Aviva BalancedAllocation Annuity 12

 

Sherlock3A Fair-Minded Review

This review is going to be a little different from other reviews because this annuity is a little different from other annuities.  After thinking and pondering about how to write about the Aviva BalancedAllocation Annuity I decided to concentrate just on the Aviva BalancedAllocation Annuity 12 because it is the most popular.   The Aviva BalancedAllocation Annuity exists in two forms the Aviva BalancedAllocation Annuity 12 and the Aviva BalancedAllocation Annuity 8.  They are basically the same product with just subtle differences in maximum issue age, bonus amounts and surrender terms, but keep in mind when I refer to the Aviva BalancedAllocation Annuity in this review I am exclusively referring to the Aviva BalancedAllocation Annuity 12.

To start out what makes this annuity a little different than other annuities is that this annuity was designed and created by a marketing company and then they had to find an insurance company to underwrite the product and that is where Aviva comes in.  Another interesting component of the Aviva BalancedAllocation Annuity is that although it is similar to other fixed index annuities in that your principle amount is shielded from market downturns, with the Aviva BalancedAllocation Annuity you have an unlimited upside.

You: How is that different?

Me: Well if you have read any other reviews here (of course maybe you haven’t) well then you know that typically with fixed index annuities they limit how much of the market upside you can get.

You: How so?

Me: Well first off let’s talk about what I mean by “market upside” and “market downside”.  In a fixed index annuity your money is never really in the market.  Your money actually is just sitting in an account at the insurance company and what happens is that the growth of your money is tied to an index.  An index of course is just a measurement of the market.  For example the most famous index is the S&P 500 Index and the index of choice for the Aviva BalancedAllocation Annuity.UpDown2

Me: The SP500 just looks at the individual performance of the 500 biggest companies in the market and then adds together the results.  If the performance results of all 500 companies added together is a positive number then the market is said to be up, if the result turn out to be a negative number than the market is said to be down.

Me: Say for example your have a $100,000 in a fixed index annuity account at an insurance company and the account is tied to the performance of the S&P 500 Index.   Well the good news is that with all fixed index annuities including the Aviva BalancedAllocation Annuity your money will not suffer declines due to market downturns.  So if the SP500 had an -15% annual decrease the first year you opened your account your $100,000 would not have a corresponding decline of $15,000.

Me: Now let’s say the following year the market had a huge upside of +20%.   Well what you will typically find in other fixed index annuities is that you will not get all the upside of the market  You avoid the downside (nice),  but your upside is capped or limited.  So in a typical fixed index annuity if the index has a huge +20% gain you might get 5% of it so now your money would grow to $105,000 not $120,000.  Still pretty good though, right?  Now let’s take a look at the Aviva BalancedAllocation Annuity.

Me: What makes the Aviva BalancedAllocation Annuity different is that they give you all the upside.  They do not place limits or caps on the growth that is credit to your money.

You: I’m going to be rich!

Me: Not so fast.  If it sounds to good to be true…………………..

Me: First Aviva does not credit your account annually.  They actually do it every two years so in my little scenarios above you would end up with 5% growth (-15% end of year 1 and +20% end of year 2).  This two year growth amount is however locked in, you won’t lose any of it to market decreases once it is locked in which happens every second anniversary.

You: Oh maybe I’m not going to be as rich as I thought.

Me: I would have to agree with you, but let’s keep going.  As I said above Aviva does not put a cap or limit on the growth of your money, but what they do is put a limit on how much of your money can access the unlimited growth.

You: what did you just say?

Stock symbolsMe: Let me explain.  You put the $100,000 in the Aviva BalancedAllocation Annuity account and after 2 years we said that you had 5% growth.  Well 5% of $100,000 is $5000 so you made 5 grand right?  Wrong.  Aviva does not give that 5% growth from market increases on all your money.  They only credit the 5% growth that resulted from market increases to a portion of your money.

You: What portion of my money can have the unlimited growth tied to an index?

