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A Q&A with a Highly Seasoned Annuity Investor

By , with Annuity FYI

Among Levine’s most recent annuity purchases was the Midland National RetireVantage 10 Growth Fixed Index Annuity, an FIA that offers an extremely generous 165% index participation rate on a low-volatility index. You can find specifics about this annuity at the bottom of this page, below the article.

Joel Levine, a retired financial professional who has worked for banks, insurance companies and financial rating firms, is big on annuities. In fact, he is an unusually huge fan. Most retirees who own annuities have one or two, in some cases perhaps as many as three. Levine owns 10, an investment that exceeds a million dollars.

He owns variable annuities, fixed annuities, fixed indexed annuities, immediate annuities, and a deferred income annuity. “I own almost every flavor of annuity you can imagine,” he says, “always focusing on the most attractive products available at the time, rather than a particular type of annuity.”

Among Levine’s most recent annuity purchases was the Midland National RetireVantage 10 Growth Fixed Index Annuity, an FIA that offers an extremely generous 165% index participation rate on a low-volatility index.

Levine, 68, now lives with Laura, his wife of 45 years, in Delray Beach, Florida. He lived most of his life in Stamford, Connecticut.

Here is a Q&A with him, edited for clarity and conciseness, about why he has bought so many annuities, what he thinks about annuities and annuity purchasers in general, and what additional investments he plans to make moving forward.

Q: Why do you like annuities so much?

A: As long as you screen for creditworthiness, they offer much better returns than average if you’re willing to give up some liquidity. And while most annuities have surrender fee schedules, the lack of liquidity is not bad. On most annuities, you can withdraw 10% a year without paying a penalty. That is all I would ever need.

Q: Annuities have a lot of critics. Mostly, they say high annuity fees are not worth the price of admission. What is your take on this?

A: The criticism is exaggerated. Some annuities, such as Multi-Year Guaranteed Annuities (MYGAs, a type of fixed annuity), have no obvious fees. They are built into the product, which means the stated return is actually what you receive. In annuities that charge fees, such as fixed indexed annuities (FIAs) with lifetime income riders, what counts is the return you get over the life of the contract. If the return is better than what you can get elsewhere, including the payment of fees, that is a good deal. Most FIAs invest in stock market indexes and all of them guarantee against losses in bad years. That is a significant advantage.

Q: Let’s poke into this more. Let’s say you invest for 10 years in a diversified or index-driven stock mutual fund. The average annual return on stocks over many decades has been about 10%, including the reinvestment of dividends. This means stocks rise over time and that long-time stock market investors are winners. Plus, mutual fund fees are lower than many of the annuities that invest in the stock market. Given this – plus the fact that stock market funds pay dividends and annuities do not – isn’t the mutual fund actually the better route?

A: No, it isn’t. Because an FIA guarantees against market losses, an investor comes out ahead over time even if the stock market has only one positive year during your annuity contract. You can’t say that about the stock market. You’re likely to have positive and negative years, and you could come out negative in the end.

Consider the relatively recent stock market history. In the 10-year period that ended in 2019, the market unequivocally did well, rising at an average annual rate of 13.5% (including dividend reinvestment). But in the previous 10-year period – the first decade of the 21st century – the S&P 500 wound up declining at an average annual return of negative 3%.

Looking ahead, I think the stock market will fare worse than it has historically because of high valuations and extremely low interest rates (notwithstanding recent interest rate increases.)

Q: You seem like an unusually thoughtful annuity investor. What is your opinion of annuity purchasers overall?

A: Many get too hung up on fees and broker commissions. They’re worrying about the seller, not themselves. The real crux of the matter is the likely performance of the annuity they’re considering purchasing – and why your conclusion is an accurate scenario. You have to examine this.

When you purchase a stock, unlike an annuity, you know what you’re getting. An annuity contract, on the other hand, is pretty complicated. If you don’t understand it, you don’t know what you’re purchasing.

Q: When did you start investing, and when did your portfolio begin to include annuities?

A: I wasn’t even much of saver before age 35. After that, I became a regular investor in IRAs and 401(k) funds, mostly in bond and other fixed-income funds. I invested little in stock funds. I grew up in a lower middle-class family, and stocks weren’t something we talked about.

Starting in my late 40s, I became a more serious investor. I started investing in non-retirement stock and bond index funds. Later, I got involved with investment advisors at places like Merrill Lynch and Wells Fargo Advisors and started investing in some new and different things. I tried investing in individual dividend-paying stocks, international stocks, select initial public offerings (IPOs) and municipal bonds. I became unhappy with all this because the investment performance was bad. I was particularly unhappy about dividend-paying stocks. If you’re paying fees approaching 1% annually and not receiving expected returns, you’re just throwing money away. What advisors were selling was just sizzle. I decided I had to take control of my own investing.

I started purchasing annuities in 2008 and 2009. I bought two variable annuities during the market crash at the time, one underwritten by Germany-based Allianz and one by Ohio National, and I still own them. Both offered handsome payout rates, which subsequently got even more generous as the market rose and some of the gains were captured in the income rider. This feature has been tamped down or ended.

Why Savvy FIA Purchasers Like the Midland National RetireVantage 10

It should come as no surprise that one of the annuities that Joel Levine has placed in his portfolio after serious consideration is the MNL RetireVantage 10 fixed indexed annuity (FIA).
It offers a whopping 165% participation rate on the low volatility S&P 500 MARC 5% index, and this, says one annuity professional familiar with the product, “is the most generous participation rate on an FIA in the market today.”

To get this rate, purchasers have to pay a 1% annual fee, but it’s still unusually attractive. The participation rate on most FIAs on low volatility indexes today is 90% to 100%. The second-most generous participation rate on an FIA offering a low volatility index today is from the Fidelity Guaranty Life Accelerator Plus 10. It offers 145% and this carries a 1.25% annual fee.
(To get the 165% rate, purchasers of the Midland FIA must invest at least $75,000 and accept two-year index performance crediting.)

This is an annuity that can potentially beat many stock funds over its 10-year life. And, unlike stock funds, you don’t have to sweat out the bad times because all FIAs are protected from losses.

In early 2020, the Midland FIA offered an even higher 200% participation rate. It was subsequently trimmed twice but has stayed at the 165% participation rate since last September. It’s unlikely to fall much further – if at all – because it’s difficult to justify additional trims while still charging an extra fee that most growth FIAs do not. It also wouldn’t look good to reduce the fee now that interest rates are rising again, pressuring FIAs to become more generous, not less so.

The S&P 500 MARC index rose 8.7% last year, less than the S&P 500 but still a handsome return for a product designed to minimize volatility in comparison to an all-stock index. The index invests in bonds and commodities, as well as stocks.

Investors in the Midland FIA can withdraw 10% annually without penalty.

For more information about the product mentioned in this article contact us here:

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