Guide to Retirement Planning - Post Feedback Here

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Guide to Retirement Planning - Post Feedback Here

Post by LadyGeek » Sun Oct 04, 2009 12:12 pm

After only a few days, there are already a few suggested corrections to the Bogleheads' Guide to Retirement Planning:
Dan Kohn wrote:
tomd37 wrote:If anyone is interested in corrections; Chapter 3 refers to personal exemptions for yourself, your spouse, and your children. A personal exemption is only for yourself and your spouse. A dependent exemption is for your other qualified dependents such as your child.

State sales taxes do exceed 6.25 percent. Here in Tennessee the state sales tax is 7.00 percent, to which the local sales tax is added. We pay a total of 9.25% in my locality. As mentioned in the book, we do not have an income tax, but rather a tax on certain interest and dividend income.
As the author of Chapter 3, I'm pleased to report that your corrections are actually for Chapter 2. However, by the time you get to Chapter 3, you may well find some there as well.

If you don't mind, it would probably be best to start a new thread just dedicated to corrections.
Instead of maintaining the corrections in the forum, why don't we put them in the wiki? It's already in a nice, easy to read, page layout and can handle outlines, pictures, graphs - everything you find in a book. :)

You can show the original text, the correction, and give a reason why it's being corrected. A good way to learn...

The correction pages will be categorized (like all pages are now), so the information can easily be found. It would also drive traffic to the wiki as well as improve the book's contribution to the community.

It might take a few days to get something organized. In any case, use this thread to collect all the corrections.

Update: One of the authors requested that this thread be used for feedback. In addition to corrections, are there any comments / questions for the authors? I changed the thread title to reflect the update.

Note that we can update relevant wiki pages to reflect additional comments while simultaneously enhancing book content. Please start a separate thread if discussions go beyond the scope of the book content.

Those who want to update the wiki directly are more than welcome to become editors :).
Last edited by LadyGeek on Sun Oct 04, 2009 1:44 pm, edited 2 times in total.
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Re: Guide to Retirement Planning - Post Corrections Here

Post by iceport » Sun Oct 04, 2009 1:11 pm

LadyGeek wrote:...In any case, use this thread to collect all the corrections...Thanks.
OK, a couple of simple typo's:

-- Table 10.2 on p. 161: Last column in third row of data should be $1,000 instead of $1,333.

-- Table 11.3 on p. 175: Middle column in last two rows, higher base amount should be $44,000 instead of $34,000 to match the text on p. 176 and Table 11.4 on p. 177.

That's it -- I've only had a chance to get through Chapter 12 so far (apologies to Jeff MC!).

As far as I've read, this is a very fine collaborative work. It's sure to be one of the most useful books I own. The authors and editors should be extremely proud of their accomplishments!

--Pete

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Post by LadyGeek » Sun Oct 04, 2009 3:13 pm

We now have a wiki page with the corrections. I added a note, "pending author concurrence", to show that the authors haven't approved the change. If they say OK, I'll remove the note. Since this is a book out for public distribution, I thought it was important that the authors "approve" the change. (Wiki editors - feel free to update the page as needed.)

Perhaps the authors could add the relevant material to put everything in context and explain why the correction was done (?). We'll see how it goes.

Please see Bogleheads' Guide to Retirement Planning on the Bogleheads Wiki
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Post by bob90245 » Sun Oct 04, 2009 4:37 pm

Not necessarily feedback, but an observation. Page 319:
Chapter 20: Meet the Bogleheads wrote:By 2007, the Morningstar Diehards forum was overflowing with ideas and commentary. This lead to the grassroots effort to spread the message of Jack Bogle through the creation of a stand-alone web site. The new stand-alone site was created by "Phoenix", another of Jack's followers.
Yeah, I guess that is the quick summary without getting into the messy details. :wink:
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Post by LadyGeek » Sun Oct 04, 2009 4:52 pm

We now have a wiki page for Laura Dogu. Please see Laura Dogu on the Bogleheads Wiki.
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Post by Peter Foley » Sun Oct 04, 2009 5:12 pm

Chapter 4 Individual Retirement Arrangements

EmergDoc: In your discussion of Solo 401ks and SIMPLEs you state: "Although a case can be made for a small business to use a SIMPLE IRA, there is no reason for a sole proprietor to do so."

An individual has two jobs, one with an employer with a 401k and a second as a consultant. Won't the SIMPLE allow the sole proprietor consultant to defer additional income? In other words, can you have both a 401k and a Solo 401k?

Also, my understanding is that a SIMPLE plan is exempt from the defined contribution plan limit per participant as well. Those limits were $46,000 in 2008.

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Post by Mel Lindauer » Sun Oct 04, 2009 5:47 pm

bob90245 wrote:Not necessarily feedback, but an observation. Page 319:
Chapter 20: Meet the Bogleheads wrote:By 2007, the Morningstar Diehards forum was overflowing with ideas and commentary. This lead to the grassroots effort to spread the message of Jack Bogle through the creation of a stand-alone web site. The new stand-alone site was created by "Phoenix", another of Jack's followers.
Yeah, I guess that is the quick summary without getting into the messy details. :wink:
Hi Bob:

When I initially wrote that, I included a lot more of the nasty details (lack of moderation, trolls, etc.), but cool-headed Laura convinced me to rework that part of the chapter. I'm glad she did since there's nothing to be gained by marching out all the gory details.
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Post by tfb » Sun Oct 04, 2009 6:16 pm

Peter Foley wrote:Chapter 4 Individual Retirement Arrangements

EmergDoc: In your discussion of Solo 401ks and SIMPLEs you state: "Although a case can be made for a small business to use a SIMPLE IRA, there is no reason for a sole proprietor to do so."

An individual has two jobs, one with an employer with a 401k and a second as a consultant. Won't the SIMPLE allow the sole proprietor consultant to defer additional income? In other words, can you have both a 401k and a Solo 401k?