Me: Between 40% and 75% of your money depending on which crediting option you choose.  So that means only $40,000 of your $100,000 would get the 5% second anniversary growth of the index, or up to a maximum of $75,000 of the $100,000 would get the 5% growth depending on which option you chose for crediting.  Let’s take a step back and look at the math:

Minimum credited percentage amount for the two years is ($40,000 X 5%) = $2000

Maximum credited percentage amount for the two years is ($75,000 X 5%) = $3750.

fee2You: Wow, the sales agent didn’t explain it to me that way!

Me: What a surprise that your commissioned sales agent didn’t explain this way.  I wonder why?

Me: But it gets worse because if you want the unlimited growth amount option on 75% of your money there is a yearly fee of 2.95%.  The minimum 40% growth amount option does not have a yearly fee.

You: What about the other part of my money that is not part of of the index crediting amount?  Do I earn anything on that?

Me: Good question.  Yes fortunately you will earn a fixed rate of interest on that portion of your money that is not part of the index crediting.  The amount of fixed interest you will earn can vary but will never be less than 1%.

You: Anything else I should know?

Me: Glad you asked.

PaperworkAdditional Features

Me: The Aviva BalancedAllocation Annuity 12 offers numerous different riders.

You: What’s a rider?

Me:  A rider is just another name for contract addendum’s in insurance products.  Riders can add important benefits and features to annuity contracts, like buying an extended warranty when you purchase a car or a new power drill.  Sometimes adding the rider makes sense and sometimes it doesn’t (I recently purchased a pre-owned car and bought an extended warranty, but when I got my new power drill at Home Depot they offered to sell me an extended warranty, but it just didn’t make sense to me since it was 20% of the cost of the drill.  Insurance contract riders usually cost money, but you probably already guessed that.

You: Tell me more.

Me: The Aviva BalancedAllocation Annuity 12 offers an 8% premium bonus rider.  This means that if you open the account with $100,000 Aviva will add $8000 to your account.  This premium bonus is not free and is not available in all states so check with your agent or contact us to determine eligibility and cost.

Me: The Aviva BalancedAllocation Annuity 12 also has confinement and terminal illness waivers allowing for 100% free withdrawals due to confinement or terminal illness after the first contract year. This means that if you need to withdraw lump sums from your account for certain medical events after the first year than Aviva will not charge you for the withdrawals. Withdrawals before the first year and withdrawals after the first year that are in excess of certain limits are subject to withdrawal penalties.  This means that it can cost you to access your money for lump sum withdrawals unless certain conditions are met.  This is typical of fixed income annuities.

Me: The Aviva BalancedAllocation Annuity 12 has many other riders and it is just too numerous to cover all of them.  If you have additional specific questions I would urge you to contact us.

calcBottom Line

A unique and interesting twist on the fixed index annuity, in fact so unique some of the contract terms are actually patented.  Overall I would estimate this to be a middle of the pack performer with many available riders that may or may not have benefit to you.  My calculations would estimate annual returns of between 1.95% to 4.25%.  Your results may very.

 

 

big-logo copyFor Your Consideration

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.

 

 

 

 

 

 

 

 

 

 

National Western Global LookBack Fixed Index Annuity

Sherlock3Back To The Future

Imagine you could go back in time.  What would you do?  Go back to high school and make some different choices?  Un-marry your spouse or marry someone else?  What about going back in time and buying certain stocks or making different investment choices?  Well now you can look back retroactively and make choices with the National Western Global LookBack Fixed Index Annuity.  Well, er..sort of.  Actually what you can do, which is definitely original and innovative is look back in time and look at the performance results of  4 different indices and then assign 40% of  your annuity assets toward of the best performing index of the 4, and then assign 30% to the second best performing index of the 4, and then 20% to 3rd best performing index of the 4, and then 10% to the dog of the bunch. The National Western Global LookBack Fixed Index Annuity uses year-end performance weighting for the S&P 500 Index, the Dow EUROSTOXX 50 Index, the Hang Seng 30 Index and the Nikkei 225 Index.

You: So how does that work?

