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Product Alert: Pacific Life Index Edge 5 &
Index Dimensions 10 Fixed Indexed Annuities

There Isn’t Always a Catch When You Buy an Annuity from a Top-Rated Insurer. Pacific Life offers a fixed indexed annuity (FIA) with an attractive and rare surrender period of only five years and another FIA that offers more generous terms in an otherwise standard product with a typical 10-year surrender period.

Read the full product review of these annuities.

If you are interested in this product, please call 1-866-223-2121 or complete the form below.

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Watch Somerset Wealth Strategies CEO Tom Hamlin explain the benefits of the AIG Assured Edge Income Builder, a Fixed Annuity with a Guaranteed Lifetime Withdrawal Benefit.

Contact Annuity FYI for more information at 1-866-223-2121 or support@annuityfyi.com.

Consider Some Novel FIAs That May Fit Your Bill in Highly Uncertain 2019

By Steve Kaufman

So we’re in a new year and after months of procrastination you’ve decided to take the plunge and purchase an annuity. But which type – or, more precisely, which one exactly? Never an easy decision, it’s tougher than usual this year – unless you’re thoroughly conservative – because of significant uncertainty regarding the outlook for the U.S. economy and hence the stock market.

Will the Federal Reserve overdo it and raise interest rates too much, triggering a substantial economic slowdown? Will the trade war between the U.S. and China continue unabated and inflict growing economic damage on both countries? Will economic growth in Europe and Japan continue at a snail’s pace and significantly curb U.S. exports to those markets?

And regardless of the outcome of the U.S. – China trade war, what about the global implications of festering economic growth in China – the world’s second-biggest economy?

The most conservative annuity buyers opt for plain-vanilla fixed annuities, and this is hardly an unwise move. A six-year fixed annuity is now paying 4.1%, far above what a bank CD pays and, for that matter, materially higher than the yield on the benchmark 10-year U.S. Treasury bond. Many investors, however, prefer to beat this by a percentage point or two and typically look to a fixed indexed annuity (FIA) to do so because it offers an enticing lure – stock market exposure with no losses in a down market.

There is a downside, of course. While you lose no money in a down market, you also earn nothing – far worse than pocketing a respectable return from a fixed annuity.

What to do? Consider all your options, which today are broader than ever.

You could go with a good, conventional FIA and not worry about what the market will do in 2019, knowing that this is a long-term investment and so it doesn’t much matter if the stock market falters. For that matter, it’s probably OK even should it decline in 2020 as well. You can also opt for a FIA that allows you to combine stock market exposure with a fixed-rate, no-risk supplement- — and for no fee.
If you’re really bearish, you can also take a page from options traders and invest in a newish type of FIA that will reward you for betting on a down market.

Here is a description of annuities that fit these options:

  • Invest in a conventional FIA that offers an unusually generous participation rate on the S&P 500 index (54%) without a cap and without any fees. The minimum investment is only $5,000. These days, some people prefer to invest instead in a so-called low-volatility FIA, which invests in bonds and commodities as well as stocks, typically lowering returns but also generally providing more stable performance.

    These FIAs are relatively complicated, however, and most annuity buyers prefer simplicity. “It’s harder to track multiple indexes, and most people prefer the plain-Jane S&P 500,” says a financial advisor abreast of the annuity world. “This particular FIA is simpler and offers more growth potential. And, best of all, it boasts the best S&P 500 participation rate on the market.”

  • Invest in a largely conventional FIA that offers a respectable S&P 500 participation rate of 42% as well as the opportunity to put a chunk of your investment in a fixed rate bucket paying 3% a year for no fee, enabling you to hedge your bet on the stock market.

    This annuity, which has a minimum requirement of $10,000, has a relatively short seven-year surrender schedule. If you think there is still a chance you might want to bow out sooner, you can do so without penalty by paying a fee of less than half a percentage point a year.

  • Take a flyer and buy a FIA that rewards you in a bad market. For a minimum investment of $100,000, one product will pay you 8.7% in a year in which the S&P 500 stays flat or declines even marginally. This is known as an inverse performance trigger (IPT). “This product is for those who think we’re heading into another financial crisis,” says the financial advisor.

    This is another case in which folks can invest in this annuity and also place some of their money on a more conventional track, such as pocketing 50% of the increase of the S&P 500, without a cap. This would help offset the fact that investors in this product receive nothing if the market rises.

    Those who don’t want to invest $100,000 in this product can instead invest as little as $5,000 in exchange for a lower 8.1% return in a down market and a 45% S&P 500 participation rate on the supplemental, more conventional option.

  • Make a roughly similar bet on another FIA offering an IPT that will give investors a return of up to 11% if the S&P 500 falls as much as 12 ¼ %. (The difference reflects a required annual fee of 1 ¼ %.) The more the market drops, the more the annuity owner receives, until reaching the cap.

    A substantial caveat regarding this FIA is that an increase in the S&P 500 requires debiting your account value. This is a sharp contrast to most FIAs, which do not penalize owners in a down market.
    “This annuity is only for people who want to bet that the market will take a huge hit this year,” the financial advisor says. “They have to be very, very confident that they will turn out to be right.”

    The minimum investment in this FIA is $10,000.

As always, the best path forward for any investor is ultimately his or her decision. It boils down to your risk orientation and your sense of how the U.S. economy will perform in 2019. Just bear in mind that things can change on a dime along the way — and that ultimately nobody knows how the stock market will do this year.

Annuity FYI Product Alert: Athene Ascent Accumulator 10

The Athene Ascent Accumulator 10 is a Fixed Indexed Annuity with a wide variety of index crediting strategies and exclusive indices providing strong growth potential.

Update* Since this product alert video was filmed, the BNP Paribas participation rate went from 170% to 185%!

Watch Somerset Wealth Strategies CEO Tom Hamlin make the case for the highly recommended Athene Ascent Accumulator 10.


Product Alert: Pacific Life Index Edge 10

The Pacific Life Index Edge 10 is a Fixed Indexed Annuity with a very high performing S&P 500 Strategy with no market risk and very low credit risk.

Watch Somerset Wealth Strategies CEO Tom Hamlin explain the benefits of the Pacific Life Index Edge 10 in this Annuity FYI Video Product Alert.


A Boost in the Roll-Up Rate Makes This FIA More Generous Than the Competition

By Steve Kaufman

As Annuity FYI has noted time and again, you need to do your homework before you buy an annuity. Even annuities in the same category, such as popular fixed income annuities (FIAs), typically differ in significant ways and in their withdrawal rates if you purchase a lifetime income guarantee.

Choosing the FIA with the best lifetime withdrawal guarantee isn’t nearly as simple as choosing the one with the highest advertised withdrawal rate.

A case in point is an established FIA that has just increased its so-called roll-up rate to 7.5%, up from 7%. This is the key reason it is probably the top income-paying FIA in the business. (The interest is compounded, which makes this rate even more valuable.) In terms of what an annuity owner ultimately collects, the roll-up rate is often as important as the withdrawal rate.

If you are interested in this product, please call 1-866-223-2121 or complete the form below.

In the case of this FIA, a single 65-year-old man who doesn’t withdraw funds for a few years from the annuity would benefit from both the higher roll-up rate and a competitive 5.5% withdrawal rate. Other FIAs match the withdrawal rate, but not the roll-up rate.

The latter raises the annuity’s income base — the number used to calculate your guaranteed annual income. It does so by adding a specific percentage for each year you don’t withdraw money from the contract. The roll-up works much like Social Security – once you qualify for benefits at age 62, the longer you wait to collect them, the more you get (until age 70).

Here is another way to look at this: What really counts in an annuity with an income rider is the amount of your guaranteed minimum income in retirement. If annuity A grows faster than annuity B during your savings years, due to a higher roll-up rate, it could pay more out when you retire – even if annuity B has the higher withdrawal rate.

It isn’t uncommon for a FIA to change its roll-up rate or withdrawal rate – or to alter other terms, for that matter. What is common, however, is that FIAs periodically increase one rate and trim the other, leaving no net benefit for many new purchasers. In the case of the FIA we are spotlighting, this isn’t happening – and that’s why it’s so appealing.

Will other FIAs follow suit?

Unfortunately, this is unclear. You might think they would be improving their terms because interest rates have been steadily rising, and, in fact, most plain vanilla fixed annuities have been increasing rates. FIAs are more complicated, however. For example, they participate in the stock market by purchasing index options, and these have been increasing in price in tandem with unusually sharp market volatility. If this continues, it drains the use of funds for other purposes.

Roll-ups are common in variable annuities, as well as FIAs. If you opt for one of these with an income rider, it would obviously be wiser to buy one a bit earlier in life – say in your late 50s – boosting your withdrawals down the road by parking money in the annuity longer. Unfortunately, research has shown that many annuity contract owners make relatively little use of roll-ups.

Also important to note is that many people seem to believe that the roll-up in the income base is the same as the appreciation of the account value of the annuity. It is not. The roll-up has no effect on account value, which is the actual market value of the annuity’s underlying assets. The roll-up rate is solely about fattening the income base.

New FIA is Offering a 70% Index Participation Rate

By Steve Kaufman

If you’re attracted to annuities and, unlike many, favor growth over income, a new fixed indexed annuity (FIA) – and one with only a seven-year surrender schedule – may be right up your alley.

This FIA offers a 70% participation rate on the S&P 500 – at least 20 basis points higher than most and the most generous offering in the market. There is a catch – it comes with a 2% spread. So if the market in a given year rises, say, 10%, you would get credited as though it rose 8%. Still, this product will always beat the competition if the S&P 500 market rises at least 10%.

Prospective buyers have to decide if they’re fundamentally bullish about the stock market going forward, especially since this FIA’s lifetime income rider option isn’t particularly attractive.

“Most FIAs are good for growth or good for income, but not both,” says one wealth management expert familiar with the product. “So you have to decide which approach you prefer.”

The minimum investment for this FIA — whose insurance company issuer is rated A+ by A.M. Best — is $25,000. The seven-year surrender schedule means that owners of this FIA can liquidate their investment years earlier than most FIAs without penalty.

What most investors probably want to weigh, of course, are the odds that the S&P 500 will rise at least 10% annually without dividends. Relatively recent history suggests that the odds are strong. The S&P 500 rose more than 10% ten times in the last twenty years. Six times, the return was negative, which means that this FIA – like all FIAs – would have beaten the market, if not other FIAs, because FIAs don’t penalize investors when there are losses.

The flip side is that a number of market pros believe that the nearly 10-year-old bull market will face a correction or worse sooner than later and also that market returns will be below par over the next 10 years. This is primarily because the market is pricey and because the strong U.S. economy is widely expected to slow back down to a modest 2% annual growth rate in coming years, undermining profit growth potential. As it is, S&P 500 companies just reported unusually robust quarterly earnings growth and yet the market rose only modestly.

One counter argument, predictably, is that market pros commonly get the direction of the market wrong. In addition, the cost of buying this FIA and betting wrong on the strength of an up market in a particular year is not high. If the S&P 500 rose, for example, 6%, and you were in a plain-vanilla FIA, you might pocket a 3% gain. With this product, you would instead receive 2.2% — a modest shortfall of $800 on a $100,000 investment.

Those who prefer guaranteed income over growth might want to consider buying a traditional fixed annuity instead of a standard FIA because interest rate payouts have risen roughly half a percentage point in the past year. In addition, they typically have shorter surrender schedules.

A New FIA with Good Options – Especially Attractive to 80-Plus-Year-Old Investors

By Steve Kaufman

Say you are in your early-to-mid-80s and want to invest in one of a number of popular fixed indexed annuities (FIAs) so that you have exposure to stocks — and hence a shot at beating guaranteed fixed rate returns.

For the most part, it’s not going to happen. Most FIAs are not sold to folks over 80 for fear that they will not live a lot longer, forcing the sponsoring insurance company to return the principal to a beneficiary. Most insurance companies much prefer to keep the money in-house, make the guaranteed payments and invest elsewhere.

At least one insurance company is bucking the trend, however, and selling a FIA with different investment options, including liberal exposure to foreign markets. People can buy the FIA until age 90. There is no guaranteed income rider – but also no fees – and in any case, if historical returns are any indication, investors who sign on to the annuity’s global multi index strategy are likely to beat typical guaranteed returns most years.

As is the case with all FIAs, investors lose no money in down markets.

“This product is perfect for somebody who is 85 or even older, in good health and looking to beat fixed interest rates with downside market protection,” says a wealth management advisor familiar with the product.

What makes this FIA particularly interesting is the global multi index option, which is not common and offers more diversity than competitive offerings. In the version of the annuity with a five-year surrender period, you invest in the S&P 500 with a 60% participation rate, the Euro Stoxx 50 index with a 30% participation rate and the Hong Kong-based Hang Seng index with a participation rate of 20%.

(The Hang Seng index consists of 48 of the largest companies listed on the Hong Kong stock exchange.)

Over the past 20 years, this strategy substantially beat most FIA indexes that invest solely in the S&P 500.

This annuity is available with a five, seven and 10-year surrender period. As the surrender period rises, the participation rate in the S&P 500 climbs from 60% to 65% to 70%.

Less venturesome investors also have the option of investing solely in the S&P 500, starting with a 6% cap, or in a guaranteed fixed rate starting at 2.35%.

Investors can withdraw 10% of their principal penalty-free annually and also make withdrawals without penalty for nursing home or confined care needs.

This Fixed Annuity Pays a Whopping Interest Rate of 4.10%

By Steve Kaufman

Mergers and acquisitions can shake up markets — even the staid annuity industry – and, in one case, it is directly benefitting consumers.

Starting July 1, an insurance company is offering a seven-year fixed annuity – specifically, a Multi-Year Guaranteed Annuity (MYGA) – for the unusually high rate of 4.10%. Most seven-year MYGAs pay no more than 3.70%. Even 10-year MYGAs pay less than this.

“This offer is quite amazing,” says a principal in an annuity marketing distribution frim who sees lots of new annuities every day.
As it turns out, Global Bankers Insurance Group, a family of life insurance and reinsurance companies, acquired this insurance company roughly a year ago and wants to make more noise in the market. “Right now, this company is essentially buying business”, says the aforementioned principal.

While this is an outstanding rate, annuity shoppers should also be happy that rates in general are rising alongside multiple hikes in Federal Reserve interest rates. Because of rising global trade war friction, people are looking for a flight to financial safety, and fixed annuities certainly fit that bill. Nonetheless, experts say that rates on fixed annuities overall have risen about 1 percentage point since the start of 2016.

Increases have been especially sharp at the short end of the maturity scale. Three-year MYGAs, for example, are typically paying 2.25% to 3%, more than double the rate of 1% to 1.25% at the start of 2016. Also, up sharply are five-year fixed annuities, now typically paying 3.25% to 3.8%, up from about 2.50% from two-and-a-half years ago.

Rates on longer-term fixed annuities are not up as much, but are still up. Seven- and 10-year fixed annuities are typically pay 3.50% to 4.10% today, up from just under 3% in the recent past.

Some potential investors might be tempted to wait for rates to rise still further, which is likely, but that would mean much leaner returns on conservative investments in the interim. Also, while the Federal Reserve is expected to raise interest rates further, that strategy could be curtailed if the mounting global trade war begins punishing economic vitality, some economists say.

Investors of this annuity can take 10% penalty-free withdrawals, starting in the second year of ownership. Policy owners may also withdraw up to 50% of their accumulated value without a withdrawal charge if confined to a nursing or residential care facility.

Out of the Blue, a New FIA Pays Dividends

By Steve Kaufman

In the world of popular fixed indexed annuities (FIAs) — which combine a guaranteed rate of return with stock market participation and don’t lose money in a down market, one word – dividends – is always left unsaid. These steady premiums add up over time, but they never wind up in FIAs because FIAs are pegged to indexes, such as the S&P 500, and almost all indexes exclude dividends.

At least this has been the case until now.

A new 10-year FIA is pegged to the Total Return S&P 500 Total Return Index which, unlike the S&P 500, automatically incorporates dividends. This FIA also offers guaranteed lifetime income – for free – a home health care “doubler” for those who develop disabling conditions and, for interested investors, the opportunity to get your premium back after five years.

While this product is attractive and highly creative by the standards of annuities, it isn’t nirvana. The free income rider, for example, pays substantially less than most riders that charge a fee. And while you can get your premium back after five years – a nice touch amid today’s rising interest rates and widespread turbulence – all investment returns are sacrificed.

Nonetheless, this FIA makes sense for annuity owners who like the long-term appeal of the stock market but don’t want to lose money in a bad year, and mostly don’t care about a guaranteed income stream. That’s because they believe market appreciation will outperform the stream over time, even if it is more generous.

The minimum investment required to purchase this FIA, which is popular, is $20,000.

This product arrives at a propitious time. The stock market isn’t faring well, interest rates are climbing but still very low and uncertainty permeates almost everything, whether it be fear of an overly aggressive Federal Reserve, the possibility of a global trade war, upcoming denuclearization talks between the U.S. and North Korea, or domestic politics.