Also, my understanding is that a SIMPLE plan is exempt from the defined contribution plan limit per participant as well. Those limits were $46,000 in 2008.
No, a SIMPLE IRA will not let a sole proprietor defer more than what he/she can do in a solo 401k. You can have both a 401k through a different employer and a solo 401k for the consulting work. Although the salary deferral contributions to both plans cannot exceed the 402(g) limit, it's the same for SIMPLE.
IRS wrote:If you or an employee participates in any other qualified plan during the year and you or your employee have salary reduction contributions (elective deferrals) under those plans, the salary reduction contributions under a SIMPLE IRA plan also count toward the overall annual limit ($15,500 for 2008 and $16,500 for 2009) on exclusion of salary reduction contributions and other elective deferrals.
http://www.irs.gov/publications/p560/ch ... nk10008891

There is also no way to exceed the $49,000 limit in a SIMPLE because the salary deferral limit is lower, matching is 3%, and the compensation limit is $245k.
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Post by LadyGeek » Sun Oct 04, 2009 7:41 pm

David Grabiner has concurred with petrico's correction for Table 10.2. I updated the page and also moved petrico's other correction to Chapter 11 (Social Security). Please see Bogleheads' Guide to Retirement Planning on the Bogleheads Wiki.

You can see David Grabiner's concurrence on the companion "discussion" tab for this page. Please see Bogleheads' Guide to Retirement Planning (discussion page) on the Bogleheads Wiki.

FYI - Every wiki page has a companion "discussion" tab at the top for people to discuss page content. Wikipedia works the same way.
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Post by Qtman » Sun Oct 04, 2009 8:11 pm

This book should be a required full year course for every high school senior in this country. We continue to graduate the vast majority of high school students with virtually no economic understanding. Whether they go on to college, trade or other - they need to understand these concepts.

Thanks to the authors, it is great.
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Post by Mel Lindauer » Sun Oct 04, 2009 8:37 pm

Qtman wrote:This book should be a required full year course for every high school senior in this country. We continue to graduate the vast majority of high school students with virtually no economic understanding. Whether they go on to college, trade or other - they need to understand these concepts.

Thanks to the authors, it is great.
Thanks for your nice comment. Hopefully you (and others) will post a review on amazon.com after reading the book.
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Post by White Coat Investor » Sun Oct 04, 2009 10:16 pm

Peter Foley wrote:Chapter 4 Individual Retirement Arrangements

EmergDoc: In your discussion of Solo 401ks and SIMPLEs you state: "Although a case can be made for a small business to use a SIMPLE IRA, there is no reason for a sole proprietor to do so."

An individual has two jobs, one with an employer with a 401k and a second as a consultant. Won't the SIMPLE allow the sole proprietor consultant to defer additional income? In other words, can you have both a 401k and a Solo 401k?

Also, my understanding is that a SIMPLE plan is exempt from the defined contribution plan limit per participant as well. Those limits were $46,000 in 2008.
Looks like TFB beat me to it.

I found my own correction in the health insurance chapter. Not so much a correction as an instance where more info would have been helpful. Last paragraph on page 246 says emergency departments are required by law to provide minimal care to all who seek it and that it does provide some level of care for everyone.

It is misleading as it reads. EDs (and hospitals with EDs) are NOT required to provide any level of care for most medical problems. They are required to 1) Determine if an emergency (including labor) exists and 2) if it does, to stabilize it. The paragraph also seems to suggest this is a free service. Although I admit there are many ED patients who don't pay for this service, they still receive a bill for it which is sent to collections if it isn't paid. Despite what President Bush said, going to the ER is not a national health plan.

http://www.medscape.com/viewarticle/565099
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Emerging Doc:

Post by Barry Barnitz » Sun Oct 04, 2009 10:53 pm

Hi Emerging Doc:

A technical nit pick. In the introductory paragraph to Self-Employed IRAs, The Bogleheads Guide To Retirement Planning, p.52, the text reads:
Although employer-based retirement accounts will be covered in another chapter, the employer-based accounts for a self-employed person essentially function as big IRAs. There are four types of IRAs that a self-employed investor might consider: a solo 401(k), a Roth solo 401 (k), a SEP-IRA, and a SIMPLE IRA.
.

The nit pick is that the solo 401-k and designated solo Roth 401-k account are 401ks and not IRAs. Given the earlier framework of your discussion (accounts vs. investments) a perhaps better and more accurate phrasing could pivot on a single word substitution.

Although employer-based retirement accounts will be covered in another chapter, the employer-based accounts for a self-employed person essentially function as big IRAs. There are four types of accounts that a self-employed investor might consider: a solo 401{k), a Roth solo 401 (k), a SEP-IRA, and a SIMPLE IRA.
regards,
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Post by LadyGeek » Mon Oct 05, 2009 8:31 pm

Is the below discussion relate to any corrections needed in the book? I think this is just an answer to a question by Peter Foley.
tfb wrote:
Peter Foley wrote:Chapter 4 Individual Retirement Arrangements

EmergDoc: In your discussion of Solo 401ks and SIMPLEs you state: "Although a case can be made for a small business to use a SIMPLE IRA, there is no reason for a sole proprietor to do so."

An individual has two jobs, one with an employer with a 401k and a second as a consultant. Won't the SIMPLE allow the sole proprietor consultant to defer additional income? In other words, can you have both a 401k and a Solo 401k?

Also, my understanding is that a SIMPLE plan is exempt from the defined contribution plan limit per participant as well. Those limits were $46,000 in 2008.
No, a SIMPLE IRA will not let a sole proprietor defer more than what he/she can do in a solo 401k. You can have both a 401k through a different employer and a solo 401k for the consulting work. Although the salary deferral contributions to both plans cannot exceed the 402(g) limit, it's the same for SIMPLE.
EmergDoc wrote: Looks like TFB beat me to it.
You can find individual wiki pages for the above in the Employer Retirement Plans Overview, part of the Bogleheads Retirement Planning Start-Up Kit. Updates to these pages are more than welcome.
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Post by LadyGeek » Mon Oct 05, 2009 8:52 pm

EmergDoc wrote:I found my own correction in the health insurance chapter. Not so much a correction as an instance where more info would have been helpful. Last paragraph on page 246 says emergency departments are required by law to provide minimal care to all who seek it and that it does provide some level of care for everyone.

