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.
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?
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.
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!
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.
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.
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.
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).
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.