“Most fixed annuities take from the left hand and give with the right hand. Nationwide New Heights gives with both hands, and that is unique.”
Saving for retirement is hard enough, but another difficult challenge is making sure the money lasts. This is where annuities enter the picture. Yet not all annuities are equal.
Ideally, you want an annuity that couples a competitive, guaranteed income stream with a reasonable shot at growth. Good luck finding one. Fixed Index annuities (FIAs) theoretically provide this, but most offer either a competitive index participation rate – the growth component – or a competitive guaranteed income rider. Most do not offer both.
One exception is the Nationwide New Heights 12, backed by an insurance company with a superlative A.M. Best rating of A+. The minimum investment is $25,000.
“Most fixed annuities take from the left hand and give with the right hand,” says one annuity marketing expert. “Nationwide New Heights gives with both hands, and that is unique.”
This product offers an attractive income rider paying a 10% benefit base bonus with a 1% premium bonus, which is nice, but where it really shines is in the deal that it offers to investors who sign on to the J.P. Morgan MOZAIC index (a low volatility index that invests in stocks, bonds and commodities). It offers a 160% participation rate, based on three years, point-to-point. By contrast, other FIAs offer low volatility index participation rates of 85% to 125% on a one-year or two-year point-to-point basis.
Also attractive is the option to invest in the S&P 500 with a 70% participation rate, adjusted for a 1.9% spread. A few other FIAs offer comparable deals, some even marginally better, but not with an income rider, destroying the goal of coupling guaranteed income with growth potential. Other FIAs require even higher index spreads.
Some folks might point out that indexes that chalk up gains on a three-year point-to-point basis are less attractive because you have to stick with the annuity longer to realize the gain. Given that annuities are long-term investments, however, this is largely a specious point. Most people keep annuities multiple years, if not indefinitely, and so the longer timeframe is largely irrelevant.
Another attractive New Heights feature is an enhanced death benefit. Beneficiaries of those who sign up for this receive interest plus the initial annuity investment, or the value of the benefit base, whichever is higher, over a span of five years.
It’s important to note that New Heights has a 12-year surrender schedule, about 20% longer than most FIAs. A stronger case can be made that this is a negative because some annuity owners shop for new annuities that may offer better terms once the surrender schedule expires.
On the other hand, it is this longer surrender period that helps enable New Heights to offer its superior features. Because it has access to an annuity owner’s money longer, it has leeway to be somewhat more generous. It’s no surprise that annuities with shorter surrender schedules have been commonly decreasing their rates in sync with the declining interest rate on the benchmark 10-year U.S. Treasury note.
In annuities, like so many other things, you typically get what you pay for, one way or the other.
For more information about the product mentioned in this article contact us here:
