Ostensibly, folks who like fixed indexed annuities (FIAs) want to have their cake and eat it too. FIAs enable them to invest in the stock market without fear of losses because of a guarantee that they won’t lose money in a down market.
But if they opt for a guaranteed lifetime income rider, as many do, the picture gets muddied. Insurance companies offer less attractive terms on stock index participation rates if the annuity buyer signs up for a competitive income rider. So, their upside potential is not as good. And index participation rates – how much of an annual increase in the market you actually get to pocket – are never 100% or even close in mainstream indexes, such as the S&P 500, in the first place.
The way things work, FIA owners with an income rider get either guaranteed payments or payments based on the performance of the index – whichever is higher. The bottom line, given this, is that the market usually doesn’t rise enough to beat the guaranteed payments.
For those who know this and find it troubling, Athene offers an FIA – Athene Ascent Pro 10 – that appears to offer a better way. In effect a hybrid of a growth FIA and an income FIA, it offers a stronger chance to beat the going guaranteed rate by doubling annual gains in the index and adding them to the annuity’s income base. If the income base – the determinant of the size of payouts – is larger, guaranteed payments are more robust.
If the market cooperates, Ascent Pro 10 owners will come closer than others to having their cake and eating it too. (Interestingly, Athene – an annuity purveyor that is more creative than average – also offers Athene Ascent Accumulator 10, an FIA without an income rider that offers a 100% participation rate on the Janus SG Market Consensus index. (While not as good as the S&P 500, it’s relatively close.)
The minimum investment for Ascent Pro 10 is $5,000 or $10,000, depending upon the state in which you live.
This annuity offers investors two options. One, called Guaranteed Growth, is much like many other FIAs. Owners receive a healthy 20% upfront bonus to their income base and 10% simple interest annually during the rollup period and then receive a respectful income payment – a single 65-year-old man, for example, would receive 4.1% annually. Like both aforementioned Athene annuities, it invests in the Janus index, which consists of 250 large U.S. stocks that have the lowest volatility and highest analyst ratings.
The doubling of the interest credit is a feature in Guaranteed Growth, Plus Interest Credits – the sister annuity of Guaranteed Growth. If our 65-year-old man opted for this version, he would earn 8% simple interest annually in the rollup period and thereafter would receive guaranteed payments of 3.5% annually. As you would expect, the stock market has to cooperate if investors in this annuity are to beat investors in Guaranteed Growth. (This version offers a 5% upfront bonus to the income base.)
How would the performance of the two compare in a theoretical five year period? If our 65-year-old man invested $100,000 in Guaranteed Growth, he would earn $7,820 annually if he deferred payments for five years, boosted by the bigger Athene bonus. Thereafter, he would get the aforementioned payout rate.
By contrast, if the same man invested the same amount in Guaranteed Growth, Plus Interest Credits and also deferred payments for five years – and the Janus index posted a 5% average annual gain – he would earn $7,978. He would earn only marginally more, but would do so with a much leaner bonus.
It is in future years that he would probably come out ahead more noticeably. In the next five years, if the Janus index generated a very modest average annual gain of only 4% annually, he would earn $9,347 a year toward the end of this cycle. If the market performed better, as it has historically done, this man could earn thousands of dollars more than this a year.
Is the purchase of this Athene annuity with this option a good idea?
Predictably, it depends upon how the stock market fares. But at least investors have the opportunity to sign on to a potentially highly attractive deal – and one pointedly bundled with a respectable guaranteed income rider. This is more than you can say for most FIAs.
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