Talk:Bogleheads' Guide to Retirement Planning

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This page contains additional comments and clarifications.

Chapter 2: Understanding Taxes (Norman S. Janoff)

The section, Interest Income p.24, mentions interest from bank accounts, certificate of deposits, and taxable money market funds as being reported on a 1099-INT form. This is incorrect, as taxable money market fund dividends are reported on a form 1099-DIV, as are stock and bond mutual fund dividends. Actually, interest from bank accounts, certificate of deposits, taxable money market instruments, and taxable bonds are reported on a 1099-INT. --Blbarnitz 19:05, 24 October 2009 (UTC) (concurred by AzRunner)

From David Grabiner: 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.

I cite this from albusiness.com glossaries:

private purpose bond- category of municipal bond distinguished from public purpose bond in the tax reform act of 1986 because 10% or more of the bond's benefit goes to private activities or 5% of the proceeds (or $5 million if less) are used for loans to parties other than governmental units. Private purpose obligations, which are also called private activity bonds or nonessential function bonds, are taxable unless their use is specifically exempted. Even tax-exempt permitted private activity bonds, if issued after August 7, 1986, are tax preference items , except those issued for 501(c)(3) organizations (hospitals, colleges, universities). [b]Private purpose bonds specifically prohibited from tax-exemption effective August 15, 1986, include those for sports, trade, and convention facilities and large-issue (over $1 million) Industrial Development Bonds[/b] . Permitted issues, except those for 501(c)(3) organizations, airports, docks, wharves, and government-owned solid-waste disposal facilities, are subject to volume caps.

The text specifically say, "The exception are private purpose bonds used to finance such projects as a sports stadium", therefore, I do not agree with the proposed change.

I accept that the text is right here and deleted my correction from the corrections page. Municipal bond funds will not hold taxable private-activity bonds, but the text on p. 24 deals with individually held bonds. However, the example on page 28 needs to be corrected, "The AMT... also counts as income the interest from private-activity bonds,... usually to finance sports stadiums and the like." It should probably say something like, "to finance airports and the like," since that is an example of a private-activity bond subject to AMT but not regular income tax.Grabiner 04:11, 9 November 2009 (UTC)

Chapter 7: Single-Premium Immediate Annuities (Dan Smith)

This chapter makes extensive 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:

  1. A fixed income stream (either fixed, graded, or inflation-indexed) based on an insurer's general account ( a Fixed SPIA) , or
  2. 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. --Blbarnitz 22:31, 6 October 2009 (UTC)


The recent chapter in the Retirement Planning book only considered Fixed Immediate Annuity (including the inflation-indexed variation), along with a good overview of Charitable Gift Annuities, but totally neglected the second payout mechanism to a SPIA: the Variable Immediate Annuity.

This oversight was curious (outside of page limitation) because the Variable Payout option has utility for younger retirees who partially annuitize a nest egg.

Now there are many circumstances in which a SPIA is not appropriate:

  1. An individual is in ill-health.
  2. An individual already possesses adequate annuitized streams of income from social security and defined benefit pension payments.
  3. An individual is sufficiently wealthy that there is no need to annuitize wealth to generate subsistence income.
  4. An individual has a heavy commitment to provide bequests.

Many healthy individuals will fall into a category where a partial annuitization of the nest egg would be a possible option.

Now, if the individual delays annuitization until the ages of say 75-85, the most prudent option would probably be a Fixed Immediate Annuity, since inflation would be much less of a concern for an older retiree with a shorter life expectancy.

However, a younger retiree (55-65) would likely be much better served by a partial annuitization involving an allocation to inflation-indexed and immediate variable annuity payouts. Please see Immediate Variable Annuity - SPIA for a stub page which explains how the Variable Immediate Annuity payouts are determined. ( As an aside, a Fixed Immediate Annuity is no more than a Variable Immediate Annuity in which the insurance company guarantees that the realized return will always equal the AIR, so the payouts will not vary.)


Here are immediate variable annuity payout considerations.

