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GMAB

GMAB is an acronym that stands for guaranteed minimum accumulation benefit. A GMAB is an optional “living benefit” guarantee that can be embedded into a variable annuity product. The GMAB guarantees a minimum contract value—regardless of investment performance—after a set period of time. The minimum contract value is typically equal to or greater than the total premium. For example, Catherine invests $150,000 into a variable annuity and selects a GMAB. The capital markets have performed terribly and as a result the variable annuity contract value is only $75,000 at the end of 10 years. Catherine is in a good position though because the variable annuity contract value is still $150,000 at the end of 10 years.

Annuity Fees and Expenses

Expenses should be a top priority for any financial services consumer.  Many people have been conditioned to be aware of expenses when it comes to investment products.  Indexed-bases investment management companies such as Vanguard have contributed greatly to this awareness by consistently demonstrating the detrimental impact that expenses have on investment performance over time, and how actively managed and more expensive mutual funds actually tend to underperform their index-based peers.

High expenses or fees are one criticism I have heard regarding annuities. Can you explain the fee structure around annuities?

Annuities are products that combine insurance and, in the case of variable annuities, asset management.  Costs are absolutely critical, so definitely ask you financial advisor to spell-out the costs for each of the items discussed below.

Retirement Sustainability
Retirement Income Industry Association Spring Conference 2012

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