The American Equity Bonus Gold is a fixed index annuity, which means the American Equity Bonus Gold is an insurance product that is in the simplest terms is just a contract between a person (like you) and an insurance company. You give the insurance company money and in return they give you some contractually guaranteed promises, which in the case of annuities usually revolve around agreeing to pay you money for your entire life and/or the life of your spouse.
The fixed index part is language in the contract that says the value of your money has the ability to increase. The increases are not guaranteed and are many times over emphasized or misrepresented by commissioned agents (imagine that!). There is however the potential for capturing gains on an annual basis when the market goes up and there is no chance of losing those annual gains to market decreases once the gains have been captured.
You: What? You mean I only get market upside exposure and no market downside exposure with the American Equity Bonus Gold fixed index annuity?
Me: Yeah that is what I am saying.
You: But, but that sounds too good to be true!
Me: Wait a minute take a step back and think about this. I didn’t say you would get all the market upside, just no market downside. Think about it, there are other ways to avoid market downside risk like bank Certificates of Deposit or US Treasury bills and/or other fixed interest accounts.
You: Oh yeah, you’re right.
Me: These are very conservative investment accounts, they are not designed for huge accumulation. Will they beat many fixed interest accounts in the long run? Yeah, “probably yes” would be my guess, but it is not guaranteed. Will they beat the overall market? Highly unlikely.
You: What do you mean by “particular chosen market index”?
Me: What I mean is that when open the annuity account the insurance company gives you options to chose which index you want your income account and your principle account to follow. As I said previously once your accounts are linked to the index you chose when that index increases you can get a portion of the annual increase of the index you chose or in some cases you can receive all the annual gains of your chosen index, and just to repeat myself again if the index has no gains or even losses your accounts do not experience the downside of the indexes, only the upside movements which are credited to your accounts on an annual basis. If you do not like any of the indexes than you can usually just chose a fixed interest earning account.
The American Equity Bonus Gold Annuity offers 4 different account crediting options to chose from: the Fixed Account and three Index Accounts: the S&P 500 Index (no dividends), the Dow Jones Industrial Averages Index, and the 10-Year U.S. Treasury Bond Value Index.
You: What is the interest that they pay on the fixed interest account?
Me: As little as 1% interest annually, however it is guaranteed to never be less than that.
You: Could you tell me a little more about the indexes?
Me: Sure, let’s start with the S&P 500 Index. The S&P 500 is probably the most famous index. It is just a measurement of the 500 biggest companies performance. The folks over at Standard & Poor’s just ask the 500 biggest companies how they are doing, some of the companies will report positive increases in stock performance and some of them will report negative performance. Standard & Poor’s will take the results of all the 500 companies and then add it together and come up with a number that is either positive or negative. The American Equity Bonus Gold Annuity only credits your account when the annual year end results are positive, you usually do not however get the full upside of the increases in the S&P500. You can see the performance of the S&P 500 at the link at the end of this paragraph.
You: So if the S&P 500 index goes 15% in a year than I don’t get the full 15%?
Me: Yes, that is exactly what I am saying. Don’t expect to get the full upside of the market increases.
Me: The next crediting option is the Dow Jones Industrial Average. The Dow Jones Industrial Average is the oldest continuing stock market index in the world, it is composed of the aggregate performance of 30 large U.S. based companies. Just like with the S&P 500 Index the American Equity Bonus Gold Annuity only credits your account when the annual year end results are positive, you usually do not however get the full upside of the increases in the Dow Jones Industrial Average.
Me: Lastly, the third non-fixed index crediting method uses the American Equity Bonus Gold Annuity offers is the 10-Year U.S. Treasury Bond Value which is designed to mirror general market interest rates. Growth in the U.S. Treasury Bond Value is determined by annual changes in the 10-Year U.S. Treasury Bond. Once again, don’t expect to get all the upside of this index either.
Me: Here’s some links to the performance of the 3 non-fixed indexes:
S&P 500 Index Link: http://finance.yahoo.com/q?s=%5EGSPC
Dow Jones Industrial Average Link: http://finance.yahoo.com/q?s=%5EDJI
10 Yr U.S. Treasury Bond Value Link: http://finance.yahoo.com/q?s=%5ETNX
You: What other things should I know about the American Equity Bonus Gold?