UpDown2Me: So basically it is a 40%/30%/20%/10% look-back and capture.  So for example if you had $100,000 in your National Western Global LookBack Fixed Index Annuity and the S&P 500 Index  was the best performing index of your index choices and it had the biggest annual gains of the 4 indexes  than $40,000 of your annuity would capture the gains of the S&P 500 Index, but keep in mind the $40,000 would not get the full 15% annual increase of the index.  You would however, only get a portion of the annual increase of the index and if any or all of the 4 indexes had negative performance years your money would not be at risk for a loss due to market downturns.   Just like other fixed index annuities you only get market upside exposure and no market downside exposure.

 You: Well that sounds like pretty good odds.

Me: Yes it is pretty good odds for picking winners.  Think about it, 70% of your National Western Global LookBack Fixed Index Annuity account would capture the gains from the top two performers.

You: I’m going to be rich!

Me: Well maybe you will be, but this the National Western Global LookBack Fixed Index Annuity is not the vehicle to do it in.  This like any other fixed index annuity is best for providing an income stream for life, it is not designed for huge accumulation. Remember what I said earlier that you will not get all the upside of the annual increases in the 4 indices, you will only get a portion of the annual increases.  Overall don’t expect more than 5.5% annual increases,  so if a sales agent is filling your head with dreams of 10% and 12% gains it just isn’t so.

More Info

You: Could you tell me a little more about the indexes?

Me: Sure, An index is just a measurement of the market.  For example the most commonly sited index is the S&P 500 Index.  The S&P 500 Index is just a measurement of the 500 biggest companies stock 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 then takes the results of all the 500 companies and then adds them together and comes up with a number that is either positive or negative.     The National Western Global LookBack Fixed Index 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 any of the indexes used for crediting.  You can see the performance of the S&P 500 at the link at the end of this paragraph.Stock symbols

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 index that is used for crediting purposes is the Dow EUROSTOXX 50 Index.  The Dow EUROSTOXX 50 Index is based upon it  the aggregate performance of the stock of 50 of the largest and most liquid Eurozone based companies. Just like with the S&P 500 Index the National Western Global LookBack Fixed Index Annuity only credits your account when the annual year end results are positive,  and don’t expect get the full upside of the increases in the Dow EUROSTOXX 50 Index.

Me: And final two indexes that are used for crediting purposes are the Hang Seng 30 Index and the Nikkei 225 Index.  The Hang Seng 30 Index monitors the stock performance of the 30 biggest companies on the Hong Kong stock market, and the Nikkei 225 Index monitors (you guessed it) the  stock performance of the 225 biggest companies on the Japanese stock market.

Additional Features Of The National Western Global LookBack Fixed Index Annuity

You: What other things should I know about the National Western Global LookBack Fixed Index Annuity?

Me: Well for starters the National Western Global LookBack Fixed Index Annuity pays a 7% 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 National Western Global LookBack 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 National Western Global LookBack Fixed Index Annuity 7% bonus affects your lifetime income stream.fee2

Scenerio 2: you deposit $100,000 lump sum in the National Western Global LookBack Fixed Index Annuity.  National Western Life Insurance company gives you a 7% bonus (or $7,000) in income account value for the purposes of calculating income.  Now when they calculate your income it would be based upon $107,000, so $107,000 X 5% = $5350 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%.

Bottom Line

The National Western Global LookBack Fixed Index Annuity is a typical fixed index annuity with a niche crediting method.  I have to give credit to the creative minds who developed this product.  Will it at the end of the day give you spectacular returns based upon the performance of the 4 indexes used for crediting?  Probably not, because that is not what it is designed to do.  It is however designed to provide a lifetime income stream coupled with upside growth potential for your money without the pain of losing principle money to market downturns.  Expect 2.25% to 5.125% returns over the long run, but your results may vary.

 

big-logo copyFor Your Consideration

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.

 

 

American Equity Bonus Gold Review

Sherlock3Let’s Review

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.UpDown2

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.

Stock symbolsWhich Indexes Options Are Available With The American Equity Bonus Gold  Annuity?

