote a column that was critical on annuities. It sparked a bit of debate in the Bogleheads forum noting some experts in finance were now recommending them. I conceded that a low cost immediate annuity could have its place under certain circumstances including being over the age of 70 and needing longevity insurance. My favorite response, however, came in the form of a private email offering to educate me, but only if I was "serious about learning more."

Offer - minimum eight percent annual return with no downside risk
Here's the full text of the email challenge, without his telephone number and one typo fixed:
I can blow away saving for retirement in any market fund, with an Indexed Life policy. How about a NET return of 8% that allows you to take out the gains Tax Free for retirement income, with NO downside market risk. I can bury you with analysis I've done that proves this, but my time is too valuable to waste it if you are not serious about being open minded to the concept. There is a catch though - you must do it with the right co. and plan, and you must know how to design the policy to perform with maximum efficiency. I teach advisors from all over the country how to do this, in part through my book on it - "Last Chance Retirement" (www.lastchanceretirement.biz). If you are serious about learning more let me know. My experience though is most press writers have no interest in something that is not a security, or another asset just because its chassis is insurance. Surprise me.

Brett Anderson
Acceptance of challenge - buying my first annuity?
So I gave Mr. Anderson a call this week and told him I was ready to plunk down $100,000 to buy my first annuity. All he had to do was to convince me. Granted I may be a little stubborn, or more than a little, but even more than that, I am motivated by economics. Particularly motivated when my $100,000.00 would be worth a minimum of $215,892.50 in ten years.

Equities might not yield eight percent on average, so I'd love nothing more than to have a certain eight percent return. Why I'd be willing to admit how wrong I was all day long if I can get this return. In fact, I not only offered to write a column on my wrongness, but also one recommending Mr. Anderson, as well as offering to send my clients to him to buy this amazing annuity. As an hourly adviser, I don't sell any products.

My call to Mr. Anderson
Before calling him, he replied to an email that the eight percent return was for a minimum of ten years. No worries, I was already thinking that it would be a ten year period. In our call, Mr. Anderson stated that I couldn't pluck down the entire $100,000 in the first year. I'd have to do it over a five year period. Again no worries, I can calculate an eight percent annualized return.

What's next?
I took a gander at Mr. Anderson's web site (www.lastchanceretirement.biz), and, if he is right, I suspect I may be about to "learn" that I've been doing quite a bit wrong. According to Mr. Anderson, I should have been saying "no" to IRAs, 401Ks, Roth's, and all tax-advantaged government sponsored plans. Hmmmm, this should be interesting.

So Mr. Anderson took down my age (52) and agreed to send me the same information he would send a prospective client, which I am. Am I about to be "blown away" and buy my first annuity? Don't know for sure, but I'm certainly "serious about learning more." Stay tuned and I'll let you know how this turns out.

The result: Did I fork over $100,000? Link will be live 10/12/09, 9:00 a.m. EDT.
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    Allan S. Roth is the founder of Wealth Logic, an hourly based financial planning and investment advisory firm that advises clients with portfolios ranging from $10,000 to over $50 million. The author of How a Second Grader Beats Wall Street, Roth teaches investments and behavioral finance at the University of Denver and is a frequent speaker. He is required by law to note that his columns are not meant as specific investment advice, since any advice of that sort would need to take into account such things as each reader's willingness and need to take risk. His columns will specifically avoid the foolishness of predicting the next hot stock or what the stock market will do next month.

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