Wealth Planning - Reyder

Mock exam morning session Q 41, What is wrong with fixed annuity products? They also provide cash flow until the end of the surviving spouse’s lifetime.

Also for Q 42,

  1. "A motivation for using this structure (irrevocable trust)could be for Peter to make resources available to Mark without yielding control of those resources to him. "

Altho I selected the correct answer, I am a bit confused. For irrevocable trust, the provisions and terms cannot be altered by the grantor. Therefore, Peter should yield control of the resources?

^ I think though the provisions and terms cannot be altered but at the same time the trust control is not transfered to Mark either. The trustee is in charge of it and perform duty according to the provisions. So I believe that what it means by “without yielding control of those resources to him”.

I don’t know the context of Q41, but here are some downsides of a fixed annuity:

  • annuitant has no say on asset mix; insurer will usually use long-term bonds
  • no ability to adjust annuity payments to meet changing needs
  • if interest rates low, annuitant could be locked in for long period
  • joint and survivor annuity produces lower periodic income than single life
  • inflation (even at low rates) can significantly reduce future purchasing power
  • insurer may be using very low mortality rates in pricing annuities