annuity v. amortization

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L1: annuity v. amortizationis there any difference between annuity vs. amortization method other then annuity typically provides more income?2007-11-16 08:16, By: meg, IP: [207.54.160.234]
L2: annuity v. amortizationNo real difference. However, you have them reversed.
Before 2002-62, the annuity method typically provided the higher payout.
Since 2002-62, the amortization method typically/alwaysprovides the higher payout.
2007-11-16 08:20, By: Gfw, IP: [74.136.102.241]

L2: annuity v. amortizationHello Meg:
For the math-heads here: The amortization formula is the same as that used in computing a mortgage payment; essentially payment in arrears such that your SEPP distribution is assumed to have been made on the last day of the period even though this is most likely not true. Conversely, the annuitization method is computed using a mortality table which is not perfectly linear and the mathematics of the formula makes the implicit assumption of a mid-year death / distribution. As a result, when applying these two formulas using the same data; the amortization formula will always come out 1% to 2% higher than the annuitization formula.
As Gordon pointed out, in 2002 and earlier the reverse was true; annuitization was always higher than amortization. The formulas did not change; however, in 2002 and earlier annuitization formula users were able to elect the use of a variety of mortality / life expectancy tables that were more aggressive (people dying earlier) than those users adopting the amortization methodology. Effective 1/1/03 everyone and all methodologies were forced to use the same life expectancy table.
TheBadger
wjstecker@wispertel.net
2007-11-17 06:44, By: TheBadger, IP: [72.42.67.29]

L2: annuity v. amortizationIt must be pointed outthat the purchase of a lifetime annuity also means the purchaser/retiree has annuitized (used the process of annuitization) a sum of money in order to generate income. When this method of distribution is used to satisfy section 72t one must beaware of the factthat he/she is transferring the title of his/her capital to the insurer in return for the payment of a guaranteed lifetime income. In my view this permissible method should never be used.
Joel L. Frank2007-11-19 10:09, By: Joel, IP: [24.187.32.203]

L2: annuity v. amortizationJoel, you are absolutely right if an actual annuity is purchased.
However, you can use the annuity method ofcalculationg the annual distribution without having to purchase an annuity.

2007-11-19 10:17, By: Gfw, IP: [216.80.125.206]

L2: annuity v. amortizationAnd this is why I am not a fan of the Defined Benefit retirement system. It compels the individual to annuitize the Pension Reserve, regardless of age, whena rollover distribution of the Reserve would better serve the individual based on his station in life. It is therare DB plan thatallows forlump-sumsettlement.
Joel L. Frank
2007-11-19 15:40, By: Joel, IP: [24.187.32.203]