It is misleading as it reads. EDs (and hospitals with EDs) are NOT required to provide any level of care for most medical problems. They are required to 1) Determine if an emergency (including labor) exists and 2) if it does, to stabilize it. The paragraph also seems to suggest this is a free service. Although I admit there are many ED patients who don't pay for this service, they still receive a bill for it which is sent to collections if it isn't paid. Despite what President Bush said, going to the ER is not a national health plan. http://www.medscape.com/viewarticle/565099
I paraphrased your correction in the wiki to put it more in the context of the book and to avoid references to politics (health care debates are in full rage now). For your review.
Barry Barnitz wrote:The nit pick is that the solo 401-k and designated solo Roth 401-k account are 401ks and not IRAs. Given the earlier framework of your discussion (accounts vs. investments) a perhaps better and more accurate phrasing could pivot on a single word substitution.
Barry,

I inserted your correction in the wiki page, but paraphrased your statement. Please review and correct directly in the wiki (if needed). I removed the "Under Construction" template, it's open for all wiki editors.

=======================================
I think it's important to include clarifications as well as typographical errors. If the reader is mislead, or the context was not as the author intended, there should be an update.

I'd like the chapter authors to concur.

Note that publisher restrictions does not allow actual text from the book to be used in the wiki, so I'm sticking with page / paragraph references only.

Please see Bogleheads' Guide to Retirement Planning on the Bogleheads Wiki.
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Post by Peter Foley » Mon Oct 05, 2009 9:11 pm

EmergDoc and tfb:

I'm not questioning the limits of a SIMPLE plan. My concern is the issue raised on p78 of the Bogleheads' Guide to Retirement: Table 6.1 states that there is a combined contribution limit of $49,000 of employee and employer across all plans. Here is an IRS reference:

http://www.irs.gov/pub/irs-tege/fall09.pdf

"When Limits Collide, Which One Wins?

Employers and plan administrators have to be aware of various annual limits that apply to defined contribution (DC) plans.
However, many times these limits seem to be at odds with each other.

Some of the limits that apply to DC plans are:

• Annual additions to a participant’s account under §415(c);

• Elective deferrals under §401(a)(30) (referencing §402(g));

• Catch-up contributions under §414(v);

• Annual compensation under §401(a)(17); and

• Deductible contributions by the employer under §404(a)(3).

Limits

Annual limits expressed as dollar amounts are subject to annual cost-of-living adjustments.

Section 415(c) limits the amount of annual additions to an employee’s account. For 2009, the maximum annual additions
are the lesser of 100% of a participant’s compensation or $49,000.
This annual addition limit applies to:

• Employer contributions (matching and nonelective);

• Employee contributions (pre-tax elective deferrals and designated Roth contributions, other than catch-up
contributions, and after-tax); and

• Forfeitures.

Under §402(g), employees may make elective deferrals of $16,500 for 2009. This limit applies to:

• Pre-tax elective deferrals, and

• Designated Roth contributions.

A plan that allows employees to make elective deferrals may also allow participants who are age 50 or older by the end of
the taxable year to make catch-up contributions under §414(v). For 2009, the maximum catch-up contribution is $5,500."


What I cannot discern from IRS publications is whether a Solo 401(k) from other employment (self employment) is permissible. A SIMPLE is permissible.

The above is not theoretical, it is an issue for my wife who has full time employment and does consulting on the side. I would think this would be an issue that MDs might face if they work for multiple hospitals or clinics.

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Post by Peter Foley » Mon Oct 05, 2009 9:18 pm

Chapter 6 Defined Contribution Plans: p. 83

The topic is 457 Plan issues. The last sentence of the paragraph begins . . . Many 401(k) plans offer no index funds or just one high cost fund . . .

Given that the topic is 457 plans, did the author mean to say "Many 457 plans offer no index funds etc."

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Post by tfb » Mon Oct 05, 2009 9:36 pm

Peter Foley wrote:What I cannot discern from IRS publications is whether a Solo 401(k) from other employment (self employment) is permissible. A SIMPLE is permissible.
Yes it is permissible. I have one. It works better than a SIMPLE for a moonlighting self-employed person. If you click on the www button in my signature and search for solo 401k, you will find a few posts about it.
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Post by LadyGeek » Mon Oct 05, 2009 9:59 pm

Peter Foley wrote:Chapter 6 Defined Contribution Plans: p. 83

The topic is 457 Plan issues. The last sentence of the paragraph begins . . . Many 401(k) plans offer no index funds or just one high cost fund . . .

Given that the topic is 457 plans, did the author mean to say "Many 457 plans offer no index funds etc."
Suggestion for correction entered. I paraphrased a bit. For your review.

Please see Bogleheads' Guide to Retirement Planning on the Bogleheads Wiki.
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Post by mephistophles » Mon Oct 05, 2009 10:30 pm

EmergDoc wrote:
Peter Foley wrote:Chapter 4 Individual Retirement Arrangements

EmergDoc: In your discussion of Solo 401ks and SIMPLEs you state: "Although a case can be made for a small business to use a SIMPLE IRA, there is no reason for a sole proprietor to do so."

An individual has two jobs, one with an employer with a 401k and a second as a consultant. Won't the SIMPLE allow the sole proprietor consultant to defer additional income? In other words, can you have both a 401k and a Solo 401k?

Also, my understanding is that a SIMPLE plan is exempt from the defined contribution plan limit per participant as well. Those limits were $46,000 in 2008.
Looks like TFB beat me to it.

I found my own correction in the health insurance chapter. Not so much a correction as an instance where more info would have been helpful. Last paragraph on page 246 says emergency departments are required by law to provide minimal care to all who seek it and that it does provide some level of care for everyone.

It is misleading as it reads. EDs (and hospitals with EDs) are NOT required to provide any level of care for most medical problems. They are required to 1) Determine if an emergency (including labor) exists and 2) if it does, to stabilize it. The paragraph also seems to suggest this is a free service. Although I admit there are many ED patients who don't pay for this service, they still receive a bill for it which is sent to collections if it isn't paid. Despite what President Bush said, going to the ER is not a national health plan.

http://www.medscape.com/viewarticle/565099
I tend to disagree with doc's interpretation of the remarks on emergency room care. Federal law requires that patients receive screening, emergency medical care and transfer, if appropriate. This certainly constitues 'minimal care' and 'some level of treatment ' for everyone. Also, from a practical standpoint, many ER's provide care beyond the minimum required. Also, this section does not imply that ER care is free. Of course ER's bill insurance and individuals. Also, the context of the chapter is showing ER's as a last choice or option for those who may not have care available anywhere else.