  1. Costs: Costs are critical. No-load low cost Variable Immediate Annuities are available from Vanguard and TIAA-CREF (60-85 basis points). This is more expensive than similar indexed mutual funds; although a Fixed Immediate Annuity will also have (undetermined since the instrument is a black box) costs almost surely higher than similar indexed bond mutual funds.
  2. Taxes: A great deal of potential partial annuitization will come from qualified accounts (401(k)/403(b)) so the tax question is moot. All withdrawals from qualified accounts are taxed at marginal rates.
  3. Flexibility: As outlined in Peng and Milevsky, an investor who has determined a 50/50 fixed/variable allocation conventional portfolio as desirable, should mirror the allocation in the annutization space 50/50 fixed/variable. The variable option is flexible because the investor can change allocations from equity subaccounts to bond subaccounts if the desired allocation changes (a la the age in bond approach) or the individual can shift a portion of the variable subaccount into the insurer's Fixed Immediate Annuity (as of the moment, this exchange option does not appear to be available for moving variable assets into inflation-indexed payouts.)
  4. To reduce income volatility and allow for future potential increases in income, a young retiree should be inclined to select a low AIR ( 0% - 3.5%) for the variable payout option. See Otar: A More Perfect Mix for additional detail.
  5. If one is dealing with appreciated equity assets in the taxable account, one might consider these assets as optimal bequest assets (either stepped up valuation for individual bequests) or if charitably inclined, as funding assets for a Charitable Remainder Trust (for sizable accounts, especially not desiring fixed payouts) or Charitable Gift Annuities (for smaller accounts and individuals seeking a fixed payout.) Please see Gift Annuity for additional details.
  6. While somewhat of a gray area, a variable annuitization in separate account subaccounts should have much lower default risk than fixed annuitizations from an insurer's general account. --Blbarnitz 21:45, 28 November 2009 (UTC)

Chapter 10: Funding Your Retirement Accounts (David Grabiner and Ian Forsythe)

As the author of Table 10.2, I concur with the posted correction. The last entry on the third row should be $1,000, not $1,333. I have this table from the drafts and the number was $1,000 in the draft table.Grabiner 23:50, 4 October 2009 (UTC)

I also checked the numbers and concur with the Social Security correction.Grabiner 03:09, 11 October 2009 (UTC)

Chapter 11: Understanding Social Security (Dick Schreitmueller)

Changes to Table 11.3 concurred by chapter author rschreit via Mel Lindauer. Change entered by LadyGeek 01:55, 10 October 2009 (UTC)

Taxation of Social Security benefits contains the formula references for Chapter 11 and is easier to use than the IRS guides. Grabiner created the wiki page. LadyGeek 02:32, 13 October 2009 (UTC)

Chapter 14: Income Replacement (Lee E. Marshall)

This chapter has been updated by the author, on the Wiki to include a new definition of life insurance and a worksheet to help families determine life insurance needs.

Please see Life Insurance. --LadyGeek 20:19, 18 October 2009 (UTC)

Chapter 15: Health Insurance (Lee E. Marshall)

Emergency Room Care From EmergDoc, a clarification to the last paragraph of page 246, ending on page 247:

Emergency departments (and hospitals with emergency departments) 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. Patients will receive a bill for the visit, which is sent to collections if it is not paid.

Response from Lee Marshall:

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. LadyGeek 21:32, 6 October 2009 (UTC)

Medicaid From David Grabiner, correction on p. 253:

"You will not qualify for Medicaid if you transferrred assets at less than full market value to family members during this period. You could gift the assets at full value, but that might result in a gift tax." If you transfer assets at full market value, that is not a gift, so gift tax does not apply. However, transferring assets at full value does not help you meet the wealth limits, as you would just trade an asset worth $100,000 for $100,000 in cash. I would suggest deleting the "You could gift the assets at full value" sentence.

Response from Lee Marshall:

David, I fully agree with your astute observation. The 'gifting at full market value' statement was a late-stage edit by a member of the Bogleheads book committee. They made a number of edits that changed the meaning of what I originally wrote. I requested removal of all of these late edits, but my request was denied. At the very end, I tried to re-edit out as many of these errors as I could, but obviously I missed some. Here is my original language in my final recommended draft in the February 28, 2009 version:

"Recent federal law has increased Medicaid's Lookback Rule to five years. If you transferred assets for less than full market value during this period, you will not qualify for Medicaid. Another problem with gifting, or giving away assets to family members is that once given away, they are irrevocably gone. You can't get them back if your situation changes, or if you change your mind."

==CHANGED IN THE PAPERBACK EDITION (Mel)==

As you can see, there is no mention of gifting at full market value as that is a contradiction in itself. Do you like my original language shown above? If so, I suggest it be changed here, and in future editions of the book itself.

