DIY Annuity

Allan S. Roth writes in the April 2011 issue of Financial Planning a technique for a do-it-yourself annuity. Essentially, "buy the highest-paying long-term CD, investing just enough to ensure that the CD will grow to equal the entire pot of money you want to invest. [snip] Then invest the remainder in a low-cost stock index fund or ETF. Your clients are guaranteed to get back at least their investment." For example, with $100k to invest, put $72,629 into a 10-year CD with a 3.25% APY and the remaining $27,371 into the Vanguard Total Stock Market ETF (VTI). He sights the benefits being lower income tax, an Uncle Sam guarantee [but only up to $250k currently -- more than that you can purchase multiple CDs], lower withdrawal penalties, a free death rider [step-up tax basis on the stock ETF], and emotional peace of mind during market crashes. I think you could also create a CD ladder if you need income. Interesting...