To get started an annuity is just a contract between a person (like you) and an insurance company. Usually people who are looking into annuities are looking for certain contractually guaranteed financial terms and/or outcomes. Most often people who are interested in annuities are attracted by the guaranteed lifetime income stream that annuities can provide and usually they are also seeking to grow their money; which potentially is something else that annuities can provide. Additionally they may be interested in other features like death benefits or in-home health care benefits that some annuities may offer.
Although the financial goals and objectives for people 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. Variable annuities can also provide a guaranteed income stream for life. Additionally fixed index annuities can grow your money. Well variable annuities can grow your money too. What’s the difference?
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.
Let’s start out with a quote from the New York Life Flexible Premium Variable Annuity offered by New York Life 100 page prospectus:
“The New York Life variable annuity you are considering has some risks, which may include the following:
- The Investment Divisions you choose may lose value. If so, the Accumulation Value of your annuity will decrease;
- There is a liquidity risk because you may incur surrender charge expenses on full or partial withdrawals made during the surrender charge period;
- There may be a tax penalty if you withdraw money from the annuity prior to age 59½; and
- Depending on the variable annuity selected, you may be limited in the amount you may transfer from the Fixed Account to the Investment Divisions.”
So keep in mind you can lose money, but let’s take a look at how you can grow your money with the New York Life Flexible Premium Variable Annuity offered by New York Life. After you open your New York Life Flexible Premium Variable Annuity offered by New York Life account you are given the option of investing your money in a variety of different investment choices. I did not count them all, but as you can see here the choices are many and each one comes with it’s own prospectus so now we are talking about thousands of pages of prospectuses (be sure and have a look yourself). The choices run the gamut, from low-risk and low-yield bond portfolios to high-risk and potentially high-return aggressive allocation portfolios.
What Else Do You Need To Know?
After you have made your choices of investments be aware of the New York Life Flexible Premium Variable Annuity fees, penalties and fine print. And the New York Life Flexible Premium Variable Annuity has lots of them. Are you ready?
Fees: The minimum annual fees and expenses are 1.78% and the maximum annual fees and expenses are 3.37%.
Penalties: The early withdrawal penalties (surrender penalty) is for the first 9 years. The first three years it is 7%, the fourth year it’s 6%, and then it reduces by 1% each year for the remaining years. This product is designed for the long term growth and lump sum withdrawals in the first 9 years can be very expensive.
Fine Print: The prospectus for the New York Life Flexible Premium Variable Annuity is 100 pages long, but keep in mind the underlying investment choices have prospectuses also which means the total number of pages can add up to over 1,000.
Commissions: The maximum agent commission on this product is 6.5%.
Ye Ol’ Bottom Line
Higher fees, higher risk. Is the New York Life Flexible Premium Variable Annuity offered by New York Life right for you? Not sure…does it perfectly help you execute your financial plans and has the right balance between risk-vs-reward? If you’re not educated fully on it, or how it will affect the rest of your portfolio, slow down and please consider it carefully.
There is no need to rush into the New York Life Flexible Premium Variable Annuity offered by New York Life. Read some of our other reviews and make sure you compare it to owning a low cost portfolio of indexed funds, or if you want to limit losses, compare it to some of the fixed index annuities reviews on this site.
You may be able to tell from the review that I am not a big fan of variable annuities, but I did try to be as fair minded as possible. My take on variable annuities, is if you want uncapped growth and you are willing to take the downside risks of the market, then research opening a brokerage account and invest in the positions/funds directly. This way you are going to save on all the variable annuity related fees and you can access your money without having to worry about penalties.
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 or 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).
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