After-tax value of annuities

Authors

  • Stephen M. Horan Professional Education Content, CFA Institute, Charlottesville, VA
  • Thomas R. Robinson Education Division, CFA Institute, Charlottesville, VA

DOI:

https://doi.org/10.61190/fsr.v17i3.4916

Keywords:

Tax-deferred accounts, Tax-efficient asset allocation, After-tax value, Annuities

Abstract

This paper adds to the growing literature on after-tax asset valuation and asset allocation by developing a model to value annuities on an after-tax basis. Qualified and non-qualified annuities are shown to be equivalent to a tax-deferred account (like a traditional IRA) plus a cost basis tax shield, if any. Viewed in this light, the after-tax value of an annuity decreases as the investment horizon increases, but is independent of the risk of the underlying investment.

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Published

2008-09-30

Issue

Vol. 17 No. 3 (2008): FSR Fall 2008

Section

New Original Submission

License

Copyright (c) 2008 Academy of Financial Services

Creative Commons License

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Author(s) retain copyright and grant the Journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution-NonCommercial 4.0 International License that allows to share the work with an acknowledgment of the work's authorship and initial publication in this Journal.

This license allows the author to remix, tweak, and build upon the original work non-commercially. The new work(s) must be non-commercial and acknowledge the original work.

How to Cite

After-tax value of annuities. (2008). Financial Services Review, 17(3), 169-184. https://doi.org/10.61190/fsr.v17i3.4916