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

 question markThe American Equity Bonus Gold  Annuity Special Features

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.”

PaperworkYou: Any other special features?

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.

calcWhat’s the bottom line:

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.

 

big-logo copyFor Your Consideration

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.

 

 

 

Let’s Review The Security Benefit Total Value Annuity

Sherlock3What’s The Benefit?

The Security Benefit Total Value Annuity is a fixed index annuity and like all fixed index annuities what it is designed for and what it does best is providing guaranteed income for life.  Period.  If an agent is telling you that you that you can expect an 8.5% growth rate with this product be very cautious of whatever else your agent is telling you.  Can you get 8.5% growth on your money with the Security Benefit TVA?  Yes, it is possible.  Is it probable that you will get 8.5% returns with the Security Benefit TVA?  Very unlikely, but if you are happy with the minimum guaranteed growth rate on the income account than you might be very happy with this product.

Link to Security Benefit Total Value Annuity brochure: https://www.sbelitepartners.com/resources/client-materials.aspx

You: What is an income account? Why did you italicize it?

Me: The income account is just an imaginary account with your name that the insurance company keeps to calculate how much income for life they are going to pay you.  There is no real money in it that you can withdrawal.  It works this way, let’s say that there is $100,000 of imaginary money in this account, now when you go to turn on your income for life stream the insurance company looks in this account and the multiple the amount of imaginary money in this account by some percentage and this is the amount of real money that the insurance company will pay you for life.  So in this example I will use 6.5%, so in this case $100,000 X 6.5% = $6500.  So in Security Benefit TVA example the insurance company will pay you $6500 in real money for the rest of your life.  The older you are the bigger percentage rate they use in calculating your real money income amount.

You: So Security Benefit offers a guaranteed minimum growth rate on my imaginary numbers income account?  What is the guaranteed minimum growth rate on the imaginary dollars income account?

annuity4Me: The guaranteed minimum growth rate on the income account is 4%.  So keep in mind what that means is that no matter how poorly the market performs the real money that you plan to live on is growing at 4% per year!

You: Wow that is better than my savings account.

Me: Yes and the income never runs out as long as you live. When the money runs out in your bank accounts it is gone.

You: Can I just give them imaginary numbers to fund the annuity?

Me: Hah!. That’s a good one, but no unfortunately you have to give them real dollars.  They actually keep your real dollars in a separate account which we’ll call the principle account and you can earn returns on this as well.  The principle account is the account where you would make lump sum withdrawals in case of an emergency, but be aware withdrawals out of this account my be subject to withdrawal penalties and could effect you lifetime income stream amounts as well.  So for example if you had $100,000 in your principle account and $200,000 in your income account you would only have the $100,000 available for emergency withdrawal less any withdrawal penalties.   The $200,000 in the income account is just used for calculating your lifetime income stream, it is not available for lump sum cash withdrawals.  The balance in the income account is for computational purposes only.

 

Let’s take a look at how you can earn money in both your principle account and in your  income account dollars.

The fixed index part is language in the contract that says the value of your income account 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 a particular chosen market index goes up and there is no chance of losing those annual gains if that particular market index decreases once the gains have been captured.stock market

You:  What? You mean I only get market upside exposure and no market downside exposure?

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.

Stock symbolsWhich Indexes Options Are Available With The Security Benefit Total Value Annuity Credit?

The Security Benefit Total Value Annuity offers 4 different account crediting options to chose from: the Fixed Account and three Index Accounts: the S&P 500 Annual Point to Point Index Account (no dividends), the Transparent Value Blended Index Account, and the 5 Year Annuity Linked Trader Vic Index Account.

You: Which index is the best?

Me: How could I possibly know that?  That means I know the future, and nobody knows the future.  Additionally, the past performance of each index changes constantly.  Currently as of this writing the S&P 500 Annual Point to Point Index Account would be my choice.

You: Could you tell me a little more about the indexes?