I agree with your re-wording. You might write, "you will not qualify for Medicaid until you, or they, pay the value of the gifts toward the care that Medicaid would have covered." Your wording is also reasonable.Grabiner 22:44, 12 October 2009 (UTC)

Response to David Grabiner from Lee Marshall

I agree to go with my original wording in paragraph two above.

Health Savings Accounts From LadyGeek, pp. 247-248:

There is no mention of Flexible Spending Arrangements (FSAs).[1] 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. LadyGeek 23:55, 12 October 2009 (UTC)

Response from Lee Marshall, LadyGeek, you are correct. I had to cover the entire U.S. healthcare system in about 10 pages or one half a chapter (the other half on long term care). I decided not to cover FSA's/cafeteria plans to keep the chapter within boglehead book committee guidelines. On second thought, FSA's should be addressed in about a paragraph.

Descriptions could be added to Health savings account, which is also missing FSAs/cafeteria plans. This section could then refer to Health savings account for further info. LadyGeek 02:49, 13 October 2009 (UTC)

Lady...I guess my question, of a more general nature, is what these changes on this Wiki discussion board will bring about. The book is already out. Will these discussions result in changes to future book distributions? If not, I don't quite understand what we are trying to accomplish. If we just want to create or beef up cafeteria plan, FSA info on the Wiki then a full and thorough section would be better.

Lee, my thoughts are that the wiki could supplement book material to further educate the reader (note Grabiner example in Chapter 11 above). LadyGeek 21:56, 13 October 2009 (UTC)

Flexible spending arrangement has been added to the wiki. LadyGeek 20:24, 16 October 2009 (UTC)

Chapter 16: Essentials of Estate Planning (Robert A. Stermer)

Self-Settled Trusts

Discussion from this thread: possible Bogleheads Guide to Retirement typo? (Edited for the wiki by LadyGeek 21:12, 28 October 2009 (UTC))

LH: pg 268 "A trust in which the settlor is the source of the assets contributed is known as a self-settled trust" The word settlor should be replaced by the word "beneficiary"?

sscritic: Good catch! When the settlor is the beneficiary, the trust is self-settled. Other possible wordings for the sentence:

  • "A trust in which the settlor (the source of the assets contributed) is the beneficiary is known as a self-settled trust."
  • "A trust in which the beneficiary is also the settlor (the source of the assets contributed) is known as a self-settled trust."

[written by a layman] This ignores the possibility that the assets are held by a custodian for the beneficiary and the custodian creates a trust for the benefit of the beneficiary using the beneficiary's funds. For example, a child wins a law suit after a car accident; the parent is the custodian of the settlement; and the parent creates the trust with the proceeds. Is the parent the settlor? Is the trust still self-settled?

Note that the definitions above of self-settled don't use the term settlor, but only beneficiary. Perhaps the book shouldn't use the term settlor either and go with your suggested "A trust in which the beneficiary is the source of the assets contributed is known as a self-settled trust"

JDCPAEsq: I've never heard the term "self-settled trust" and don't even find it in my law school trusts casebook or in "Black's Law Dictionary". In most states the creator of the trust is known as the settlor. If the settlor is also the beneficiary it normally is a revocable trust, and if the settlor is both the trustee and the beneficiary it is called a self declaration of trust.

I'm sure self-settled trust is a valid term, but it sounds to me like one of those ancient terms in the law that came from English common law and is now little used. -John

sscritic: My google search found that it was used in two ways: for a special needs trust and as an attempt at asset protection using a self settled trust with a spendthrift provision. Wikipedia includes the following: The general rule: Self-settled trusts do not protect the trust creator (see forum thread for full context -LadyGeek)

JDCPAEsq: Yes, I saw that too. My impression is that it is being used by someone marketing those types of trusts, but it is not used by lawyers, at least not in my experience. --John


Chapter 18: Seeking Help from Professionals (Dale C. Maley and Lauren Vignec)

EQUITY INDEXED ANNUITIES from Lee Marshall, page 291

The text states: "Equity-indexed annuities are another onerous form of variable annuities."

Actually they are a form of fixed annuity, not variable annuity. They can be sold by agents who are not securities licensed. This is what makes them particularly misleading.

