Conference nyoss1::market_investing

		I found some answers myself:

>	What is an annuity?

		A guarantee of periodic income.

>	When you buy an annuity, do you give up your principal?
>	Or are there different kinds?

 		Usually you buy it outright and don't see your
		priciple again.

		Variable annuities exist that let you get
		something back in the end, but you get what
		you pay for.

		Annuities tend to have stiff charges for
		early "withdrawals", and are costly in general.

		They provide little protection from inflation.

>	I gather you get them from insurance companies.  Who else?

>	Who are the strongest insurance companies these days?  I
>	understand people have lost their pensions when their
>	insurance company went under.  I also understand that some
>	large insurance companies are in trouble, and that it will
>	be the next big scandal after Savings & Loans and Banks.

		Can anyone answer this one?

		In general, it sounds like funds are much
		better bets than annuities.

I'm sure someone can give us the "real" definition but here's what
I've read.  You basically have a buy-in period and a pay-out period.
During the buy-in period its just like buying shares in a mutual fund,
you can do a lump sum or dollar cost average, or make voluntary investments.
Then you get to the point where you want to tell the insur. company that
you want to start receiving payments and you change from the buy-in
to the pay-out period.  Here's where it gets tricky.  The day that you
start your pay-out period you are essentially signing all the money
over to the insur. company and picking a pay-out method which can be
different kinds, like:  pay me $xxxx for 10 years, or pay me $xxxx until
I die, etc...  It's kind of a crap shoot.  If you can live to be very
very old, you win!  If you pick the wrong pay-out method and die young,
you can be a big loser.  I personally would rather have the money under
my control.

    My dad's going to take a buyout from his company and retire early. He
    doesn't want to worry about investments or managing money. What he'd
    really like is to give his money to something and have it pay him $x
    per month. (Actually, he wants the $x to increase each year because of
    inflation.)
    
    The thing that does this is canned an annuity, right?
    
    Where does one get an annuity? How can I educate myself on annuities so
    I can tell him whether what he's considering is a good or bad one.
    (e.g. what are standard sales charges?) Can one get an annuity that
    grows with inflation?
    
    Dad also doesn't like the idea that if he dies in a year, the company
    keeps all that money. (Yes, I've explained to him who's got the risk
    and that he wanted worry-free.) Are there annuities that will pay less
    per month, but have some (declining, I'd guess) residual value to be
    left to his estate? 
    
    After I educate myself, who should I tell him to talk to to buy one
    (assuming he decides to)?
    
    Thanks for any help.
    
    Cathy

Cathy,

An annuity is one option.  Another is to take the buyout funds 
and put them into a mutual fund family that has a automatic 
redemption program.  The expenses are likely to be less, since 
annuities charge for the "insurance" that they provide.

Not that I'm recommending against annuities.  Just pointing out 
another option.

Wes

    
    First, congratulations to your Dad. Lucky fella.
    
    Call Fidelity or any of the other big houses they have plenty of
    information they would be happy to send you. This is one way to get
    educated in the area. 
    
    While you are on the phone to Fidelity, ask when and where they will 
    hold the next annuity seminar in your area. I happened to attend one
    last night, lasts about an hour with lots of (sales) people hanging 
    around to answer questions. 
    
    
    

    Based on my limited experience in the life insurance business (one
    semester in 1981), I would carefully consider the many other options
    before choosing annuities. As has been pointed out, the return on
    annuities are muffled somewhat by the life insurance component. Even in
    '81, the feeling was that annuities were an outdated investment
    vehicle, and a lot of people were getting out of them. (Things might
    have changed since then, but I haven't heard it).
    
    I also don't like that "you get the whole boodle if I die" bit. Did I
    hear that aright?
    				Jim B.

    Congratulations on your father's retirement!
    
    One important thing: don't buy ANYTHING until you understand it fully.
    (Assuming your father is trusting you to do the legwork here). If the
    payout comes next month, stick it in a (IRA?) money market fund until 
    you've come to a decision. Having worked his whole adult life, your
    father would be pretty darn stupid to blow his whole wad 'cause he
    didn't read the fine print. A LOT of annuity-type contracts carry
    penalties for changing one's mind after signing on the dotted line.
    
    Another important thing: your father is essentially looking for a
    risk-free investment. But in fact you cannot avoid risk. You cannot
    hide from risk. If you put money in stocks, the market can decline.
    Ditto for bonds, gold, oil, rare coins, old masters, caskets, gaskets
    and pork bellies. Risk is always there. The best you can do is attempt
    to manage risk. Ah, but your father doesn't want to play an active role
    in managing his portfolio. That's too bad, because whoever else DOES
    manage his portfolio won't have your father's best interests in mind.
    
    Therefore I suggest you form a list of the risks you are going to
    undertake, so you can rank order them. You can almost always structure
    investments to avoid certain risks, while accepting others. You've
    already started this list with your concerns about inflation. There's
    also the concern about a premature death. If I were your father, I'd
    not worry about that -- apparently he's not supporting anyone besides
    himself. Therefore he can get a higher return with a product that
    carries no death benefit and/or returns the principal to the sponsor
    at death. It's not like you're getting ripped off here -- dad would get
    a higher annual return while alive, in return for a reduced estate
    value at death. From his point of view that might be reasonable.
    This is the sort of thing you need to establish, so as to come up with
    criteria for what you want to buy.
    
    Don't forget to think international: DMark and SFranc annuities are
    likely to perform better than anything named "dollar" or "pound" in 
    inflationary times.
    
      John