As a result, more investors than usual today are queasy about buying an annuity, putting more money in the stock market or in investing in bond funds, knowing that climbing rates savage bond prices. You could park your money longer than usual in a money market fund, but it doesn’t pay much amid low rates.

What is the best course for investors today? Fact is, given all the uncertainty, nobody knows. And so, say financial planners familiar with this FIA, why not place a bet on U.S stocks – strong performers, over time – and include the financial bang that dividends deliver?

“This FIA is designed for growth, plain and simple”, says one advisor familiar with the product. Should this gambit not turn out well, investors have the option to get their principal back after five years and make a different bet.

No FIA pays 100% of the upside performance of its underlying index. It needs to hold back in the event of down markets when it absorbs the red ink without penalizing investors. This particular FIA pays 50% of what the S&P Total Market Index does – a typical slice of the pie. Nonetheless, its performance potential is much higher than other FIAs.

In the 10-year period ended in March, for example, the average annual return of the S&P 500 was 7.16%. If this FIA had existed during this period, it would have beaten that, returning 7.59% even though investors received only half of the action. Bolstering its return would have been its ability to sidestep market activity in 2008, the start of the Great Recession when the S&P 500 plummeted 37%.

Those who invested in the S&P 500 Total Index on their own and stayed the course would have fared better, pocketing an average return of 10.4%. But these investors had to have nerves of steel. Most do not.

Two Five-Year MYGAs are Paying Well Above the Going Market Rate

By Steve Kaufman

If you’re wondering when you will finally benefit from a series of Federal Reserve interest rate hikes and more to come, you can take a breather. Two insurance companies have just rolled out five-year fixed annuities paying 3.6% — the best rate in the industry by a substantial margin.

Five year fixed annuities – specifically Multi-Year Guaranteed Annuities, or MYGAs – are the most popular because longer contracts offer only a marginally better deal. And these two standout MYGAs are paying 40 to 60 basis points more than most of their competitors.
To put this deal in additional perspective, five-year certificates of deposit top out at 3% at a small handful of credit unions and at 2.66% at banks, according to Bankrate.com. (The national average for 5-year CDs is only 1.04%.) And the benchmark 10-year U.S. Treasury note, which obviously ties up money twice as long, is yielding only 2.85%.

One annuity expert says these deals just became available because climbing market rates give aggressive insurance companies more leeway to offer consumers a better deal and still make a profit. They grab market share by being more generous. Still, he doesn’t see other insurance companies matching these rates in coming months, although he does think competitors will move somewhat and increase five-year MYGA rates up to 3.4%.

“Folks interested in purchasing a safe, fixed investment should take a good look at these 3.6% MYGAs now,” he says. “You can’t beat these rates, and I don’t think they will be available for long.”
Although both products have steep surrender charges for premature withdrawals, starting at 9% in the first year, one offers annual penalty-free withdrawals of 10% and the other penalty-free withdrawals of earned interest. The minimum investment for one is $10,000 and for the other $20,000.

In a rising interest rate environment, some financial advisors think that building a ladder of fixed annuities with different maturities is best because this increases the odds that at least one annuity will expire when rates are higher. Then investors can take their proceeds and buy a new annuity paying a higher rate.

Because of the unusually high market premium these 3.6% MYGAs are paying, however, they probably don’t need to be part of a ladder. Rates on MYGAs and other fixed investments tend to rise very slowly, even in a rising rate environment. Even though the Federal Reserve began hiking interest rates at the end of 2015, five-year MYGA rates, in general, have remained roughly 3% for years.


If Looking at a FIA with a “Hybrid” Index, Make Sure You Know What You Are Buying

By Steve Kaufman

Popular fixed indexed annuities (FIAs) have been changing in a subtle but significant way, and this trend should prod prospective buyers to become more conscientious shoppers. They should make a point of recognizing the trend, poking into it, and weighing the pros and cons before sealing a particular deal.

Some investors are likely to decide to stick with traditional FIAs, given the historical track record of stocks as the best-performing long-term financial investment and the widespread belief that today’s bull market remains intact.

A growing array of FIAs are being linked to so-called “hybrid” indexes. These follow tactical weighting schemes, typically encompassing bonds, futures and commodities in addition to stocks, and are driven by defined algorithms. Many are also called low volatility indexes.

On the plus side, these FIAs offer substantially higher participation rates than traditional FIAs, which typically invest in the S&P 500 index, and usually have a volatility-control overlay mechanism. On the negative side, they can be confusing. In addition, volatility control mechanisms sound good but may be a Catch 22. They are essentially a form of market timing, which at best has had mixed success in the investment world. Most important, FIAs linked to hybrid indexes may fare less well over time.

Insurance companies have been rolling out FIAs with hybrid indices as a way to differentiate themselves from the competition. There are more than 50 such FIAs today, compared to only six in 2013. Among the newer hybrid indexes are Pimco Global Optima Index, the S&P 500 Multi-Asset Risk Control 5% Excess Return Index, and the BNP Paribas Momentum Multi-Asset 5 Index.

Most hybrid indices used by FIAs are relatively new and so do not have extensive track records. Investment companies try to get around this through so-called back-testing – i.e., creating a computer model that attempts to quantify how the index would have performed in the past if it actually existed. While hypothetically useful, some investment pros caution that past results are not an indicator of future results. They add that back-testing is sometimes compromised by bias in the process or by dependence upon correlations that cease to exist.

This doesn’t mean that FIAs with hybrid indices should be avoided. They are almost always more conservative than traditional FIAs, which fits the bill for some investors, and they aren’t correlated with the stock market. This is typically a good thing for investors who have substantial stock market exposure elsewhere in their portfolio.

But when a discussion arises about the possible purchase of such an annuity, prospective investors are well–advised to make a point of analyzing the index in concert with your broker. Understand what you’re thinking about buying – and make sure you like it better than a traditional stock-focused FIA.


New FIA Stands Out

By Steve Kaufman

A new fixed indexed annuity (FIA) offered by an established annuity player has begun attracting attention for all the right reasons. It offers a 50% participation rate on the S&P 500 index — more than 10% more generous than most competitors – and a much-shorter-than-average surrender period of only seven years.

The insurance company selling this annuity, which tends to offer better-than-average deals, also allows investors to contribute additional premiums to the FIA for the lifespan of the investment — and without a reset in the surrender period. Most other FIAs do not allow follow-on investments. If they do, the surrender period is reset.

In a way, this FIA, sold in all states except New York, is a positive flagship for FIAs in general.

Overall, index participation rates have been rising in the past year, although not as aggressively as the case with this product. Most FIAs today are offering participation rates of 35% to 45%, up from 30% to 40% a year ago. On the other hand, rollup and payout rates have mostly been stagnant. Some annuity industry watchers say they may not rise much in the future, either, regardless of interest rate trends, because of rising state reserve requirements.

This FIA offers other goodies as well. For those who opt for the lifetime income rider, most impressive is the income base rollup rate. In addition to receiving a guaranteed annual step-up of 4% annually, investors get credited for good investment performance – a 50% increase in the attendant index. If, for instance, the S&P 500 rises 15% over the past year, investors in the rollup phase would receive a total of 11.5%, not merely 4%.

(Post-rollup rates are about average. A 60-year-old single man would receive 4.5%, a 65-year-old 5%, a 70-year-old 5.5% and a 75-year-old 6%. As is standard industry practice, investors can withdraw 10%-a-year penalty-free.)

Investors in this FIA have multiple options. If they prefer, they can get a 100% participation rate in the S&P 500 with a 5.6% annual cap. In addition, they can invest in a total of seven index options. Another attractive deal, for example, would be an investment in Deutsche Bank Croci Sectors III, an international index that invests mostly in stocks and bonds in the U.S., European and Asian markets. This offers 100% participation, minus a 1.85 percentage point spread.

This FIA offers a return-of-premium feature as well. For an additional 40 basis points annually, investors can exit the annuity at any point in the contract and receive no less than their initial premium.

The minimum initial investment is $10,000 in qualified and non-qualified accounts.


What to do as Interest Rates Continue to Tread Water: Consider a MYGA Paying 3.1%

Conservative investors find themselves in a predicament that just won’t quit. They are wedded to low-risk fixed rate investments, but interest rates are extremely low and pretty much don’t budge. This year, the yield on the benchmark 10-year U.S. Treasury note has been stuck between 2.01% and 2.63% (it’s now roughly in the middle of the range) – a measly 62 basis points.