Me: Sure, let’s start with the S&P 500 Annual Point to Point Index.  The S&P 500 Annual Point to Point Index is basically just a comparison of two snapshots of the the S&P 500 Index.  The insurance company looks at the S&P 500 on the day you opened the annuity account and then they look at if one year later, if there has been an increase from one year to the next than they credit you some portion of the increase.  You can see the performance of the S&P 500 at the link at the end of this paragraph.

Link to S&P 500 performance: http://finance.yahoo.com/echarts?s=%5EGSPC+Interactive#{“allowChartStacking”:true}

UpDown2Next let’s look at the Transparent Value Blended Index.  The Transparent Value Blended Index blends two indices, the Transparent Value Large-Cap Defensive Index without dividends and the S&P 2-Year U.S. Treasury Note Futures Total Return Index. I just said a mouthful, I know.  If you want to read more here I posted two links at the end of this paragraph, one that tells more about the nature of the index and the other shows its performance.  I think knowing the performance of the index is more important than knowing the features and in my humble opinion the performance of the Transparent Value Blended Index has been less than spectacular.

Link to features

                                               Link to performance

Finally let’s look at the 5 Year Annuity Linked Trader Vic Index which is an index choice that is unique to the Security Benefit Total Value Annuity.  Is this some extra special index for an extra special annuity?  Probably not, but it is a choice so let’s investigate it further.  The 5 Year Annuity Linked Trader Vic Index is basically a hybrid of other indexes.  Once again, its features are not as important as its performance and once again there is nothing special or spectacular about the performance of this index as compared to the others.

$$$Additional Features

Offers up to an 8% Bonus on the income account value.  This means that the $100,000 you deposited to open the account would be worth $108,000 for lifetime income purposes.

Optional Death Benefit Rider to increase the amount beneficiaries receive.

Up to 10% penalty free annual withdrawals from the principle account starting the second year.

 

 

calcThe Bottom Line

The Security Benefit Total Value Annuity is a good annuity product for persons looking for a fixed income stream for life not someone looking for spectacular gains.  It is for a person looking for some market upside potential without the chance of loss of principle due to index performance, it is not for a person looking to capture all the gains of the market.   If you have any other questions click on the link.

 

 

big-logo copyFor Your Consideration

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.

 

 

 

Let’s take a look at the Allianz Vision Annuity

Sherlock3For Your Eyes Only

This is our first review of a variable annuity, the Allianz Vision Annuity.  If you are like me you eyes squint and sharpen your concentration when you hear the word “variable”.   As in “there are just a lot of variables” or “variable interest rate loan” or my personal favorite: “your results can vary“.

You: what do you mean by “variable”?

Me: I mean my personal favorite from above, as in “your results can vary”.   Not only can the performance results of the Allianz Vision Annuity vary due to market conditions (as you would expect), but consequently the money in your account can vary too!

You: I still didn’t understand.

Me: basically what it means is that as market conditions improve your money can go up, as market conditions deteriorate your money can go down. Kind of like having your money in a stock. Up and down, up and down.  Is this what you want for your retirement money?

You: so my money is in the market?

Me: essentially, yes it is.

You: that doesn’t sound very stable.

fee2Me: it is isn’t stable.  And not only do variable annuities not protect your money from market downsides as I just explained, but as a general rule-of-thumb they also have notoriously high fees when compared to most fixed index annuity products.  The Allianz Vision Annuity is no exception to the high fee rule, fees in the Allianz Vision Annuity can add up to about 3% per year.  So if the market goes up 8% in a year and the total fees on your annuity are 3% than your net earnings are just 5%.  If the market goes down 8% in a year than you losses will be 11%!

Me: my opinion is if you still want to have all the potential upside of the market and are willing to expose your retirement money to downside risks than just open a brokerage account and buy the positions directly and avoid all the high fees.  Or better yet use a strategy that gives you all the upside potential of the market, but also gives you downside protection.  Shameless plug for Verus Capital Link://

You: sounds like you don’t like variable annuities all that much.

Me: yeah, I don’t.  I think that although they offer full upside market participation the downside risks and fees are too great.