I have no idea how to transfer this post to the wiki page, but that is my intent.

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Post by VictoriaF » Tue Oct 06, 2009 6:26 am

Chapter 7 starts as follows:
dpbsmith in Chapter 7 wrote:A single-premium immediate annuity (SPIA) can pay you and your significant other an income for life.
I thought that SPIA extends only to spouses and not to girlfriends, boyfriends or other non-spousal significant others.

Victoria
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Post by Mel Lindauer » Tue Oct 06, 2009 9:31 am

VictoriaF wrote:Chapter 7 starts as follows:
dpbsmith in Chapter 7 wrote:A single-premium immediate annuity (SPIA) can pay you and your significant other an income for life.
I thought that SPIA extends only to spouses and not to girlfriends, boyfriends or other non-spousal significant others.

Victoria
Actually, Victoria, it's payable to the person you name as the "Joint Annuitant", and it's known as "the Joint and Last Survivor Annuity option" which is chosen under an Annuity Payment Option and pays over the life of more than one person.
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Post by VictoriaF » Tue Oct 06, 2009 10:34 am

Mel Lindauer wrote:
VictoriaF wrote:Chapter 7 starts as follows:
dpbsmith in Chapter 7 wrote:A single-premium immediate annuity (SPIA) can pay you and your significant other an income for life.
I thought that SPIA extends only to spouses and not to girlfriends, boyfriends or other non-spousal significant others.

Victoria
Actually, Victoria, it's payable to the person you name as the "Joint Annuitant", and it's known as "the Joint and Last Survivor Annuity option" which is chosen under an Annuity Payment Option and pays over the life of more than one person.
Thank you, Mel. I stand corrected.

Victoria

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While on Chapter 7

Post by Barry Barnitz » Tue Oct 06, 2009 10:38 am

Chapter 7 makes great use of the term SPIA (Single Premium Immediate Annuity). The chapter correctly defines this term as the surrender of a capital payment in return for an immediate lifetime income stream.

However, this income stream can come in one of two forms:
  • A fixed income stream (either fixed, graded, or inflation-indexed) based on an insurer's general account ( a Fixed SPIA) , or
    A variable income stream based on a set of subaccounts ( a Variable SPIA).
The chapter never considers a Variable SPIA, and furthermore continually misappropriates the term SPIA to mean a Fixed SPIA.
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Post by Mel Lindauer » Tue Oct 06, 2009 11:47 am

VictoriaF wrote:
Mel Lindauer wrote:
VictoriaF wrote:Chapter 7 starts as follows:
dpbsmith in Chapter 7 wrote:A single-premium immediate annuity (SPIA) can pay you and your significant other an income for life.
I thought that SPIA extends only to spouses and not to girlfriends, boyfriends or other non-spousal significant others.

Victoria
Actually, Victoria, it's payable to the person you name as the "Joint Annuitant", and it's known as "the Joint and Last Survivor Annuity option" which is chosen under an Annuity Payment Option and pays over the life of more than one person.
Thank you, Mel. I stand corrected.

Victoria
Hi Again, Victoria:

I should have mentioned that the infomation I posted was from Vanguard's Annuity Prospectus.
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Post by LadyGeek » Tue Oct 06, 2009 4:51 pm

mephistophles wrote:I tend to disagree with doc's interpretation of the remarks on emergency room care. Federal law requires that patients receive screening, emergency medical care and transfer, if appropriate. This certainly constitues 'minimal care' and 'some level of treatment ' for everyone. Also, from a practical standpoint, many ER's provide care beyond the minimum required. Also, this section does not imply that ER care is free. Of course ER's bill insurance and individuals. Also, the context of the chapter is showing ER's as a last choice or option for those who may not have care available anywhere else.

I have no idea how to transfer this post to the wiki page, but that is my intent.
The transfer is fine. Since you disagreed with EmergDoc, I moved the whole discussion to the "discussion" tab (aka "Talk page" in wiki language) and put a link in the main page. If you would like to change anything, please feel free to update.

(The purpose of the "discussion" tab is to "discuss" topics on the associated page without affected the content.)

Please see Bogleheads' Guide to Retirement Planning on the Bogleheads Wiki.

Please see Bogleheads' Guide to Retirement Planning (discussion page) on the Bogleheads Wiki.
Barry Barnitz wrote:Chapter 7 makes great use of the term SPIA (Single Premium Immediate Annuity). The chapter correctly defines this term as the surrender of a capital payment in return for an immediate lifetime income stream.

However, this income stream can come in one of two forms:
  • A fixed income stream (either fixed, graded, or inflation-indexed) based on an insurer's general account ( a Fixed SPIA) , or
    A variable income stream based on a set of subaccounts ( a Variable SPIA).
The chapter never considers a Variable SPIA, and furthermore continually misappropriates the term SPIA to mean a Fixed SPIA.
Barry,

It seemed appropriate to add chapter related content to the Talk page. Feel free to put your comments there (with a link on the appropriate main page chapter section).
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Post by etherscreen78 » Tue Oct 06, 2009 5:27 pm

Qtman wrote:This book should be a required full year course for every high school senior in this country. We continue to graduate the vast majority of high school students with virtually no economic understanding. Whether they go on to college, trade or other - they need to understand these concepts.

Thanks to the authors, it is great.
i couldn't agree more! while it is one's responsibility to learn life's survival skills, the schools are doing a disservice including investing into the core curriculum.

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Post by LadyGeek » Fri Oct 09, 2009 8:41 pm

An update to Chapter 10, from ObliviousInvestor (posted on the wiki):
I may be mistaken, but I believe the last line on page 155 should state that Social Security and Medicare taxes total 7.65% rather than 7.85%.
I did a bit of research. Publication 15 (2009), (Circular E), Employer's Tax Guide, Section 9:
Tax rates and the social security wage base limit.

The Federal Insurance Contributions Act (FICA) provides for a federal system of old-age, survivors, disability, and hospital insurance. The old-age, survivors, and disability insurance part is financed by the social security tax. The hospital insurance part is financed by the Medicare tax. Each of these taxes is reported separately.

Social security and Medicare taxes have different rates and only the social security tax has a wage base limit. The wage base limit is the maximum wage that is subject to the tax for the year. Determine the amount of withholding for social security and Medicare taxes by multiplying each payment by the employee tax rate. There are no withholding allowances for social security and Medicare taxes.

