Athene AccuMax 7 – a super-simple growth FIA with no bells and whistles that offers a 50% participation rate in the S&P 500 over seven years, if you invest at least $100,000.
This Growth FIA May Be the Answer for Folks Who Don’t Like Declining Index Participation Rates
It’s easy to see why the concept of a fixed-indexed annuity with an emphasis on growth appeals to many prospective annuity buyers: benefit from a rising stock market without fear of losses in a bad year. But if you happen to be shopping around for a growth FIA these days, you may find yourself in a quandary.
The downside of a growth FIA has always been that the no-loss guarantee comes with a catch – you take a haircut on how much of a gain in the market you actually pocket. It has always been substantial but still readily acceptable to FIA aficionados, typically 45% to 50% of the S&P 500 index as recently as a year ago. Today, though, most growth FIAs are paying only 25% to 30% of the rise in the S&P 500.
This means, obviously, that if the S&P 500 rises, say, a healthy 10% in a given year, you get no more than 3%. This puts you in the vicinity of what you can earn a year, guaranteed, in a plain-vanilla fixed annuity. And that begs the question of whether investing in a growth FIA these days makes much sense.
What is an FIA fan to do?
The answer may be an investment in a new FIA – Athene AccuMax 7 – a super-simple growth FIA with no bells and whistles that offers a 50% participation rate in the S&P 500 over seven years, if you invest at least $100,000.
How good is this?
Let’s be relatively conservative. Say that the average annual return of the S&P 500 over the next seven years is 8%, certainly a plausible scenario given that the economy is heading into a significant rebound after an abysmal 2020. That would work out to an average annual return of 4%, and that handily beats fixed annuity returns.
Athene AccuMax 7’s seven-year interest crediting period – in contrast to a one or two-year crediting period on most FIAs – is also a plus in that the 50% participation rate is locked in for the life of the contract. This means Accumax contract holders don’t have to worry about the participation rate being cut – a common practice. You can’t say that about other growth FIAs.
“This is a contract that will never change, and people like that,” says an annuity professional familiar with the product.
AccuMax contract holders also have the option of investing in the AI Powered Multi-Asset Index or the Shiller Barclays CAPE Allocator 6 Index.
The former is an AI-managed global low-volatility index. It pays 120% of the index over seven years for investors who fork over at least $100,000. The latter invests in U.S. value stocks and pays a 105% participation rate over seven years for investors who invest $100,000-plus. (Such indexes elsewhere generally offer participation rates of 85% to 90%.)
Pros and cons of the 7-Year period.
AccuMax is not without any drawbacks, at least in the eyes of some FIA proponents. The biggest, by far, is its seven-year point-to-point crediting method. “Some people like to see how they’re doing every year”, says our annuity expert. “FIA investors are mostly CD and fixed annuity buyers accustomed to seeing their interest credited regularly. That doesn’t happen with this product.”
Moreover, this isn’t merely a matter of buying an FIA with no performance observation points along the way. AccuMax, like most FIAs, gives investors the option of withdrawing 10% annually without penalty. In the case of AccuMax, however, that money has to come out of principal, not interest earned along the way. There is no interest along the way. So if by chance the S&P 500 winds up with a flat performance over the seven-year period, the withdrawal is never recouped. However, having no interest credited over the seven-year period can be advantageous for Required Minimum Distribution (RMD) planning since the Account Value does not change for the 7-year period. Prior-year contract values determine RMDs in IRAs, so if the Account Value remains constant, the RMDs will not increase due to growth until after the seven-year period.
The bottom line.
Select AccuMax investors might want to couple an investment in this annuity with an income annuity, which boasts a lifetime income rider for an annual fee. This could be the best of both worlds in that it offers more protected growth potential than you can find elsewhere, plus a guaranteed income stream. If you have a conservative bent, how can you do better than that?
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