New York Life Insurance Company released a unique fixed annuity product last October without any introduction or fanfare. This deferred fixed annuity is one of the first to offer guaranteed lifetime withdrawal benefits comparable to those of variable annuities and indexed annuities. This information comes from Darla Mercado’s Investment News article “New York Life raises the living benefit stakes – on a fixed annuity.” The Clear Income fixed rate annuity performs like a traditional fixed annuity during the first seven years. Your interest rate is guaranteed for seven years, the same length of time as the surrender period. After the seven years is up, you receive an interest rate that renews every year. The main difference between this product and other fixed annuities is the guaranteed lifetime withdrawal benefit. Your income base, which is used to calculate your lifetime payments, increases 5% for up to ten years. This added benefit costs 75 basis points. The current withdrawal rate is 5.25% for those aged 65-69 and is tiered based upon age.
The Clear Income fixed annuity was introduced to capture some of the variable annuity market. With $80 billion in yearly sales, variable annuities account for the largest percentage of total annuity sales. New York Life believes that this new fixed annuity competes with variable annuities based on its rates and roll-up. The main reason for purchasing a variable annuity product is often for the market upside potential. But recent research has found that a lot of people put a good portion of their variable annuity assets into fixed accounts. Morningstar found that the first choice for allocating VA assets is in moderate allocation accounts, the second choice is in conservative allocation accounts and the third choice is actually in fixed accounts. Variable annuities with living benefits are becoming harder to find than they were a few years ago, so this new product from New York Life might the change that the markets were seeking.
Beacon Research’s president said that there are really no products in the market to compare with New York Life’s Clear Income fixed annuity. Indexed annuities are the closest options, particularly because they are aimed at the same consumers. Clear Income is targeted at people who are near retirement age, conservative and are looking for a guaranteed income floor to protect their retirement savings. We can’t yet determine if people are better off with with fixed annuity that has a living benefit and roll-ups or an indexed annuity that has a cap and living benefit features that are similar. When comparing these types of products, it’s important to consider the rider fees and the financial strength ratings of the insurer selling the annuity. You might find a “cheaper” rider from an insurer rated far below New York Life. Speak with an expert if you think that New York Life’s Clear Income fixed annuity with living benefits is right for you.