Me: Well for starters the American Equity Bonus Gold pays a 10% premium bonus.
You: What’s a premium bonus?
Me: I thought you would ask so let me give you an example, it is the easiest way to explain.
Scenerio 1: say that an insurance company tells you that at the time you elect to turn on your lifetime income stream that they will give you 5% of whatever value is in the income account and they will pay you this amount for the rest of your life. Let’s say that you deposited $100,000 lump sum in the American Equity Bonus Gold fixed index annuity and then immediately turned on your income stream, then: $100,000 X 5% = $5000 per year of income for the rest of your life. Pretty easy huh? Now let’s look at how that the American Equity Bonus Gold 10% bonus affects your lifetime income stream.
Scenerio 2: you deposit $100,000 lump sum in the American Equity Bonus Gold fixed income annuity. American Equity gives you a 10% bonus (or $10,000) in income account value for the purposes of calculating income. Now when they calculate your income it would be based upon $110,000, so $110,000 X 5% = $5550 per year of guaranteed income for life. This may not seem like much in our little example but the numbers can add up over time, especially if you deposit more than $100,000 and you are credited more than 5%.
You: So the 10% premium bonus is only for lifetime income value calculating purposes?
Me: No, actually that is not the case with the American Equity Bonus Gold. They actually credit your contract value, so this 10% bonus could be available for withdrawal. Pretty generous huh? Here is a quote from their brochure:
“We guarantee a 10% Premium Bonus for issue ages 0-80. This Premium Bonus allows you to jump start your way to a secure retirement. Credited on all first year premiums, the bonus increases your Contract Value by 10% as soon as the annuity contract is issued. There are no waiting periods, vesting schedules or payout requirements to keep the bonus–it’s your money–guaranteed.”
Me: Well I probably should mention the NCR-100 rider and the TIR-100 rider too.
You: What’s a rider?
Me: In the simplest terms a rider is just an addendum to the contract, because remember an annuity is just contract between you and an insurance company. So “riders” are just changes to the base insurance contract, just like when you buy a car and get sold the extended warranty package.
You: So what about the NCR-100 and TIR-100 part?
Me: Well, those are just names given to the those particular riders. The NCR-100 rider is automatically included, at no cost for American Equity Bonus Gold annuitants under age 75 at the time of issuance. The NCR-100 rider allows you to take a 100% penalty-free withdrawal after the 3rd contract anniversary if you get confined in a qualified nursing care center as long as the event occurs after the end of the 3rd contract year and continues for at least 90 consecutive days. If confinement occurs in the 2nd or 3rd contract year then a 20% penalty-free withdrawal is allowed.
Me: The TIR-100 rider is also automatically included, at no cost for American Equity Bonus Gold annuitants under age 75 at issue. The TIR-100 rider allows you to take an additional penalty-free withdrawal of up to 100% of the contract value if the diagnosis of a terminal illness by a qualified physician occurs after the first contract year, and is expected to result in death within one year. So basically if you experience a life ending illness and need access to your money as a lump sum, the insurance company returns your money without penalty.
Expect limited gains, don’t expect to beat the market. You won’t. Maybe long term gains somewhere in the neighborhood of 2.4% to 5.6% overall. If you want access to your money as a lump sum be prepared to pay a penalty on cash withdrawals for at least X years. The American Equity Bonus Gold performs best as a long term set-it-and-forget it product, don’t use it like a checking account and take out money that is over and above what your guaranteed income stream amount is. Although it allows you to take out lump sum withdrawals I would recommend doing that only in emergencies. The American Equity Bonus Gold is designed for providing you an income for life and that is what it does best, but your money is available for penalty withdrawals in the case of severe illness events.
This is an independent product review, not a recommendation to buy or sell an annuity. This review is not endorsed by any insurance company and I do not receive any compensation for this review. This review is meant to be an independent analysis to provide the reader with information and concepts to help them make informed decisions. Before purchasing any investment product be sure to do your own due diligence and consult a properly licensed professional should you have specific questions as they relate to your individual circumstances. All names, marks, and materials used for this review are property of their respective owners.