The employee tax rate for social security is 6.2% (amount withheld). The employer tax rate for social security is also 6.2% (12.4% total). The 2008 wage base limit was $102,000. For 2009, the wage base limit is $106,800.

The employee tax rate for Medicare is 1.45% (amount withheld). The employer tax rate for Medicare tax is also 1.45% (2.9% total). There is no wage base limit for Medicare tax; all covered wages are subject to Medicare tax.
7.65% = 6.2% + 1.45%

Looks good to me, assuming that's what the chapter author intended. (Caveat: I am not a tax expert, will defer to the author / experts.)

This section of Publication 15 also defines what FICA stands for, as well as OASDI (Old-Age, Survivors, and Disability Insurance).
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Post by LadyGeek » Fri Oct 09, 2009 9:05 pm

One more update: The chapter author concurred with a typo correction to Table 11.3, page 175.

Please see Bogleheads' Guide to Retirement Planning on the Bogleheads Wiki.
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Several more corrections

Post by grabiner » Mon Oct 12, 2009 12:27 am

I just got my own copy of the Bogleheads' Guide, and added several more corrections to the Wiki page. I am the co-author of Chapters 9 and 10, which are two of the corrections; the others are pending author concurrence.

Chapter 2, p. 24, Interest Income: Private purpose municipal bonds are still tax-exempt; they are subject to the AMT, and your mutual fund will notify you if it holds such bonds. (This is correct on p. 28.)

Chapter 2, p. 25: If you have a stock mutual fund which pays dividends, both you and the fund must satisfy the 61-day rule for the dividend to be qualified. (This is correct on p. 39 in Chapter 3.)

Chapter 8, p. 128: The spread on an ETF does not represent the spreads of securities in the fund; it represents the liquidity of the ETF itself.

Chapter 9, Table 9.1: Worst 5 years for stock real returns should be 1916-1920, not 1916-1928.

Chapter 10, Table 10.1: Withdrawals from a non-qualified annuity are partly tax-free; only the gains are taxed.

Chapter 15, p. 253 (correction on talk page only because I would like the author's wording): A transfer of assets at full value is not a gift, but it also does not reduce wealth for Medicare purposes.

Please see Bogleheads' Guide to Retirement Planning on the Bogleheads Wiki.
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Post by LadyGeek » Mon Oct 12, 2009 7:03 pm

A comment regarding ''Health Savings Accounts'', pp. 247-248:

There is no mention of Flexible Spending Arrangements (FSAs). While similar to Health Savings Accounts (HSAs), there is an important difference in that the ''employer'' sets the contribution limits, not the IRS. I was expecting FSAs to be covered in this section. The reader might be misled into thinking that IRS contribution limits apply to FSAs.

I updated the wiki discussion page as I'm not sure what additional info should be put on the corrections page, if any. As a user of FSAs, I was looking for this info and didn't find it. If I am incorrect, please let me know.

The discussion page: Please see Bogleheads' Guide to Retirement Planning (discussion page) on the Bogleheads Wiki.

Reference: IRS Pub 969: Health Savings Accounts and Other Tax-Favored Plans

The main correction page: Please see Bogleheads' Guide to Retirement Planning on the Bogleheads Wiki.
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Post by Peter Foley » Mon Oct 12, 2009 10:25 pm

I'm curious as to the experience of chapter authors regarding their own editing process. My initial draft of chapter 1 was in excess of 7,000 words so I had to make some choices as to what to leave out. For example, Lee Marshall decided to leave out FSA's for lack of space according to his discussion with Lady Geek on: Bogleheads' Guide to Retirement Planning (discussion page) on the Bogleheads Wiki.

I regret not having included more about "happiness" and its lack of correlation to income, but I just didn't feel I could devote the additional 500 words I needed to cite the research and develop the topic futher. Having read most of the book, I now see I could have cut a couple paragraphs in other sections of chapter 1 because the topic is covered with equal or more insight in a later chapter. Hindsight is 20-20, of course.

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SEPP in Chapter 4

Post by Barry Barnitz » Tue Oct 13, 2009 1:26 pm

Keith1660 in Conversation 44255, SEPP:Substantially Equal Payments:

keith1660 wrote:In the marvelous book, Bogleleheads’ Guide to Retirement Planning, Jim Dahle (EmergDoc) on the top of page 51 says, “To claim one of these exceptions, you must have had the IRA at least five years.”

Can anyone clarify this and/or refer to the IRS ruling? I want to directly rollover my 457(b) account to a traditional IRA (better funds at Vanguard) and then immediately take early distributions via the SEPP exception. But I will not have had my IRA account open for the five years as required and stated above.

I'm 49 y/o.

I believe this rule is only for ROTH IRA’s
keith1660 wrote:]Additionally, I have read IRS publication 529, the WIKI on SEPPs, and the 72(t) rulings.

Based on what I have researched, I think the book is incorrect on this.
regards,
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Re: While on Chapter 7

Post by Barry Barnitz » Tue Oct 13, 2009 1:43 pm

Barry Barnitz wrote:Chapter 7 makes great use of the term SPIA (Single Premium Immediate Annuity). The chapter correctly defines this term as the surrender of a capital payment in return for an immediate lifetime income stream.

However, this income stream can come in one of two forms:
  • A fixed income stream (either fixed, graded, or inflation-indexed) based on an insurer's general account ( a Fixed SPIA) , or
    A variable income stream based on a set of subaccounts ( a Variable SPIA).
The chapter never considers a Variable SPIA, and furthermore continually misappropriates the term SPIA to mean a Fixed SPIA.
The author replies (from conversation 570064, The Bogleheads Guide to Retirement is Here.
dpbsmith wrote:Hey, Barry, what's your avatar? Looks like Franz Liszt but too neat, tidy, and dispassionate. That isn't by any wild chance Melvil Dui, is it?
Barry Barnitz wrote:I must note that I am quite bothered by the continual misattribution of the term SPIA in [chapter 7]. It is continually applied to an immediate fixed annuity, or as the chapter should call it, a Fixed Annuity SPIA. A SPIA can have either a fixed (including variants such as graded, or inflation-indexed) payout funded from an insurer's general account, or as a variable payout funded from investment portfolios in an insurer's segregated separate account. The chapter does not even consider this Variable Annuity SPIA option. For the relevance of the variable option see Merging Asset Allocation and Longevity Insurance: An Optimal Perspective on Payout Annuities, Milevsky and Chen, Journal of Financial Planning/June 2003.
Noted.

