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Not long ago, my brother asked if I was still doing that research gig instead of having a real job. I said yes, that I was still mainly crunching numbers on index annuities.

He said that, from talking to me, he thought he kind of understood how index annuities worked, but he wanted to know where they fit, as he put it, “in the whole grand retirement planning picture.”

So I told him.

After I finished, my brother gazed into the distance for a while. Then he turned to look at me, and said, “So, investing in an index annuity is like jogging.”

Now, theres something youve got to understand about my brother. My brother runs. My Uncle used to say my brothers genes must have been crossed with a horse and a jackrabbit, because my brother never takes a car. Hes always walking or running everywhere.

So I could understand why my brother would try to see parallels between index annuities and jogging. But, I have to tell you, to me, his comment seemed a bit of a stretch.

So I said, “Now wait a minute. I just spent 30 minutes giving you a comprehensive presentation on the ramifications of risk and return, fixed versus variable accounts, investment horizons, and their interaction as primary elements in retirement planningAnd you condense all that down into a simplistic statement, than investing in an index annuity is like jogging?

“How do you figure?”

“Well,” my brother began, “based on what youve said, it seems to me that planning for a good retirementa good retirement being one where you have all the money you need to enjoy itis like running in a marathon with a stopwatch.

“The difference is that, in a regular marathon, the race is over when you cross the finish line, no matter how long a time it takes you. But in retirement planning, the race is over when the stopwatch buzzes and says youre out of time.

“If youre over or near the finish line when times up, youll have enough money to meet your retirement goals. But if the finish line is a long way off when the buzzer sounds, you wont be able to retire as you wanted to, if you can even retire at all.”

He paused (probably un-nerved by my unaccustomed silence). “Are you with me so far?” he asked. I nodded, so he continued.

“You can take the cautious approach and simply walk towards the finish line. Youll make steady progress, but you wont go very fast.

“Walking towards retirement is kind of like keeping your money in fixed interest products like those fixed rate annuities you talk about or in bank certificates of deposit. Youll keep moving forward, but when the timer goes off, you could still be a long way from your goal.

“Or, you could try sprinting to the finish line. You could run full bore towards retirement and maybe even get there early.

“In fact, trying to sprint to retirement sounds like what a lot of people are doing with mutual funds and variable annuities. At times, theyre ripping up the track, outpacing everything in sight. But, take it from me, theyll have to rest after each sprint and catch their breath–and risk that the rest of the pack will pass them by.

“And sometimes, when those investors are running so fast, theyll find its hard to change direction. They might miss a turn, or even run into a tree, which will set them back. Worst case, they could blow out a knee and be out of the race for good.”

Then he shot me one of his a meaningful glances. “Ive never met a bear when Ive been out running, but based on all youve been telling me, Im pretty sure plenty of investors have,” he said.

Again, I nodded. It was clear my brother was on a roll.

He went on. “Now, heres the other approach. When investing for retirement, you could jog.

“Jogging means youre always going forward. If the track becomes difficult and you get tired, you can switch over and start walking, but youre still moving ahead. Or, if the road gets easier, you can pick up the pace and cover a little more ground.

“Thats where the index annuity you keep talking about comes in. It seems to me as if your index annuity is always going forward–jogging.

“When the financial track is smooth, the index annuity picks up the pace and benefits from the good conditions, but when the track is rough, the index annuity protects you from bears and other obstacles that can interfere with your progress.

“With an index annuity, it seems, youre always in control. And youre always moving forward. And, lets not forget, jogging covers more ground than walking.”

When my brother finished, I mulled over everything he had said and concluded he had got it, really got it.

“You know,” I told him, “I spend hour after hour worrying about things like rates, spreads, and crediting methods, and how to communicate all this to others, and then you come over here and sum it up in just a few words. Why didnt I think of that?”

“Well,” my brother grinned. “Maybe you should do more jogging and less worrying.”

is president of The Advantage Group, an index product research and consulting firm in Maryland Heights, Mo. You can e-mail him at jack.marrion@gte.net.


Reproduced from National Underwriter Life & Health/Financial Services Edition, February 4, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.


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