Tyson: well I think you hit the nail on the head with this one, you were a little harsh but I agree you on the overall value of variable annuities.

big-logo copyFor Your Consideration

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.

 

 

Jackson National Perspective L Series Variable Annuity

Sherlock3A Fair-Minded Review

Today we take a look at the Jackson National Perspective L Series Variable Annuity.  If you have read any other reviews here than you know that I am not a big fan of variable annuities because of  the fact that they typically have high fees,  they expose the your money to market downside risk, they usually have very complex terms and conditions and they usually have high surrender fees (lump sum withdrawal penalties).   Is the Jackson National Perspective L Series Variable Annuity any different?  In my opinion it isn’t, it only attempts to look like it is.  So let’s take a look and then you decide.

According to the marketing material Jackson National Perspective L Series Variable Annuity is designed to:

Protect Your Retirement Income:

Guaranteed lifetime withdrawal benefits.

Guaranteed return of premium benefit.

Guaranteed death benefit for legacy protection.

Address Market Fluctuations:

Automatic step-ups to potentially lock in market gains

on some living benefits.

Create A Legacy:

Enhanced death benefits.

Does it do all these things?  We shall see.

 

annuity3What Is a Variable Annuity?

A variable annuity is a contract between a person (like you) and an insurance company. It’s a generally designed as a long-term investment for retirement purposes. The person opening the variable annuity account places money in professionally managed investment portfolios, where potential growth can accumulate in a tax-deferred manner. When the person who opened the variable annuity account retires, the monies that potentially accumulated in the variable annuity can be used to generate a stream of regular income payments that are guaranteed for as long as they live. Additionally some variable annuities  may provide a guaranteed death benefit for the persons beneficiaries.

 

How Does a Variable Annuity Differ From a Fixed Index Annuity?

Although the financial goals and objectives for people typically interested in annuities are usually quite similar, the way different types of annuities help people achieve those goals and objectives can be completely different.  Fixed index annuities can provide a guaranteed income stream for life, well so can variable annuities.   Fixed index annuities can grow your money,  well variable annuities can grow your money too.  So what’s the difference?UpDown2

First off, generally speaking variable annuities have higher fees than fixed index annuities.  Also, variable annuities usually have a more complex structure than fixed index annuities making them difficult to determine exactly what fees are charged, what penalties might be incurred for lump sum withdrawals and how gains are credited.  For example the Jackson National Perspective L Series Variable Annuity prospectus is 810 pages long!

In addition, with fixed index annuities your money is never at risk due to market downturns.   So what this means is that if the market goes up your money can go up, but if the market goes down your money won’t follow the market down.

With variable annuities your money is at risk of being lost, your money will follow the market down.  Worst case? Your money is all gone.  Is that a probable or like scenario? No, but be aware of potential.  However just like with the fixed index annuity your money can follow the market upwards.

Why would anyone choose a variable annuity over a fixed index annuity?  The fixed index annuity does not have the potential market downside losses that the variable has.  Why would anyone risk their money to market downturns if they didn’t have to?Drum roll please and the answer is: Risk vs Reward.  The typical variable annuity offers a lot more upside potential than the typical fixed index annuity, so consequently it can potentially offer more lifetime income.

feesFees

You: You keep talking about fees.  What kind of fees are we talking about?

Me: With the Jackson National Perspective L Series Variable Annuity, Jackson National has a minimum annual total fees and expenses charges of 2.17% and a maximum of 4.01%.  Wait, wait we’re not done yet because there also are investment management fees.  Just imagine if your Jackson National Perspective II Series Variable Annuity investment account only returns 5% to 6% returns in a year.   You’d just be breaking even.

Sales Compensation:  The maximum commissions paid on this product are 8%, no wonder your advisor thinks this is such a good choice for you!

$$$Surrender Charges

Other fees that someone may incur are the surrender penalty fees associated with taking lump sum withdrawals out.  The Jackson National Perspective L Series Variable Annuity is designed to be a long term retirement product and because of this Jackson National wants to lock your money up and penalizes you if you take your money out during the first 7 years.  During the first year the surrender penalty fee is 8.5%, the second year it is 7.5%, third year 6.5%, fourth year 5.5%, and on down to 0% after the 7th year.