I struggled with this a bit and even called on this forum for help.

It's a mess. There doesn't seem to be any standard terminology, or if there is I couldn't find a good reference or summary. The possible taxonomy of annuities is large. sscritic had a clever suggestion... "any combination of the letters S, P, F, I, and A, as long as the S and P are together and the A comes last..." but I did not want to use neologisms.

In one book, Milevsky calls them LPIA's (Lifetime payout income annuities) but I think that's his own neologism.

Mephistophles says "All the current acronyms are partly misleading" but has no suggestions for remedy.

I felt and feel strongly that I did not want to create anything neologistic. When I read over the thread, the impression I got was that SPIA was sorta-kinda OK and that there wasn't anything that was clearly better. And though, as Wikipedia says "voting is evil," the actual vote was almost a supermajority for "SPIA."

I don't know what opportunities there will be for revision, but I'm certainly open to suggestion. Your suggestion--include the well-known term SPIA but add qualifiers to it--has merit. I'm afraid that the specific phrase "Fixed Annuity SPIA" grates on me like "Rio Grande River" (i.e. "big river river").
Two other suggested options in the conversation :"Fixed SPIA" or " Fixed Immediate Annuity."

regards,
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Post by mephistophles » Tue Oct 13, 2009 2:02 pm

Peter Foley wrote:I'm curious as to the experience of chapter authors regarding their own editing process. My initial draft of chapter 1 was in excess of 7,000 words so I had to make some choices as to what to leave out. For example, Lee Marshall decided to leave out FSA's for lack of space according to his discussion with Lady Geek on: Bogleheads' Guide to Retirement Planning (discussion page) on the Bogleheads Wiki.

I regret not having included more about "happiness" and its lack of correlation to income, but I just didn't feel I could devote the additional 500 words I needed to cite the research and develop the topic futher. Having read most of the book, I now see I could have cut a couple paragraphs in other sections of chapter 1 because the topic is covered with equal or more insight in a later chapter. Hindsight is 20-20, of course.
Peter, I could have written a full book on life insurance, disability insurance, medical insurance and long term care. My understanding of the objective of the book committee was to write general introductory chapters for beginners and stay within the page limits set by the committee. To stay within the parameters of about 15 pages, I left out FSA's, cafeteria plans, accidental hospitalization and disability plans as promoted by the AFLAC duck and some other pertinent subjects, just in the medical insurance area. It was a judgment call and I can't say whether I was right or wrong. For example, the chapter on SPIA's runs 25 pages long on just SPIA's which is only one type of annuity among a very large number of financial products available for retirement planning. Some readers will get the idea that Bogleheads put a huge emphasis on SPIA's in the retirement planning process. That would be my impression.

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Post by LadyGeek » Tue Oct 13, 2009 7:15 pm

The reason I commented that FSAs (Flexible Spending Arrangements) were missing is because that was the only type of health savings plan I knew. I was disappointed that the book didn't contain FSAs and I didn't know why.

It took some research on my part to figure out that it was not the Health Savings Account from the IRS. Where did I find the information? In the reference section (IRS Pub 969) of the Health Savings Account on the Bogleheads Wiki.

Certainly, I learned from the chapter. My thinking is that the wiki could be used to supplement information from the book. The intent is not to work towards another book, but to simply learn from the combination of book and the wiki. There's already one example, see the Chapter 11 notes of the Bogleheads' Guide to Retirement Planning (discussion page).

If someone disagrees with this approach, that's fine. Using the wiki in this manner seemed like a good idea to me, so I started the page (OK from the authors) with a format to fit this scheme. Any wiki editor can change whatever they like (for example page format and content), it's a community project.

I added my response on the wiki page (but much more concisely).
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Post by mephistophles » Tue Oct 13, 2009 8:29 pm

LadyGeek wrote:The reason I commented that FSAs (Flexible Spending Arrangements) were missing is because that was the only type of health savings plan I knew. I was disappointed that the book didn't contain FSAs and I didn't know why.

It took some research on my part to figure out that it was not the Health Savings Account from the IRS. Where did I find the information? In the reference section (IRS Pub 969) of the Health Savings Account on the Bogleheads Wiki.

Certainly, I learned from the chapter. My thinking is that the wiki could be used to supplement information from the book. The intent is not to work towards another book, but to simply learn from the combination of book and the wiki. There's already one example, see the Chapter 11 notes of the Bogleheads' Guide to Retirement Planning (discussion page).

If someone disagrees with this approach, that's fine. Using the wiki in this manner seemed like a good idea to me, so I started the page (OK from the authors) with a format to fit this scheme. Any wiki editor can change whatever they like (for example page format and content), it's a community project.

I added my response on the wiki page (but much more concisely).

Your approach is excellent and I suggest that you do a write up on FSA's for the WIKI. There may be many others out there who would like information on this subject.

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Post by LadyGeek » Tue Oct 13, 2009 8:56 pm

No problem. I'll take a shot at it later this week. My background is engineering, not finance. I'll ask for an "expert" to review /correct my work when it's ready.

As they say, the best way to learn a subject is to teach it. I'm learning a lot...
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Post by Paladin » Tue Oct 13, 2009 9:58 pm

etherscreen78 wrote:
Qtman wrote:This book should be a required full year course for every high school senior in this country. We continue to graduate the vast majority of high school students with virtually no economic understanding. Whether they go on to college, trade or other - they need to understand these concepts.

Thanks to the authors, it is great.
i couldn't agree more! while it is one's responsibility to learn life's survival skills, the schools are doing a disservice including investing into the core curriculum.
I think you mean to say "not including". I would argue that it is a school's responsibility to educate people in the broadest sense of the word.

One could say it is one's responsibility to learn English, History and Calculus as well. There are many ways to learn these subjects apart from attending a school.

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Post by sia » Thu Oct 15, 2009 10:36 am

Hi, I really enjoyed the book - well done!

One wish for the next version - in the section about how to find an advisor, I was really expecting some advice on how to look for a good estate attorney since in the estate planning section it is recommended to get one.

