Brighthouse SecureAdvantage 6 Is Markedly Different From Other FIAs – And That’s Why It’s Worth Discovering Now.
This is an extraordinarily tough period for investors. Most traditional options are sketchy or worse. The benchmark 10-year U.S. Treasury note is yielding well below 1%. Stocks have generally been rising but many investment pros expect them to decline again, perhaps dramatically, because near-term economic prospects are abysmal.
Alternative investments, such as REITs, are no bargain, either. Millions of Americans are struggling to pay their rent, and office complexes nationwide are near-empty. Who is to say that working from home – rather than in an office – will not remain the norm, rather than the exception, for the foreseeable future?
There are a few scattered bright spots, however, and one of them is Brighthouse SecureAdvantage 6, a relatively new fixed indexed annuity (FIA) that is unlike virtually every other FIA. You have to stick with an investment in the S&P 500 or the Russell 2000 for six years (but for this example we will just use the S&P 500) and no interest is credited to your account until then. This may sound like a negative but is actually a positive because, as one annuity pro familiar with the product says, “it forces you to buy and hold – exactly what you should probably do at this point, and has historically rewarded investors 100% of the time.”
This is hardly the only attraction. Brighthouse SecureAdvantage 6 offers an unusually high index participation rate – 50% for most investors, at least 40% higher than the rates offered by the next most competitive FIA and 100% higher than the #3 product, which alongside most annuities have recently trimmed their rates substantially. In the case of this annuity, Brighthouse guarantees that the participation rate will not be changed during the entire 6-year term. Note: The other top FIAs offering 30% and 35% are 10-year term annuities and the participation rate can change every year up or down.
And since this annuity offers no guaranteed income rider, there are no fees, boosting returns.
There is one negative, at least theoretically, and this, in particular, makes Brighthouse SecureAdvantage 6 different from the herd. If the S&P 500 declines more than 10% in a given year, this subtracts from your market gains, albeit not your principal. Still, it is a loss of sorts, impacting the size of your ultimate payouts, and sharply contrasts with other FIAs, which guarantee against any losses whatsoever.
Brighthouse SecureAdvantage 6 Fixed Index Annuity Hypothetical Performance Based on Current Non-Guaranteed Rates and Historical Index Returns
S&P 500 Index
|Annual Index Performance||Par = 50% Annual Sum Par Performance|
Why, you are likely to ask, is the description of this loss as “theoretical” apropos? After all, if in the end your market gains are lower, so, too, are your payouts down the road.
What’s important to bear in mind, however, is that the S&P 500’s performance, as already mentioned, is calculated only over a six-year period. There were only two six-year periods in modern history that in aggregate produced a negative return – 2000 to 2005, which included the 2000-2002 recession, and 1929 through 1934, in the heart of the Great Depression.
Statistically, this strongly suggests that the next six years will not again experience such a scenario. Is it possible? Of course. But it is highly unlikely, and even more so in the case of this FIA’s likely performance because investors cannot lose more than 10% a year on paper.
(By contrast, the S&P 500 declined more than 23% in 2002, for example, and more than 28% and 47%, respectively, in 1930 and 1931.)
Are there any other annuities that are particularly attractive right now? The answer is yes, there are a select handful, however there are none that come close among the true FIA (non-prospectus) product offerings invested in the S&P 500 or Russell 2000.
One that might appeal to folks with a higher risk tolerance, for instance, is Athene Amplify, a so-called “buffered” or structured variable annuity. It currently offers a 6-year term with a whopping participation rate of 140% on the S&P 500, also guaranteed not to change. In comparison, it offers just 20% downside market protection, unlike the Brighthouse annuity which protects 100% of your principal. Due to this fact, the Athene Amplify is not an FIA but instead is registered as a variable annuity and sold by prospectus. Most investors who have a longer time horizon would probably opt for this product over the Brighthouse, due to the much greater upside potential. However, for those who are looking for a bond alternative or can’t shake the thought of the market possibly being down more than 20% over the next 6 years, the Brighthouse may be a better option. The same top annuity pro says, “some investors are choosing to split their investment between these two competitive products.”
Again, however, consecutive years of market declines exceeding 20% annually are rare.
Which of the two annuities might be best for you depends mostly on your risk tolerance; if you cannot tolerate the possibility of an annual loss of principal, Brighthouse is the better of the two. And these days, Brighthouse SecureAdvantage 6 is more attractive than most FIAs – period.
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