Change isn’t expected anytime soon. Economists believe the 10-year Treasury note will end the year paying about 2.5% The stock market, meanwhile, has just posted its longest streak of highs in 20 years, and, believe it or not, is likely to keep rising. But, alas, equities are generally off the table for the conservative set. These folks may derive some satisfaction if the stock market temporarily corrects at some point, a likely proposition, but that would still essentially leave them in an unenviable spot.

What can be done about it?

The answer is to seriously weigh the prospect of buying a Multi-Year Guaranteed Annuity (MYGA), preferably a five-year MYGA, and one that offers a guaranteed payout of 3.1%. This is markedly higher than the 10-year Treasury note yield — and likely to stay that way.

This particular annuity, incidentally, allows owners to withdraw the interest they earn annually – unusual for annuities offering above-market payouts. (Most five-year MYGAs today pay 2.75 %.)

Some people have refrained from buying MYGAs because they think that interest rates will rise more than they have. When that happens, they believe, annuity vendors will be forced to go with the flow and broadly hike their payout rates as well. They want to purchase annuities when that occurs, not before.

This is a bad bet, however. Despite some concerns about rising prices late last year, the Consumer Price Index posted five straight months of decelerating inflation through July. Inflation did perk up in August, but mostly because of a temporary weather-induced increase in gasoline prices, and over the past 12 months, consumer prices have still risen less than 2% – the rate preferred by the Federal Reserve.

One strong reason that inflation is unlikely to rise much is that wage increases in the U.S. and the rest of the world, remain very modest despite substantial hiring.

Most economists don’t expect this to change. Wage increases are the primary driver of inflation.

Inflation could nonetheless increase, of course, if there is an unexpected inflationary shock of some sort. Investors who want protection from this possibility should buy a ladder of MYGAs, maturing in, say, three, five and seven years, maximizing the odds that one or two would mature after inflation and rates unexpectedly rise. This would enable the repurchase a new MYGA or MYGAs paying a higher interest rate. Most three-year MYGAs now pay 2.1% and seven-year MYGAs 3% and offer penalty-free access to some cash along the way.

The good part about being a conservative investor is that you fundamentally face no risk. The bad part is that your returns sometimes are barely better than the inflation rate. MYGAs appear to be the solution –more so now than ever.

Steve Kaufman

Care about the Death Benefit? Check out these Annuities.

Most annuities have a death benefit, but it’s fair to say this feature usually ranks low on the totem pole in terms of investor priorities. That’s why most people don’t pay more for an enhanced death benefit, and it’s why annuity owners who live into their 80s typically wind up leaving beneficiaries very little, having exhausted the cash value of their account.

Not all annuity owners follow this path, however, especially if they have serious health issues or are wealthy. For them, there are two annuities on the market – one a fixed indexed annuity (FIA) and the other a variable annuity (VA) – that place a much higher priority than others on not only maintaining the death benefit but increasing it, thereby leaving fond memories of them in the hearts of their beneficiaries.

If you are interested in these products, please call 1-866-223-2121 or complete the form below.

The former, a conservative annuity, focuses almost solely on enhancing the death benefit. The latter, which is more aggressive, has the same goal but also expects the owner to take some money off the table in the form of payouts. Which is best for you depends on your personal preferences, as well as your need for income. Both are available for minimum investments not exceeding $10,000, regardless of whether it is in a qualified or non-qualified account.

The FIA increases the death benefit 7% annually, a feature costing 0.95% a year, roughly the price of most guaranteed lifetime income riders. But virtually nobody who buys this annuity buys an income rider – payouts would undermine the goal of maximizing the death benefit. “People are swapping a better death benefit for income,” says one financial adviser familiar with this product. “They don’t plan on using the money themselves.”

Other FIAs and other annuities have enhanced death benefits that work largely the same way, but the death benefit typically grows only 4% a year. The fee is only about half as much. In the case of the aforementioned FIA, however, this is largely a moot point – it makes little difference what the fee is if the death benefit is all that matters.

In the other annuity – the VA — the death benefit also rises, not decreases, after you buy the product. The enhanced benefit costs 1.3% annually, which is not bad in a rising market, as we have today. This VA offers unusual flexibility in how the money is invested. And owners can take withdrawals and not undermine the death benefit, as long as they don’t exhaust the cash value of the account.

The value of this annuity rises 6% a year or by the amount the market index rises, whichever is higher. It makes the most sense for those who want flexibility in how much of the money goes to the annuity owner and how much to the beneficiary. Buyers, of course, also must have faith in the ability of the stock market to continue to rise at a relatively good clip over time.

Regardless of which annuity you choose, both annuities guarantee that you will get at least 100% of the original cash value of the annuity, assuming you play by the rules. Annuity beneficiaries also escape burdensome probate. Both often beat life insurance as well because no health screening is required. Those with significant health problems either cannot get life insurance or must pay too much.

If you are interested in these products, please call 1-866-223-2121 or complete the form below.

Steve Kaufman

Here is a MYGA to Help Combat Stubbornly Low Interest Rates

Despite three increases in short-term interest rates by the Federal Reserve since the end of 2015, the rates that consumers receive in savings accounts and on CDs and annuities have pretty much refused to budge, at least in aggregate.

Yes, inflation is very low and so you’re not losing much in the way of purchasing power. But you’re not getting ahead, either, and in fact, you are falling a bit behind even though prices are rising only about 1 ½% a year. If rates you receive rose about the same, you might roughly be even – but that, unfortunately, isn’t the case.

What to do?

Consider a seven-year Multi-Year Guaranteed Annuity (MYGA) recently rolled out by a 92-year-old insurance company that is paying 4.25% the first year and 3.25 % annually over the following six years. With the exception of a 10-year MYGA offered by the same company paying 3.5% annually, this is the highest MYGA interest rate out there.

Roughly competitive products are paying only 3% or 3.25% over multiple years. The difference between this product and the others is not gargantuan, but it’s better nonetheless.

Also note that this MYGA, unlike others, doesn’t offer penalty-free withdrawals, typically up to 10% annually, along the way. So folks who buy this product have to stick with it or pay surrender fees that start at 9% the first year and only slowly decline thereafter.

This lack of liquidity fattens the insurance company’s profit margins and enables it to offer this particular product and still turn a profit on the proceeds by investing elsewhere.

The minimum investment for this MYGA is $5,000 in a qualified or non-qualified account. If you ultimately decide to buy this product, you should buy it as part of a ladder of MYGAs to manage interest rate risk. It’s best that each MYGA mature in a different year to maximize the odds that at least one matures after interest rates have risen, enabling you to purchase a comparable MYGA paying a higher rate. Other relatively attractive MYGAs mostly have a five- or six-year maturity.

“It doesn’t make sense to put all your money in one product that matures on one specific date,” says one wealth management expert. “The idea is to curb interest rate risk.”

If interested, bear in mind this MYGA is not available in every state. So those who think this product may be right for them should contact an advisor at Annuity FYI by calling 866-223-2121 or completing the short form below.

Steve Kaufman

New FIA Offers Maximum Liquidity

Let’s say you’re interested in purchasing a fixed indexed annuity (FIA) but your priorities are different from most folks who do. By the standards of an annuity, you want maximum liquidity. And you’re not interested in a lifetime income rider.

The guaranteed income is nice, to be sure, but who needs those pesky fees, about 1% a year?

On the other hand, you do care about capital appreciation, and so it would be nice to find an FIA with truly good upside potential.

If this description more or less fits you, you might be interested in an FIA introduced this month fitting these parameters.

Here is why:

  • This FIA has a seven-year surrender schedule, compared to 10 to 12 years among competitors. (It also offers a penalty-free return of capital after four years, without accrued interest.)
  • It offers more generous penalty-free withdrawals. Like other FIAs, it offers 10% annual penalty-free withdrawals. But if you don’t make a withdrawal one year, you can withdraw up to 20% penalty-free the next. This makes it unusually easy to stay the course for the duration.
  • One index in which it invests is the BNP MAD 5 index, a low volatility, rules-based index comprised of three equity futures indices, three bond futures indices and two commodity indices. Annuity owners receive 110% of the performance of the index. This is not particularly unusual, but the historical performance of the index is – its average annual return over the past five years was 7.56%, handily beating most of its competitors.
  • Another investment option is the tried-and-true S&P 500 index. This option pays 100% of the performance of the index, with a cap of 4.25%, higher than most competitors.
  • These features are not free but are reasonably priced – 95 basis points a year, about the price of a lifetime income rider.

As an added perk, investors get a 5% premium bonus on the day of purchase, added to the cash value of the account.

It is true that many investors in this FIA will probably wind up paying for more features than they actually use. One annuity marketing expert, for example, concedes that only about 30% of buyers will execute the seven-year surrender schedule. Most people don’t bolt from annuities prematurely, he says. “And with the ability to withdraw 20% of your principal every other year, there is even less need to surrender the annuity,” he says.

Who is this annuity best for? “Some people just don’t want to lock up their money more than have to,” this pro says. “This is a product that offers plenty of liquidity, as well as very good growth potential.

Steve Kaufman

Five Top FIA Pace Setters

We have just updated our list of what we deem to be the five best fixed indexed annuities (FIAs) among hundreds – both income- and growth-oriented. Their strength is heartening. If all FIAs were this good, the robust period of outstanding FIA sales overall in recent years would quickly return.

This may not happen anytime soon, but these five FIAs can handle your investment needs quite nicely.

If you think you’re interested in an FIA – an annuity that invests in market indexes and returns a piece of the action in a good year and doesn’t lose value in a bad year – check these out. Most FIAs also offer lifetime guaranteed income riders. To eliminate different details about potential annuity buyers that impact annuity terms, such as age and marital status, the basis for all income assumptions is a 60-year-old male who lives in Florida and, if applicable, is deferring income in his first five years after purchase.

Here are our top picks:

Income FIAs

  • Athene Ascent 10 Bonus 2.0. This FIA has been built specifically to maximize guaranteed income. It offers a 10% bonus on the benefit base, as well as a 10% annual rollup for 10 years. If our hypothetical Florida investor invested $250,000 in this product and deferred withdrawals for five years, he would receive $18,500 annually – materially more than many competing products.
  • Security Benefit Secure Income Annuity. This FYI pays an upfront bonus of 8% in most states. as well as a 6.5% compounding rollup for up to 10 years. Withdrawal rates also increase each year. In most states, the Security Benefit product also offers a home healthcare double for folks whose mobility is undermined by serious health issues.

Growth FIAs

  • North American Company PrimePath 12. This FIA takes the unusual step of doubling its index participation rate during the pre-withdrawal rollup period. – providing a truly good shot at a strong long-term return for those who let their investment bake before taking withdrawals. In one of two versions of this FIA, the doubling of the participation rate allows investors to track the market dollar-for-dollar for up to 15 years.

On top of this, this FIA’s 3%-a-year income rider charges no fees. A home healthcare doubler is also offered in most states.

  • Guggenheim Highlander. This FIA offers a 4% bonus and invests in the S&P 500. It offers a generous 4 ½ % cap on the S&P 500 index, or, if investors prefer, a 40% participation rate with no cap. A lifetime income rider is not recommended. There are no fees. Another advantage is pure simplicity: This product is very easy to understand.
  • Nationwide New Heights. This FIA is owned by its policyholders, not shareholders. So any excess money Nationwide receives is pumped back into the FIA in terms of higher index participation rates, higher index caps and lower index spreads. As an example, New Heights currently has a 165% participation rate on the J.P. Morgan Mosaic index, a multi-diversified global index that invests in stocks, bonds, and commodities. Shareholder-owned insurance companies offer no more than a 130% participation rate on this index.

Another plus is that New Heights’ optional index rider tracks an index daily, and when it reaches a new high, locks that into the FIA’s benefit base. “This, too, offers much more upside potential than average,” says an annuity industry expert familiar with the product. New Heights is rated A+ by both A.M. Best and Standard & Poor’s.

Please call 1-866-223-2121 or complete the form below to request more information about these featured products.

Steve Kaufman

Six-year MYGA Temporarily Paying 3.25%

  • Six-year MYGA temporarily paying 3.25%
  • Rate in line with 10-year MYGAs and well above roughly comparable five-year MYGAs
  • A.M. Best rating B+
  • $2,000 minimum for qualified accounts and $5,000 for non-qualified
  • Available in 31 states
  • Need to act quickly if interested

Things are getting a bit better for consumers in the annuity world, as modestly rising interest rates have persuaded insurance companies to sweeten annuity features and, in some cases, gently increase rates.

But there is better – and then there is a lot better – and Annuity FYI has found a strong example of the latter. An insurance company has just increased the interest rate it pays on a six-year Multi-Year Guaranteed Annuity (MYGA) to 3.25 % from 2.7 % – a stunningly sharp increase. The new rate is about what most 10-year MYGAs pay. Five-year MYGAs, which are roughly comparable, pay only 2.9 % or 3 %.

To learn more, call Annuity FYI today at (866) 223-2121 or email us here.

This MYGA is available in 31 states. Bigger states that do not offer it are New Jersey, New York, and Massachusetts.

The issuer is a 90-year-old insurance company with a respectable A.M. Best rating of B+, and its earnings have been rising. Still, it is a small company. Is it sufficiently safe? Derek Stamos, a financial adviser at Somerset Wealth Strategies in Portland, Ore., says it is safe enough to warrant such a purchase. There is protection at the state level for annuities. Smith says the safety of this annuity is roughly akin to a small online bank selling a CD, which is FDIC-insured.

“Annuities have a security net, too,” Smith said. “I wouldn’t recommend buying a long-term contract with this company, but it’s not going to mess up a contract with a six-year maturity.”

The minimum investment for this MYGA is $5,000 for non-qualified accounts and $2,000 for qualified accounts. This deal may not last more than a month, Smith adds.

This annuity is somewhat indicative of what is happening overall in the annuity marketplace. Features and payment rates had been declining for more than two years. But the election of President Trump sparked a reversal of course. Since then, features and payments have been improving, especially for new products. Participation rates on fixed indexed annuities, for example, have generally climbed from 30% to 35% to 40% to 50%. Examples of modestly better payout rates have also been common.

For prospective buyers concerned about liquidity, one drawback to this MYGA is that it offers little in the way of no-penalty withdrawals. Investors can withdraw only the interest that is earned annually.

Everything else about the product is standard. The six-year surrender schedule starts at 8% and drops to 4% after six years. And beneficiaries would receive the account value of the contract.

The upshot, Smith says, is that this MYGA is good for anybody seeking a respectable interest rate — and who does not want to make a 10-year commitment to do so. “Almost nobody wants to do that,” Smith says.

Steve Kaufman

Here is a FIA with Truly Impressive Features

Fixed indexed annuities (FIAs) have grown increasingly popular, and seemingly for good reason. They come with guaranteed lifetime income riders offering respectable payments, no penalty if the stock market declines, and a shot at doing better if the market shines.

In recent years, however, it has been hard for investors to snatch the brass ring. In fact, there hasn’t been a meaningful prize since 2013, when the S&P 500 soared 29.6%.

Some FIAs stay clear of so-called caps and spreads on indexes, which diminish potential returns, but then they have participation rates that pursue a different path toward the same end. Today, typically, participation rates are 40 to 50%. So last year, for example, when the S&P 500 index rose a healthy 9.5%, even in the best case it yielded less than 5% for FIA owners — barely outpacing the guaranteed return some income riders pay anyway.

To learn more, call Annuity FYI today at (866) 223-2121 or email us here.

Happily, better news has recently emerged in the land of FIAs and has just gotten better – one of them still uses the pesky participation rate but now doubles the return during the pre-withdrawal rollup period. This provides a truly good shot at a truly good return over the annuity’s life for those willing to let their investment bake before taking payments. Depending upon which of two versions of the FIA are purchased, the participation rate this week has just risen from 30% to 40% or from 40% to 50%. The 200% bonus is good for up to 15 years.

On top of this, the FIA’s 3%-a-year income rider charges no fees. This FIA also offers a home health care doubler to help folks whose mobility is undermined by health problems, except in California, Illinois and Connecticut.

The minimum investment for this FIA is $20,000, for both qualified and non-qualified accounts.

Not surprisingly, this FIA is selling like hot cakes. “For an investor looking for the most bang for their buck, this is a truly great annuity,” says an executive at a firm that markets hundreds of annuities.

Viewed from a broad perspective, this FIA stands out not only because of the particulars but because it covers all three of the reasons most people buy annuities. They usually want lifetime income, principal safety and growth potential, and an enhanced death benefit. (Owners of this FIA have the option of salting away index gains during the rollup period for heirs, instead of boosting their payouts.) Unlike this annuity, experts say, most annuities fulfill only one or two of these goals.

Some readers may wonder how this annuity turns a profit in offering a better deal on multiple fronts. The answer is that it offers no upfront bonus and allows owners to withdraw a maximum of 7% annually penalty-free, compared to a norm of 10%. And while sales are very robust, only a relatively limited number of registered investment advisers are selling this annuity.

