The stock market has been on a roll for well over a year and few market gurus think the proverbial punch bowl will disappear anytime soon. Small wonder, then, that growth fixed indexed annuities (FIAs), which offer stock market exposure without the possibility of losing money, have been among the most popular annuities of all.
You may well be one of those owners of growth FIAs. But shouldn’t you consider diversifying somewhat?
Stocks today are very pricey and, historically, the higher the price, the greater the risk. Market corrections have come and gone over the past year, but there is no guarantee this will remain the case. What if Covid-19 variations turn out to be a much bigger problem than they have so far? Or what if inflation defies the thinking of the Federal Reserve and shoots up more than expected, boosting interest rates and pressuring stock prices in the process?
Fixed Annuity Rates Remain Attractive
What often gets lost amid market enthusiasm these days is that fixed annuity rates have remained relatively generous, despite some trimming, especially in comparison to traditional alternatives such as bank CDs. And, unlike the stock or bond markets, they are protected from market risk. This alone should appeal to retirees because most live on fixed incomes.
The most popular fixed annuities are income FIAs, which emphasize lifetime income rather than growth potential and generally come with roughly 1% annual fees, and simpler multi-year guaranteed annuities (MYGAs). Most offer penalty-free withdrawals of 10% annually. The payout rates on income FIAs are based on a single person, age 65.
Here are the most attractive today:
Below are some examples of competitive income strategies for a single, 65 year-old with an initial investment of $100k. For the most accurate income quotes for yourself, please contact AnnuityFYI.
American General (AIG) Assured Edge Income Builder. This pays the most for those who want to take payments immediately – a $5,700 payout annually, debited from principal, for those who invest $100,000. (American General doesn’t even offer an accompanying growth index.) The minimum investment is $25,000, which pays the same percentage as bigger investments. American General has an A.M. Best rating of A.
National Western Income Outlook Plus 5. This requires a wait of at least one year before payments start, during which investors receive 5% annually. The advantage of this FIA is that payout rates rise every year for 10 years. If you start payouts at the start of the second year, you receive $6,583 annually if you invest $100,000. Thereafter, this rises, by year, to $6,912, $7,258 and $7,673, etc. At 10 years, the payout rate is a whopping $12,070 annually. Regardless of the year, these terms are among the most generous on the market.
The minimum investment is $5,000. National Western has an A.M. Best rating of A.
The best two-year fixed annuities are offered by SILAC Life Insurance Co. and Oceanview Life & Annuity Company. Both pay 2.15%. The minimum investments are $10,000 and $20,000, respectively. SILAC is rated B+ by A.M. Best and Oceanview A-.
The best 3-year MYGA is sold by American Life. The base rate is 2.25%, however, if you do not take any distributions, there is a persistency bonus of 0.45% which makes your yield 2.40%. American Life has a minimum investment of $1,000. It’s rated B++ by A.M. Best.
The most generous four-year fixed annuity is from Oceanview Life and Annuity, paying 2.55%. The minimum investment is $20,000. It is rated A- by A.M. Best.
The best five-year fixed annuity is the SILAC Secure Savings Elite 5. It pays 2.95% annually. The minimum investment is $10,000. Its A.M. Best rating is B+.
The best six-year fixed annuity is the Nassau Simple Annuity 6 which pays 3.10%. The minimum investment is $5,000. It’s rated B+ by A.M. Best.
The best seven-year fixed annuity is offered by Western United Life Assurance Company – 2.95%. The minimum investment is $5,000. Its A.M. Best rating is B+.
MYGA buyers might want to consider buying a so-called ladder of fixed annuities with different maturities, spreading the risk inherent in the uncertain timing of rate movements. You might, for instance, buy a ladder of three-year, five-year, and seven-year MYGAs. Those with lesser maturities to some extent enable you to buy higher-yielding MYGAs if rates rise without waiting as long. The ladder also helps protect you if rates fall because you have locked in rates for differing periods of time.
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