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Post by LadyGeek » Fri Oct 16, 2009 3:43 pm

sia wrote:...I was really expecting some advice on how to look for a good estate attorney since in the estate planning section it is recommended to get one.
Why don't you start a thread in the Personal Finance (Not Investing) forum? I suspect you'll get some answers (sorry, not my background).
mephistophles wrote:Your approach is excellent and I suggest that you do a write up on FSA's for the WIKI. There may be many others out there who would like information on this subject.
FSAs are now on the wiki. Please see Flexible Spending Arrangement - FSA on the Bogleheads Wiki. I added a note to the Bogleheads' Guide to Retirement Planning (discussion page) .
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Post by gkaplan » Fri Oct 16, 2009 4:32 pm

[proposed legislation is not an appropriate topic]
Gordon

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Post by LadyGeek » Sun Oct 18, 2009 3:39 pm

There is a new worksheet to help families determine life insurance needs (Chapter 14). It's been added as part of Life Insurance on the Bogleheads Wiki.

Supplemental material, in the form of wiki page updates, is available for Chapters 11, 14, and 15.

Please see Bogleheads' Guide to Retirement Planning on the Bogleheads Wiki, which contains corrections to the content. Links to the discussion page (which has the wiki page updates) are provided for additional information.

A direct link: Bogleheads' Guide to Retirement Planning (discussion page).
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Post by tfb » Wed Oct 21, 2009 12:27 am

Chapter 3 Taxable Accounts

p.36 says TLH is an advantage of taxable accounts. It's way to mitigate the disadvantage, but it's not an advantage by itself. In other words, you don't forego a tax deferred account in favor of a taxable account because you can TLH.

p.38 Ticker symbol for Hewlett-Packard is HPQ, not HP

p.40 gave the impression if you want to invest in stock funds you should buy it in a taxable account and not contribute to a tax deferred account.

p.41 Tax-Managed International is mentioned without context. Bogleheads know it's a Vanguard fund. Others don't.

Chapter 4 IRA

p.50 confuses income limit for contribution with income limit for taking a deduction. 2nd paragraph leads off with income limit for contribution, continues with income limit for taking a deduction, and returns to saying there is no income limit for contribution.

p.50 $53k-63k limit for "those filing separately" -- should be single. Numbers are for 2008. Other numbers are for 2009.

p.51 Roth income limits are also for 2008 tax year.

p.59 numbers in the table are for 2008 tax year although the title of the table says 2009
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Post by LadyGeek » Wed Oct 21, 2009 3:32 pm

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Post by Mel Lindauer » Thu Oct 22, 2009 3:57 pm

There doesn't seem to be a discussion tab for Chapter 18, but someone incorrectly claimed on the wiki that equity-indexed annuities are fixed annuities, and that's not how the SEC defines them. Here's what the SEC site says about equity-indexed annuities:
An equity-indexed annuity is a special type of annuity. During the accumulation period – when you make either a lump sum payment or a series of payments – the insurance company credits you with a return that is based on changes in an equity index, such as the S&P 500 Composite Stock Price Index. The insurance company typically guarantees a minimum return. Guaranteed minimum return rates vary. After the accumulation period, the insurance company will make periodic payments to you under the terms of your contract, unless you choose to receive your contract value in a lump sum.

Variable annuities are securities regulated by the SEC. Fixed annuities are not securities and are not regulated by the SEC. Equity-indexed annuities combine features of traditional insurance products (guaranteed minimum return) and traditional securities (return linked to equity markets). Depending on the mix of features, an equity-indexed annuity may or may not be a security. The typical equity-indexed annuity is not registered with the SEC.

You can learn more about variable annuities by reading our publication, Variable Annuities: What You Should Know. You can learn more about equity-indexed annuities by reading our online brochure, which explains equity-indexed annuities and provides resources for obtaining additional information.


http://www.sec.gov/answers/annuity.htm
Here's the "online brochure" mentioned in the last paragraph:
Equity-Indexed Annuities
Are you considering buying an equity-indexed annuity? This brochure explains equity-indexed annuities and provides resources for obtaining additional information.

What is an equity-indexed annuity?
An equity-indexed annuity is a special type of contract between you and an insurance company. During the accumulation period – when you make either a lump sum payment or a series of payments – the insurance company credits you with a return that is based on changes in an equity index, such as the S&P 500 Composite Stock Price Index. The insurance company typically guarantees a minimum return. Guaranteed minimum return rates vary. After the accumulation period, the insurance company will make periodic payments to you under the terms of your contract, unless you choose to receive your contract value in a lump sum.

Can you lose money buying an equity-indexed annuity?
You can lose money buying an equity-indexed annuity, especially if you need to cancel your annuity early. Even with a guarantee, you can still lose money if your guarantee is based on an amount that’s less than the full amount of your purchase payments. In many cases, it will take several years for an equity-index annuity’s minimum guarantee to “break even.”

You also may have to pay a significant surrender charge and tax penalties if you cancel early. In addition, in some cases, insurance companies may not credit you with index-linked interest if you do not hold your contract to maturity.

What are some of the contract features of equity-indexed annuities?
Equity-indexed annuities are complicated products that may contain several features that can affect your return. You should fully understand how an equity-indexed annuity computes its index-linked interest rate before you buy. An insurance company may credit you with a lower return than the actual index’s gain. Some common features used to compute an equity-indexed annuity’s interest rate include:

Participation Rates. The participation rate determines how much of the index’s increase will be used to compute the index-linked interest rate. For example, if the participation rate is 80% and the index increases 9%, the return credited to your annuity would be 7.2% (9% x 80% = 7.2%).

Interest Rate Caps. Some equity-indexed annuities set a maximum rate of interest that the equity-indexed annuity can earn. If a contract has an upper limit, or cap, of 7% and the index linked to the annuity gained 7.2%, only 7% would be credited to the annuity.

Margin/Spread/Administrative Fee. The index-linked interest for some annuities is determined by subtracting a percentage from any gain in the index. This fee is sometimes called the “margin,” “spread,” or “administrative fee.” In the case of an annuity with a “spread” of 3%, if the index gained 9%, the return credited to the annuity would be 6% (9% - 3% = 6%).