Steve Kaufman

Here is a MYGA That Warrants a Hard Look Now

The Federal Reserve recently raised short-term interest rates again, and long-term interest rates have been on a tear for months. But, in general, annuity payout rates have yet to start rising.

There are spotty exceptions to this rule, however, and a particularly attractive, albeit short-term, opportunity has reemerged. A five-year fixed annuity from a major annuity vendor – specifically, a Multi-Year Guaranteed Annuity (MYGA) – is offering a guaranteed payout of 3.1 percent. By contrast, most five-year MYGAs today pay 2.75 percent. And this annuity allows owners to withdraw the interest they earn annually – unusual for annuities offering above-market payouts.

The insurance company behind this annuity offered the same deal late last year for roughly a couple of weeks. It will the same case this time around – we expect this vendor to maintain this offer for only one or two weeks. So those interested should act quickly.

Some people have refrained from buying MYGAs annuities and, to a lesser extent, fixed indexed annuities, which offer guaranteed lifetime income riders, because they think that interest rates will continue to rise. They believe that annuity vendors will be forced to go with the flow and broadly hike their payout rates as well. They want to purchase annuities when that occurs, not before. While this is not a bad bet, the timing is highly uncertain, and in the interim prospective annuity buyers who delay purchase will earn far less income.

For investors who like this five-year annuity, probably the best move would be to insert this into a ladder of three annuities to hedge their bets as to when higher-paying annuities will actually become available. They could, for example, combine this five-year MYGA paying 3.1 percent with a three-year MYGA and a seven-year MYGA. The three-year now pays 2.1 percent and the seven-year 3 percent and also offer penalty-free access to some cash along the way. (You can get a seven-year MYGA paying 3.4 percent if you’re willing to forego access to any cash prior to maturity.)

The appeal of the ladder is that it enhances the odds that the owner would be able to roll over maturing MYGAs into similar MYGAs paying higher rates – and perhaps more than once — because annuity rates likely will be higher by that time.

Steve Kaufman

Here is an Annuity That Pays More in the “Go-Go” Years

Even retirement can be sexy. So it may not come as a surprise that some experts have dubbed the first phase of retirement – the period spanning roughly the early 60s to the early 70s – the “Go-Go Years.” This is when new or recent retirees are delighted not to be working and want to do what they have not done before, be it traveling the world, spoiling their grandkids or upscaling their home.

Subsequent decades have been called the “Slow-Go Years” and the “No-Go Years” – decades in which extensive travel becomes tiresome and health generally erodes – and, predictably, the rate of spending typically declines.

If you could afford it, wouldn’t it be neat to have an annuity that matched your proclivity to spend, offering higher payouts in the first phase of retirement, financed by lower payments thereafter?

A major annuity vendor has begun offering just such an annuity. It’s a fixed indexed annuity (FIA), and it pays 10 to 20 percent more than a traditional FIA for the first 10 years. The range depends on age and whether you amass annual pre-withdrawal rollups. Somebody who buys a $100,000 annuity, for example, might get $13,200 in guaranteed annual payments, compared to $11,000 from a standard FIA. Ten years later, payouts are cut in half permanently.

The minimum annuity premium is $25,000 for both qualified and non-qualified accounts. Currently, this annuity is unavailable in California, New York, Virginia, Massachusetts, Iowa, Vermont, and Delaware.

The back-end payments may seem troublesome, but that need not be the case. For example, you might delay taking Social Security payments later than otherwise, boosting your eventual payout an additional 8 percent each year you postpone payouts.

This annuity is definitely not for everybody. Some people simply could not afford to trim an annuity payout by half in their later years. For those who can, there is the real threat that inflation will erode down-sized payments even further. And unanticipated events may eventually crop up, putting you in a financial squeeze.

The genesis of this annuity is a recent Consumer Expenditure Survey by the U.S. Bureau of Labor Statistics. It shows that average annual expenditures for somebody at ages 55 to 64 total $58,781. That drops to $49,477 at ages 65 to 74 and further still, to $38,123, for those 75 years old plus. For most people in this age range, their only real financial priority, other than making sure they don’t outlive their assets, is healthcare expenses.

For single males aged 55 to 80, guaranteed payout rates range from 5 percent to 7.5 percent annually in the first 10 years, slightly higher than those for females, who tend to live longer. Payout rates for a couple range from 4.3 percent to 6.8 percent.

Annuity features include a home healthcare rider for those who cannot perform two out of six Activities of Daily Living (ADLs), such as eating and bathing. The roll-up rate for those who defer payments is 6.5 percent annually, for up to 10 years. The annuity comes with an 8 percent bonus in most states and allows 5 percent annual withdrawals without penalty.

This FIA offers seven index crediting options, including the S&P 500 with an annual 4.25 percent cap and the S&P 500 Low Volatility Daily Risk Control 5 Percent Index, which tracks the performance of the 100 least volatile stocks in the S&P 500 and targets a 5 percent level of volatility.

There arguably are some drawbacks. The lifetime income rider costs 1.2 percent annually, higher than many competing FIAs. And it may seem that a 50 percent haircut on guaranteed monthly payments 10 years down the pike is a stiff price to pay for an initial 20 percent premium – assuming you receive even that much. The counterpoint is that those later payments last a lifetime. Whether that is ultimately a square deal – and whether higher up-front payments are truly enticing – is up to you.

To learn more, call Annuity FYI today at (866) 223-2121 or email us here.

Steve Kaufman

A Fantastic Solution to Low Returns on Cash for Those Who Qualify

Cash has absolutely no cachet these days. Money market funds and traditional savings accounts pay virtually nothing. They still offer relative safety, but you can’t live on that.

Fortunately, there is a great alternative, which we like to call the Super Savings Account (“SSA”), which some also refer to as a Super Annuity. But it’s not actually an annuity but rather a liquid fixed indexed universal life policy with indexed annuity-like features that offer a very respectable return on cash and a highly appealing equity index feature for those who have at least $100,000 to invest and are in good health.

This is a one-of-a-kind product. It waives surrender charges. It guarantees a 3% worst case annual rate (minus fees) and offers a high ceiling — an 11.5% annual cap on the S&P 500 stock index. There are also 12 additional indexes to choose from, plus a fixed income account paying 4%. Again, the owner can exit the policy at any time, without any penalty. These policies are solely for non-qualified (non-IRA and non-401(k)) money.

If this sounds too good to be true, it’s not – it’s just too good to last. You have to act fast because the insurance company will trim the minimum safety net worst case interest rate to 2.5% on February 17.

The fees for the Super Savings Account are particularly low – about 1 to 1.5% annually for a healthy person and 2% for an older, (ages 70+) less healthy person. This still puts the worst case net interest earned smack in line with what a traditional two-year bank CD pays today, and that’s the worst case. Add in 100% liquidity, a 9.5% to 10.5% best case scenario, a 5.5% to 6.5% 20 year average (on what?), and a tax-free death benefit that’s two times account value, and this product is a big winner.

The Super Savings Account compares very favorably to top fixed indexed annuities (FIAs), which are also pegged to indexes. The cap on this unique product is three to four times higher on the annual point to point for the S&P 500 – i.e., . 11.5% versus 3 to 4 percent for the average FIA. Unlike this fixed indexed life opportunity, FIAs offer a guaranteed lifetime income rider, but the FIA’s chances of earning more on the strength of the index are unappealing because many FIAs have low index participation rates and low caps. Unlike the SSA, which is always 100% liquid, FIA liquidity is usually limited to 10% per year, sometimes less.

In summary, the Super Savings Account makes great sense for anyone in good health sitting on cash, interested in earning 10-20 times more than a typical money market fund, maintaining 100% liquidity, and participating in the upside of the market without the downside risk. The product also leaves a tax-free death benefit to loved ones should the unexpected happen.

If interest rates rise, you can move to the SSA’s 4% fixed account or take the money out, penalty-free, and invest in a potentially higher yielding investment elsewhere. You can also do a 1035 tax-free exchange to another life or annuity policy… If the money is not exchanged, the owner pays ordinary income tax only on the gains.

Here is a summary of product specifics:

  • $100,000 minimum ($1 million maximum) investment for non-qualified money only
  • Pays a worst case guaranteed 3 percent annually, minus fees, until February 17.
  • Thirteen (13) index investment options to choose from. The S&P 500 annual point to point option offers an 11.5% annual cap. Through the end of 2016, the five year average annual rate of return for the S&P 500 was 12.35% percent, excluding dividends. (Note: Indexed products do not pay dividends)
  • Designed for fundamentally healthy people. A free medical exam is required and for your convenience a paramedic will come to your home or office.
  • No surrender fees or other early withdrawal penalties
  • The death benefit, on average, is tax-free and two to three times the premium.

