Guaranteed living benefits (GLiBs) within variable an-nuities have evolved from being an ancillary benefit offered on a rather boring investment product, and have now grown to become the raison d’être of the VA industry. Marketing, sales and promotional material for VAs are almost entirely focused on the unique insurance guarantee or downside protection that is…

One of the theoretical foundations of modern insurance pricing is a principle called “moral hazard”. It lies at the heart of many actuarial models, is based on common sense and I make sure to spend quite a bit class time explaining the implications to my undergraduate and graduate students. For those of you who haven’t…

Most professionals in the financial services industry are now aware of the continuing decline of traditional private-sector Defined Benefit (DB) pensions. Each new company press release, government study or scholarly report continues to document that DB plans are being frozen, replaced and converted into Defined Contribution (DC) plans such as 401(k), 403(b) and other hybrid…

The “A” word strikes fear into the hearts and wallets of advisors throughout the financial services industry. Irreversibly handing over a lump sum of money — to an insurance company, no less — in exchange for a promise to slowly return this money over a very long period of time rightfully feels like financial suicide…

One often reads that at the end of the 20th century life expectancy in the U.S. hit a record high of approximately 73.6 years for males and 79.2 years for females. These statistics come from the Social Security Administration (SSA) and apply to the U.S. population in its entirety. And, although these numbers have been…

In an earlier lesson I argued that a bear market early in retirement – i.e. when you start withdrawing money from a portfolio — can have a devastating impact on the sustainability of your income stream. This irrefutable mathematical fact has been demonstrated by a number of authors including myself and has led many advisors…

Growing up in Latin America during the 1980s, I quickly learned how to adapt to the impact of inflation in daily life. With annual inflation rates reaching over triple digits, even young children knew to never expect the same price twice, cash wasn’t allowed to sit idle and interest rates on bank deposits were designed…

As you are reading this in early April 2007, I am facing the daunting prospect of celebrating my 40th birthday. Besides the trauma of this biological milestone (April 4th to be exact) I am also confronted with a disconcerting actuarial factoid. It seems my median remaining lifespan is also 40 years. In plain English, a…

By now everyone has heard the widely abused cliché, first coined by Benjamin Franklin in 1789, “In this world nothing can be said to be certain, except death and taxes.” Oddly enough, although these two distasteful events are unavoidable, the entire life insurance industry is built on the actual uncertainty of the first of Franklin’s…

It is generally believed that stock markets, interest rates and investment returns move in periodic cycles. These cycles – which also contain tremendous noise — only become evident with hindsight and are hence very difficult to predict or measure in advance. Nevertheless, these cycles can have a profound impact on the sustainability of your retirement…