You: Why would I need to withdraw money?

Me: Think about it.  Even if you are not planning on making withdrawals emergency life events can occur, from car accidents to other potential investment opportunities.  

 

annuity2What about The Guaranteed Income?

To start out you first have to understand the way money available for the guaranteed income stream grows in the Jackson National Perspective L Series Variable Annuity.  The Jackson National Perspective L Series Variable Annuity has two accounts:

The first one holds your principal which is where the money that is available for lump sum withdrawals is kept.  It works just like your checking or savings account.  We’ll just refer to this as your principal account.

The second account just holds the value from which your lifetime income stream would be calculated from, the money in this account is not “real” in the sense that it is available for lump sum withdrawals just the same way that you cannot go down to your local Social Security office and try to take a lump sum withdrawal from the social security benefits you have accrued.  We’ll just refer to this as the income account.

 

question manHow Much Income Can You Get?

The Jackson National Perspective L Series Variable Annuity income offers a rider which allows your income account to grow at a minimum guaranteed rate.  A rider is just an addendum to an annuity contract where it adds feature to the contract, usually for a cost.   With the Jackson National Perspective L Series Variable Annuity the rider (contract addendum) to add a minimum guaranteed growth rate can costs between 1% up to 2.50% per year.  The rider fee is on top of the subaccount and base fees we spoke about earlier.  If you buy the optional rider which guarantees a minimum rate of growth for the income account, the minimum guaranteed rate of growth choices varies between 5 to 7% annually (depending which option you chose when you purchase the annuity).  Keep in mind this guaranteed minimum rate of growth is not available for lump sum withdrawal purposes.  The guaranteed minimum rate of growth is on the income account not the principal account.

Once again the income account value is not available for lump sum withdrawals, it is the value that your guaranteed lifetime income is based off.  What Jackson National does is that when it is time to turn on your lifetime income stream they look at the value in the income account and then multiply it by a payout factor to determine the amount of money you will receive on an annual basis*.  The older you are the higher the payout factor, so the longer you wait to turn on the lifetime income stream the more money you will get per year.   So if two different people had the same income account value but were of different ages when they turned on the income stream than their annual income amounts would differ.  For example if the income account value was $100,000, the 54 year old would get $4500 per year for life and the 60 year old would get $5500 per year for life.

Now comparing the age dependent payout factor of the Jackson National Perspective L Series Variable Annuity to the age dependent payout factors of other annuities it is easy to find other annuities that for the same age the payout factor is significantly more.  So what this means is that you could have an annuity with a lower guaranteed annual increase in the income account, but with a higher payout factor and the net results could mean more yearly income.

So the moral of the story is that their are two factors to consider when evaluating the potential  income performance of the Jackson National Perspective L Series Variable Annuity.  You have do your homework and look at both the minimum guaranteed growth rate of the income account and the cost of the associated rider that gives you that minimum guaranteed rate of growth in the income account.  In addition it is always a good idea to look and compare the age-based payout factors between annuities when evaluating when evaluating them.  The higher the payout factor the higher the annual income.

 

complexThe Bottom Line

Variable annuities should be examined closely before purchasing.  They are complex financial instruments with numerous features contained within the intricate wording of the contract.  The  guaranteed rates of growth on the income account value might sound appealing, but remember that this amount is not available for lump sum withdrawals and is only used for age based income calculations, so do your due diligence before purchasing this product and at the very least spend some time reading the prospectus.

If you are still considering a variable annuity and want to be sure it is right for you than make sure you get the annuity tested. We can do that for you here at AnnuityInvestigator and we can help you determine if the returns that your agent/ advisor is illustrating for you are realistic.  We can also answer additional questions and give you some ideas about strategies that mirror the upside potential of variable annuities but don’t have the downsides of variable annuities (high fees, withdrawal penalties, no downside protection, etc).

 

slowFor Your Consideration

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.

 

 

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