To learn more, call Annuity FYI today at (866) 223-2121 or email us here.

Steve Kaufman

This Annuity May Be for You if You’re an Aggressive Investor — and Truly Love Your Spouse

If you’re a married retiree, place a high priority on the welfare of your spouse and are leaning toward purchasing an aggressive annuity with a lifetime income rider in your IRA, here is something you probably want to know. There is a variable annuity available that beats all the others hands down for someone with your priorities.

Several factors set this VA apart from its competitors. Its mortality, expense, and administration are lower than most others. Unlike others, it also offers contract owners the flexibility to invest in subaccounts (mutual funds) that invest solely in stock funds, or, for that matter, solely in other aggressive investments, such as REITs and commodities.

Most noteworthy, however, is the enticing way it treats death benefits – no small plus as a retiree ages.

First, here is a bit of background. When retirees turn 70 ½, they have to start taking Required Minimum Distributions (RMDs) from their IRA accounts and pay the government ordinary income taxes on this money. RMDs start at less than 4 percent of the IRA, typically less than the income rider’s annual payment stream. But RMDs climb each year and exceed 5 percent at age 79 and 6 percent at age 83, more than the income you receive from the income rider.

Most annuities with riders increase payouts at these age milestones so that aging retirees can pay their RMDs without breaking a sweat. But there is a catch: The extra payout decreases the annuity’s contract value, impacting beneficiaries. In the case of the variable annuity we’re spotlighting, there is no such penalty. You can buy a single premium VA and receive a competitive rate on the income rider (5.25 percent at age 65), and yet your spouse enjoys no dilution of beneficiary payments in the event of your death. In fact, your spouse may reap an unusually generous payment. If, for example, the stock market tanks and the value of a $100,000 investment declines to $75,000, your spouse would still receive $100,000 in the event of your death.

This annuity is not for everyone – not even for all those who fit all the aforementioned parameters. That’s because the income rider’s payout, while respectable, isn’t tops in the field, and the highest-paying rider is what many people want – period.

“Some people will not buy this annuity because they have the money they have and want maximum income for the rest of their lives,” says Scott Sadar, an executive vice president at Somerset Wealth Strategies in Portland, Ore… “This annuity doesn’t offer maximum income. So most people wouldn’t select it.”

As noted, this VA appeals to particular priorities, and the biggest is that the surviving spouse gets the best possible financial deal in the event of your death.

An important caveat regarding this annuity – and all VAs, for that matter – is that the beneficiary receives nothing if the value of the account is wiped out. The likelihood of this is extraordinarily low, however.

“I would put the odds at slim to none,” says Derek Stamos, a Somerset Wealth Strategies financial adviser. “For this to happen, you would have suffered through really bad consecutive years in the market, and also pull out tons of money. That is highly unlikely.”

If you have questions or comments, call Annuity FYI at (866) 223-2121 or email us at annuityfyi.com and click on Ask Annuity FYI By Email.

Steve Kaufman

Annuity Rates and Terms Have Started Heading North

A major annuity vendor this week became the second insurance company to offer a top-of-the-line interest rate of 3.1 percent on a five-year fixed annuity, a huge jump from 1.8 percent and highlighting widespread — albeit more modest — increases in the rates or terms offered by fixed, fixed indexed (FIAs) and immediate annuities in recent weeks.

Interest rates and other terms are following the path set by the benchmark 10-year U.S. Treasury note, which has increased roughly 1 percentage point since it bottomed in July and has been rising more briskly since the election of Donald Trump on November 8. A growing number of annuity vendors have been increasing rates or terms each passing week…

Nobody knows if the increases will continue. Investors interested in purchasing the five-year fixed annuity – specifically, a Multi-Year Guaranteed Annuity (MYGAs) – should act quickly because it may be a limited time offer. Nonetheless, the increase mirrors the first piece of good news for prospective annuity buyers in a long time. After years of declines or at best flat rates and terms, annuity payouts have been heading north instead of south.

As an example, five-year MYGA rates generally bottomed at 2.6 to 2.7 percent this summer and are now generally 2.9 percent, said Derek Stamos, a financial advisor at Somerset Wealth Strategies in Portland, Ore. In addition, so-called caps on FIAs – the percentage of an increase in an index that investors actually pocket – have also been rising, Smith said.

“Over the last two-and-a-half years, we have seen only red (reductions) in annuity terms,” Smith said. “In the last month, however, we are seeing green (increases) for the first time. While this doesn’t indicate that there is a massive change for the better in annuities, it does offer promise.”

Today’s MYGA rates are particularly attractive in comparison to conventional certificates of deposits, their chief competitors. Three-year CDs purchased online are paying 1.5 to just under 1.7 percent and five-year CDs are paying 1.85 to 2 percent. (CDs purchased at traditional banks pay far less.) By contrast, top three-year MYGAs are paying 1.8 to 2.1 percent while top five-year MYGAs, as mentioned, are paying 2.9 to 3.1 percent. Immediate annuities have not been left out of the improving picture. Smith said a 69-year-old female is eyeing a $100,000 single-premium immediate annuity paying $580 a month for life – an increase of $34 a month, or 6.2 percent, if she had bought the same annuity in September.

Steve Kaufman

Here is an Annuity Combining Perhaps the Best of Two Worlds – Strong Upside Potential and Some Downside Protection

Many people are flocking to fixed indexed annuities (FIAs) these days because they get market exposure and suffer no losses in a down market. Sounds good, but what often gets lost in the shuffle is that upside potential is usually very limited – most FIAs today pay only about 25 percent of market upside, down from roughly 50 percent earlier in the year.

Happily, MetLife and a few other insurance companies are offering what many may view as a more palatable alternative – highly tailored annuities linked to various market indices that offer substantially more upside potential and that curb— albeit do not eliminate — downside risk. The primary selling card: While markets often rise and fall from one year to the next, they typically rise over a multi-year period.

“The desire for 100 percent downside protection is often over-emphasized,” says Scott Sadar, executive vice president of Somerset Wealth Strategies in Portland, Ore. “In fact, markets tend to recover over time.”

Other insurance companies that offer annuities similar to this MetLife offering are Axa Equitable, Allianz, and American General. In the case of MetLife — which calls its product the MetLife Shield Level Selector annuity — an investor can select among up to five indices diversified among large and small cap stocks, international stocks and commodities.

Sadar says some investors may be wise to invest in all three terms that MetLife offers – a six-year, three-year and a one-year annuity.

An investor might, for example, buy a six-year annuity invested in the small-cap Russell 2000 index, which tends to grow the most over time. An investor would capture up to 87 percent of its upside. (Depending on the option the investor selects, MetLife would absorb at least 10 percent of a loss should one occur.) He or she might also invest in the three-year annuity and invest in the S&P 500 and take advantage of MetLife’s “step rate” feature – if the S&P 500 is flat or up at the three-year mark (excluding dividends), he or she receives a 15.1 percent return. If the market declines in that period, MetLife would absorb the first 10 percent of the loss.

Lastly, this investor might also buy the one-year version of the annuity, also investing in the S&P 500 with the step rate feature, and pocket 6.4 percent if the market is flat or down. Similarly, MetLife would absorb the first 10 percent of a loss should one occur.

The longer the term of the investment, the higher the percentage of market gains an investor receives. The six-year annuity, which offers the greatest range of downside risk options, offers 10 percent, 15 percent or 25 percent downside protection. The more downside protection an investor chooses, the less the upside potential.

The MetLife Shield Level Selector annuity is sold at a minimum price of $25,000. There are no income riders and hence no rider fees and, in fact, no fees of any type except relatively standard surrender fees. MetLife earns money if an investor prematurely exits the investment, and also when the market rises more than the maximum MefLife payout. In general, heirs receive the value of the contract if the investor dies.

The appeal of the MetLife product is its strong upside potential, coupled with some downside protection, plus the variety of its investment options and timeframes. “This annuity allows you to choose your own adventure,” Sadar says.

Steve Kaufman

Here is a FIA that is Hard to Beat

In today’s ultralow interest rate environment, it’s increasingly difficult to find an annuity that keeps interest rates stable. Instead, insurance companies in the last couple of months have focused on trimming rates.

But here is a pleasant — and highly welcome — surprise: A fixed indexed annuity (FIA) underwritten by a major player has rolled out an unusually generous FIA – one paying a 95 percent participation rate on a respectable low-volatility index. This is more than three times what most FIAs pay today on an index tied to the often more robust — but also more volatile — S&P 500.