Another feature that can have a dramatic impact on an equity-indexed annuity’s return is its indexing method (or how the amount of change in the relevant index is determined). Some common indexing methods include:

Annual Reset (or Ratchet). This method credits index-linked interest based on any increase in index value from the beginning to the end of the year.

Point-to-Point. This method credits index-linked interest based on any increase in index value from the beginning to the end of the contract’s term.

High Water Mark. This method credits index-linked interest based on any increase in index value from the index level at the beginning of the contract’s term to the highest index value at various points during the contract’s term, often annual anniversaries of when you purchased the annuity.

These and other features may be included in an equity-indexed annuity you are considering. Before you decide to buy an equity-indexed annuity, you should understand how each feature works and what impact, together with other features, it may have on the annuity’s potential return.

Who should I contact if I have a problem?
You can send us your complaint using our online complaint form at www.sec.gov/complaint.shtml. You can also reach us by regular mail at:

Securities and Exchange Commission
Office of Investor Education and Advocacy
100 F Street, N.E.
Washington, D.C. 20549-0213
Best Regards - Mel | | Semper Fi

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EIA

Post by Barry Barnitz » Thu Oct 22, 2009 4:42 pm

Hi:

Sorry Mel, but you are incorrect. EIAs are considered a special type of fixed annuity, with a variable interest rate, and are not variable annuities. Variable annuities are funded by investments in segregated subaccounts with unitized shares and net asset values (similar to mutual funds), walled off from an insurer's general account. They are considered investment securities sold with prospectuses and, as such are placed under the jurisidiction of the SEC.

EIAs are funded, as are all fixed annuities, from the insurer's general account. In this instance (and here is where the confusion arises) the EIA is funded by the general account's coupon bonds (to cover the guaranteed interest amount) and stock options to provide for a variable interest rate linked to stock market price performance. The variable rate EIA is not considered a security; is not sold by prospectus; and, like all other fixed annuities, is regulated by state insurance agencies.

However, it should be pointed out that the SEC is attempting to have EIA's reclassified as securities so that they will fall under the SEC 's mandate.

Check with Meph to get a professional's take on this question.

The discussion tab is on the wiki page: Please see Bogleheads' Guide to Retirement Planning (discussion page) on the Bogleheads Wiki.

regards
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Re: EIA

Post by DaleMaley » Thu Oct 22, 2009 6:10 pm

Barry Barnitz wrote:Hi:

Sorry Mel, but you are incorrect. EIAs are considered a special type of fixed annuity, with a variable interest rate, and are not variable annuities. Variable annuities are funded by investments in segregated subaccounts with unitized shares and net asset values (similar to mutual funds), walled off from an insurer's general account. They are considered investment securities sold with prospectuses and, as such are placed under the jurisidiction of the SEC.

EIAs are funded, as are all fixed annuities, from the insurer's general account. In this instance (and here is where the confusion arises) the EIA is funded by the general account's coupon bonds (to cover the guaranteed interest amount) and stock options to provide for a variable interest rate linked to stock market price performance. The variable rate EIA is not considered a security; is not sold by prospectus; and, like all other fixed annuities, is regulated by state insurance agencies.

However, it should be pointed out that the SEC is attempting to have EIA's reclassified as securities so that they will fall under the SEC 's mandate.

Check with Meph to get a professional's take on this question.

The discussion tab is on the wiki page: Please see Bogleheads' Guide to Retirement Planning (discussion page) on the Bogleheads Wiki.

regards
I am one of the two authors who wrote Chapter 18, and I wrote the portion saying equity indexed annuities were a form of variable annuities. One of the reasons I called them an onerous investment is that people don't seem to be even able to agree on the definition of them. For example, the FINRA Investor Alert says:
What is an Equity-Indexed Annuity?

EIAs are complex financial instruments that have characteristics of both fixed and variable annuities. Their return varies more than a fixed annuity, but not as much as a variable annuity. So EIAs give you more risk (but more potential return) than a fixed annuity but less risk (and less potential return) than a variable annuity.


EIAs offer a minimum guaranteed interest rate combined with an interest rate linked to a market index. Because of the guaranteed interest rate, EIAs have less market risk than variable annuities. EIAs also have the potential to earn returns better than traditional fixed annuities when the stock market is rising.
In my mind, annuities are either fixed or variable. I agree with FINRA's definition in the same Investor Alert:
Annuities come in two types: fixed and variable. With a fixed annuity, the insurance company guarantees both the rate of return and the payout. As its name implies, a variable annuity's rate of return is not stable, but varies with the performance of the stock, bond, and money market investment options that you choose. There is no guarantee that you will earn any return on your investment and there is a risk that you will lose money. Unlike fixed contracts, variable annuities are securities registered with the Securities and Exchange Commission (SEC).
Since the return on an EIA is not fixed, it is variable with the stock market returns......in my mind is can not be a fixed annuity. From the investor's perspective, I really don't care how the insurance company funds it or what account it funds it from....I want to know if the return is fixed or variable to me.
Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees. – Warren Buffett

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Barry Barnitz
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EIAs

Post by Barry Barnitz » Thu Oct 22, 2009 6:44 pm

I am one of the two authors who wrote Chapter 18, and I wrote the portion saying equity indexed annuities were a form of variable annuities. One of the reasons I called them an onerous investment is that people don't seem to be even able to agree on the definition of them.
True. They are best described, perhaps, as a hybrid annuity. They are more accurately defined as a form of fixed annuity. Describing how the annuity works, with all of its downsides, is legitimate.
Unlike fixed contracts, variable annuities are securities registered with the Securities and Exchange Commission (SEC).
EIAs are not considered variable annuities, are not considered securities and are not registered with SEC. This is the current stature of the law.
Perhaps the best indicator of this status is the fact that EIAs can be sold by insurance salemen without a securities license while they must have the license in order to sell variable annuities.

Meph will hopefully weigh in.

regards,
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Post by LadyGeek » Thu Oct 22, 2009 9:06 pm

I moved the equity indexed annuities to the discussion page and "translated" the forum syntax to wiki syntax. Wiki editors are more than welcome to update / correct these pages. Feel free to add sections as needed.

Please see Bogleheads' Guide to Retirement Planning (discussion page) on the Bogleheads Wiki.

I also made a note on the corrections page with pointer to the discussion. Please see Bogleheads' Guide to Retirement Planning on the Bogleheads Wiki.
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