Alpha Power Investing Newsletter

September 1, 2010

6% A Year - Worst Case Scenario

Annuity companies are constantly coming up with "living benefit" innovations. Over the past decade, this trend has created a complex variety of benefit features, some of which are, in my opinion, great deals for the average investor. In particular, these features often can be used to solve very defined investment problems. From time to time, I will focus on some of these innovations and how they can creatively address some typical investment concerns.

This week's case study deals with a fairly common concern - male vs. female longevity and its effect on investment decisions.

Case Study

How John and Mary guaranteed that their investment portfolio would pass on to Mary at John's death with a growth rate of 6% a year (or more).

The Characters:
John - age 69, with health issues serious enough to practically guarantee that he will predecease his wife.

Mary - age 65, in excellent health with longevity in her family history.

Financial Situation:
Social Security, John's pension, and a substantial savings account designed to provide "extras" in retirement and an emergency fund.

Investment Concerns:
Both John and Mary do not want to take big risks with their savings because they are aware that John's health issues may escalate and cause his premature death. Mary will need a substantial capital base to keep up her lifestyle when John dies.

Both are aware of higher return long-term investment strategies but are afraid that volatility will go against them when Mary needs the money. So they stay invested in low-returning, guaranteed investments. Their savings are providing no "extras" and they are reluctant to take income from their investments.

The Solution:
John invests the savings in his name in a tax-deferred annuity with an escalating death benefit. The policy names Mary as the beneficiary. The annuity allows the couple to invest in a wide variety of mutual funds - fixed income and equity. The escalation feature guarantees that the death benefit payable to Mary will grow at a minimum of 6% per year, no matter what the investment portfolio does. If the investment portfolio grows at a net rate higher than 6%, Mary receives the higher value at John's death.

Because the investment is an annuity, the death benefit is paid directly to Mary without probating. Mary then pays the ordinary tax rate on the accumulated profits.

Now, knowing that Mary is guaranteed to receive an appreciated value at John's death, the couple chose a riskier strategy which should generate higher returns over time. Since they are really smart, they hire Alpha to manage the account for them using The FormulaTM combined with bond funds. You can read about The FormulaTM and take a look at historical investment results on our Home page at

If, in the future, John and Mary want to cancel the contract, they can do so (after four years) with no penalty. If they need "extras" from the account, they can withdraw funds without undoing the escalating death benefit feature (the death benefit is naturally reduced by the amount withdrawn).

For complete information on the annuity product and the Alpha investment strategy featured in this case study, please call me at
1-877-229-9400, Ext. 11.

This product is offered by prospectus only and the case study can be properly understood by knowing the details of the offering as explained in the sales literature and the prospectus. The insurance company in the case study is rated AA by Standard and Poor's.

Jerry Minton, Ph.D.

Disclosure: This is not an offering. Guarantees are based on the financial strength of the issuing company.

© 2010 Alpha Investment Management Inc.

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