To be completely accurate, this FIA, as generous as it is, has actually cut its index participation rates this year. When it was introduced last spring, it offered a whopping 130 percent participation rate. After a couple of months on the market, that rate was cut to 100 percent. Recently, it was cut yet again, to today’s rate of 95 percent.

Nonetheless, this obviously remains a highly attractive deal as long as it lasts – and it’s available to interested consumers for a minimum of only $5,000 in a qualified or non-qualified account. It offers an income rider charging 1 percent a year, but investors may be better off waiving this to maximize returns.

The index to which this FIA is pegged – the BNP Multi-Asset Dynamic Index – is algorithm-based and comprised of three equity futures indices, three bond futures indices and two commodity indices. It seeks to measure the value of a hypothetical exposure to a range of asset classes and geographic regions based on momentum investing principles. Over the last 10 years, the index methodology would have produced an average annual return of 5.5 percent.

This annuity vendor is offering this FIA to gain market share for a while, as other competitors also do periodically. The low-volatility index is less expensive to hedge than an S&P 500 index because of its steadier performance. Also reducing costs is a two-year point-to-point crediting schedule. The product has a highly competitive seven-year surrender schedule (starting at 9 percent).

Interested investors are advised to act relatively quickly. Even if this FIA stays on the market for an extended period of time, its participation rate is likely to be cut yet again after additional sales are generated.

For more information, visit Annuity FYI at annuityfyi.com or call us at (866) 223-2121.

Steve Kaufman

Here is a Hot MYGA That Pays a Variable Bonus Annually

No question that this is a difficult time for prospective annuity buyers. Interest rates have tumbled to record lows and there is no assurance when – or even if — they will rebound.

Over the past month, for example, the average interest paid on popular five- and seven-year fixed annuities – Multi-Year Guaranteed Annuities (MYGAs) — has tumbled 25 basis points to about 2.4 percent, compared to roughly 3 percent two years ago.

A solidly rated annuity vendor appears to have come to the rescue, however, with the introduction of five- and seven-year MYGAs that offer an annual floating interest rate bonus, currently 0.82 percent. This pushes the MYGA’s contracted rate of 2 percent and 2.4 percent, respectively, to a very competitive level and provides upside potential should interest rates rise.

The minimum investment is $10,000 for both qualified and non-qualified accounts.

This MYGA is probably not a good substitute for a MYGA ladder. If rates rise, more competitive MYGAs will enter the market. Bear in mind, however, that you can lose, as well as win, with a ladder. A typical ladder would contain a three-, five- and seven-year MYGA, which overall pays less and which would mature and then open the door to higher rates only if rates, in fact, do rise. The three-year MYGA could mature in a period of even lower rates.

In any case, this MYGA essentially outperforms any other fixed interest contract on the market today. Most five-year MYGAs, for example, pay 2.5 to 2.7 percent – less than this one today with the bonus. A few other MYGAs pay more – as much as 3.1 percent – but they nickel and dime customers. Unlike our featured MYGA, they charge early withdrawal fees, don’t waive surrender fees for a nursing home confinement or terminal illness and offer a traditional death benefit only for an additional charge.

The insurance company behind this MYGA is rated a respectable B++ by A.M. Best. Some other companies have even higher ratings, but this one has $1.6 billion in surplus cash. “This is definitely enough to keep the promises this company is making,” says Derek Stamos, a financial advisor at Somerset Wealth Strategies in Portland, OR.

The floating rate, by the way, is the three-month LIBOR, a global benchmark rate that some of the world’s leading banks charge each other for short-term loans.

The insurance company underwriting this MYGA has chosen to do so as an inexpensive move to build market share. It’s inexpensive because the company already sells MYGAs – in this case, it’s simply tweaking some features.

Prospective buyers should not wait long to take a good look at this MYGA. Smith says it is likely to be on the market three to four months but adds: “The more people talk about it, the quicker it will be gone.”

If you have any questions or comments, call Annuity FYI at (866) 223-2121 or email us at annuityfyi.com and click on Ask Annuity Email By Email.

Steve Kaufman

Here is an FIA That Warrants a Good Look

Most fixed indexed annuities (FIAs) essentially give with one hand and take away with the other. The crediting methods – the rules used to calculate how much of the gain in the accompanying stock index you actually receive – might be relatively generous. But the guaranteed lifetime income rider is relatively disappointing. Perhaps even more common, it’s the other way around.

But Annuity FYI has found a FIA, and one sold by one of the major players in the annuity industry, that offers the best of both worlds – a strong guaranteed income stream and generous crediting methods, and one that is likely to be around for a while even though it has already garnered $500 million in sales.

“We’re looking long-term,” says Chad Reynolds, CEO of Alpha Solutions, one of the firms marketing the annuity to broker-dealers. “We’re not going to stop selling this annuity anytime soon.”

This FIA has low investment requirements, too – only $5,000 for a qualified account and $10,000 for a non-qualified account.

The annuity offers a 10 percent bonus on the income base at purchase and a 4 percent annual rollup, compounded – plus stock index appreciation – for 20 years. Most FIAs don’t include the index appreciation in the rollup and turn off the rollup altogether well before this.

Buyers have a choice among three equity indexes or a fixed interest account paying 2 ½ percent a year. Most customers opt for the 20-year-old Deutsche Bank CROCI index, which tracks 850 global blue-chip stocks. This option offers a 100 percent participation rate, without caps or spreads.

There is icing on the cake in the annuity’s withdrawal rate as well. It pays a 4.7 percent withdrawal at age 65, which is nothing special — but this figure rises 10 basis points a year indefinitely.

One drawback is that this FIA offers no death benefit. Beneficiaries get just the residual value in the account. In the overall scheme of things, however, this is a minor negative.

Steve Kaufman

Why Market Volatility is Rising and How Investors, Including Prospective Annuity Buyers, Should React

Stock market volatility — which impacts variable and fixed indexed annuities, as well as stocks, stock funds and ETFs — has been on the rise, and that’s unsettling. Several times last year, the market spiked, only to subsequently sell off. Then, in 2016, the market unceremoniously ushered in the new year with a ferocious sell-off – the worse early-year market nosedive, in fact, ever.

For a copy of this Whitepaper, please call Annuity FYI at 866-223-2121 or request a copy via email.

Yes, the market is faring well now — but who isn’t worried about the next downdraft?

As measured by the CBOE Volatility Index, volatility since the end of 2015 averaged a little over 21 ½, compared to a long-term average of just under 20. This isn’t that big of an increase, but it is enough to rattle many investors’ nerves and push more people away from investing in the market, which has always been the best way to increase wealth over time. Sales of variable annuities, for example, have been tumbling for several quarters.

Several factors are causing volatility to rise. For starters, there are the experimental and divergent monetary policies being pursued across the globe, including negative interest rates. With this comes the intuitive understanding that the longer we stay in this experimental monetary policy phase, the higher the risk of unintended consequence.

In addition, economies worldwide have been mired in secular stagnation for years, which adds to volatility by creating a growing sense of widespread helplessness and hopelessness. More succinctly, this is the Wall Street versus Main Street gap.

And making matters markedly worse, of course, is the economic downturn in China, the world’s second-biggest economy.

For more than two decades, China served as the most potent anti-poverty weapon the world has ever known. Twenty-five years of breakneck expansion brought hundreds of millions of people from farmland into cities. In 1990, 61 percent of Chinese lived on less than $1.25 per day, the global poverty line. Now, only four percent of the country lives below the line. As China grew and lifted its own out of poverty, it also lifted many other countries.

Today, however, longstanding issues of Chinese oversupply and growing declines in demand are undermining employment, and cuts are likely to become much worse. China plans to reduce the number of state workers, for example, by up to six million people over the next two to three years.

There is much more to be said about the reasons behind heightened volatility, and, more important, about how investors should intelligently react. For more insight, an excellent report — “Managing Volatility” is available, in which portfolio managers and investment strategists from ClearBridge Investments, Parametric and Cammack Retirement Group discuss how investors – and their portfolios – can weather the storm.

If you have questions or comments, call Annuity FYI at (866) 223-2121 or email us at annuityfyi.com and click on Ask Annuity FYI By Email.

Steve Kaufman

If you are considering an annuity, you need to act now.

Rates are dropping in July. Please contact an advisor today to determine which annuity is best for you. You do not need to send money now or make a commitment but you do need to submit an application to lock in the current rates.

Fixed annuity rates are about to be cut, but prospective buyers may be able to sidestep this if they act promptly.

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