Equity Indexed Annuities, comments by Dale C. Maley (A.K.A. DaleMaley)

I am one of the two authors for Chapter 18 and I wrote the portion called equity-indexed annuities 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.

I stand by what I wrote in regards to EIA's being a form of variable annuity.


From Lee Marshall, aka ole meph. I am an expert in this area. You are wrong. There are no opinions on this. Fact is that equity indexed annuities are classified as a form of fixed annuity. See Barry Barnitz's remarks in the post on the main forum. While they may be treated as a security in the future, they have not been in the past.

A reference from Lee Marshall from the National Association of Insurance Commissioners--the people who regulate insurance and annuity products at the state level:

NAIC and Affiliates NAIC, Affiliates and Members InsureU NAIC NIPR SBS SERFF Committee Activity Education & Training NAIC Meetings Summaries NAIC News Releases NAIC Publications & Data:

Seniors:Educate Yourself on Annuities- 12k - 2009-09-14 -

Equity-Indexed Annuity:
A variation of a fixed annuity where the interest rate is based on an outside index, such as a stock market index.


Additional Thoughts from Dale C. Maley on 1/31/10

Wow, I never thought my sentence in Chapter 18 that investor’s should think of equity indexed annuities as variable versus fixed annuities would create so much controversy. From what I can tell, the people who object to my characterization of equity indexed annuities as a form of variable annuities are all salesmen of equity indexed annuities.

I am not a lawyer, so it is difficult for me to determine the legal definition of equity indexed annuities. If you rely on historical law, at least up until the last few years, equity indexed annuities have legally been defined as fixed versus variable annuities. This definition has allowed insurance salesmen to sell these products without a securities license.

A couple years ago the SEC started the process of changing the legal classification of equity indexed annuities from fixed to variable (which means insurance salesman can not sell them any longer unless they receive the proper designation required to sell a security).

In the 1/1/2010 edition of Investment Advisor magazine, there is a story about the SEC proposing a 2 year delay before implementing the regulations changing the classification of equity indexed annuities from fixed to variable. SEC Proposes Two-Year Stay on Rule 151A


The Securities and Exchange Commission on December 8 agreed to a two-year delay of the effective date of Rule 151A, which would require that equity indexed annuities be regulated as securities.

The SEC consented to a two-year stay of the rule in its brief, which the Commission filed at the U.S. Court of Appeals for the D.C. Circuit in response to a November court order directing the parties in the case to submit additional briefs addressing whether implementation of Rule 151A should be delayed beyond the January 2011 effective date because of "the SEC’s failure to consider the rule’s effect upon efficiency, competition, and capital formation."

Frederick Bellamy, a partner at the law firm Sutherland in Washington, says that the brief indicates that SEC staff intends to complete its study of state insurance regulation and present its recommendations to the Commission in the Spring of 2010.

Then, if the SEC agrees with the staff's recommendations, it will seek to issue a formal release asking for comments on the Section 2(b) analysis.

Section 2(b) of the 1933 Act requires the SEC when it engages in rulemaking to consider whether the action it is proposing will "promote efficiency, competition and capital formation." In its July 2009 opinion, the D.C. Circuit found that the SEC's Section 2(b) analysis in the adopting release for Rule 151A was "lacking" and remanded the rule to the SEC for it to perform another analysis, says Mary Jane Wilson-Bilick, a partner at Sutherland and a member of the firm’s Financial Services Practices Group.

Sutherland says in its Legal Alert describing the supplemental briefs in the case, that now that all of the supplemental briefs have been received, the court is expected to issue an order "in the near future as to whether it will alter the relief previously ordered," that is, the court could agree to the SEC’s two-year stay, or not. "Right now it’s not 100% clear how this will play out," says Bilick. More clarity, in the form of a court order, may come in the next couple weeks, she says.


I find it interesting that people who object to my classification of equity indexed annuities want to argue about the classification of fixed versus variable annuity……..none of them have argued why equity indexed annuities are such a great investment.

If another edition of the Bogleheads Guide to Retirement Planning is ever published, I would want to review the latest legal status of equity indexed annuities with regards to being regulated as fixed versus variable annuities. If the law in effect at that future date has them regulated as variable annuities, there is no need to change this portion of Chapter 18. If they are still legally regulated as fixed annuities at that future date, I would probably revise Chapter 18 to comment on the legal treatment of equity indexed annuities versus the reality of how they behave from the perspective of an investor.

References