Indexed Annuity Income Riders: Accumulation Value Vs. Income Value

[jrninmn]

I have been researching income riders for an upcoming potential purchase, and my eyes have been opened as to what impact an expensive income rider can make on the accumulation value. This is especially evident when the rider has a step-up, and is calculated on the income value vs. the accumulation value. Not surprisingly, most income riders appear to now be based on the income value. Does anyone have any suggestions for a decent income rider that is calculated on the accumulation value vs. the income value? I am currently 55, single, and would like to draw the income in 7 years. The only candidate I can see is the AE Choice 6 with income rider, which seems decent, but I want to make sure I am not missing anything else. Thanks very much!

 

[scagnt83]

I have been researching income riders for an upcoming potential purchase, and my eyes have been opened as to what impact an expensive income rider can make on the accumulation value. This is especially evident when the rider has a step-up, and is calculated on the income value vs. the accumulation value. Not surprisingly, most income riders appear to now be based on the income value. Does anyone have any suggestions for a decent income rider that is calculated on the accumulation value vs. the income value? I am currently 55, single, and would like to draw the income in 7 years. The only candidate I can see is the AE Choice 6 with income rider, which seems decent, but I want to make sure I am not missing anything else. Thanks very much!

- All AE products base the Rider Fee on the Accumulation Value and not the Rider Value. Not sure what state you are in, but you likely have a choice of 5-8 AE annuity products in your state.

If you are using a Rider, then you would want to use the Choice 10 since it has better Spreads/Caps vs. the 6 year product. The Rider is a lifetime commitment, so going with a 10 year product vs. a 6 should not be an issue.


- Another carrier to look at is Allianz. The Allianz 360 Annuity is excellent for income and charges the Rider Fee based on the Accumulation Value.

Allianz offers an excellent Cost of Living Adjustment Increase that increases the Income (once triggered) whatever % the policy gets as a credited rate for the year. So if the policy is credited 4% for the year, your income goes up 4% and is locked in at that level for life. It is the best COLA option on the market hands down.


The biggest issue you will run into with Income Riders are the lack of COLA options on most of them. In 20 years that yearly income you started with will buy only about half as many things as it did in the first year.


- Another that bases it on Accumulation Value is National Western Life. They have excellent payout rates on their Rider, especially for single life scenarios. But no inflation protection like Allianz.


- One last option would be Fidelity & Guaranty, they charge for the Rider based on the Accumulation Value. But they are also a B+ Rated carrier, not A rated like the others. And no COLA features if I remember correctly.

 

[walthamny]

I think the only way you can offset the risk of inflation is to not to put all assets in such an annuity and have an investment portfolio that gives better COLA like diversification. It is never a perfect way and everyone has their own view on how to protect a portfolio in the long run from inflation risk.

 

[JoeAnnuity]

Might want to take a look at the North American Income Choice product. The income account balance grows by a guaranteed 2% per year and then any interest gains in the contract are "stacked" onto the income account balance at 150%.

There is no rider fee that is deducted from the accumulated value.

Current spreads on the one year uncapped strategy are 1.50 & 1.90

 

[scagnt83]

I think the only way you can offset the risk of inflation is to not to put all assets in such an annuity and have an investment portfolio that gives better COLA like diversification. It is never a perfect way and everyone has their own view on how to protect a portfolio in the long run from inflation risk.

The best COLA option out there right now for a retiree is an Allianz Annuity Income Rider. It beats any reasonable investment portfolio. Not only does the income start out at a higher amount. But the COLA increases are huge. Whatever the index returns for that year, is the amount your income increases... not the income base... but the actual dollar amount of income. So if your getting $100k per year from the Rider, and the index does 6% that year, then the next year your locked in at $106K/y moving forward.

You cant find/create a balanced portfolio that would be suitable for retirement income, that gives you as strong as COLA as the Allianz Rider.


Its not going to keep the account balance going as long as a balanced portfolio. So like all Income Riders, the trade off vs. a balanced portfolio is liquidity in later years. But for such a large income its not a bad trade off for part of your portfolio.

If you are selling Income Riders and its not Allianz, then you really need to look at them. Imo, the biggest problem with income riders are the lack of COLA options. All of these level income streams are going to blow up in carriers faces... and agents.

 

[jrninmn]

Thanks to all of you for your very helpful suggestions! scagnt83 - I agree with your comments regarding Allianz and COLA. I actually do own Allianz 222 (plan to defer 15 years) and Core Income 7 (plan to defer 10 years) already, and the increasing income rider was my primary reason to select these two. With this purchase, I am looking for a relatively low cost rider and a short surrender period (6-7 years) so if rates go crazy, I can bail at 7 years into a higher income alternative (maybe a SPIA) without taking a huge hit to the accumulation value due to large rider charges, but if rates stay relatively low, I still have a nice guaranteed income to take. ANICO offers two really nice, low cost riders on their ASIA 7 (.6%/yr. for a ten year rider that offers a 7% rollup, or .3%/yr. for a stacker rider that offers 4% base + performance). These are based on income acct. value rather than accumulation value. So, I was essentially looking for potential alternatives to the ANICO ASIA 7. JoeAnnuity - the North American Income Choice product definitely looks interesting, unfortunately I live in MN, so it is not an option for me.

 

[Shabani]

Best income product on the Market is Athene's Accent Pro. I just started working with this new FMO based out of Canton, Oh, they just went over this product with me, and it blows every other product out of the water. It has multiple allocation strats but the most impressive is either a 10% roll up on the income side or a 6% stacking with 200% participation. I used it for a m/60 500k turn income on at 65, able to get him 40k for life. Hope this helps.

 

[aclaro]

Best income product on the Market is Athene's Accent Pro. I just started working with this new FMO based out of Canton, Oh, they just went over this product with me, and it blows every other product out of the water. It has multiple allocation strats but the most impressive is either a 10% roll up on the income side or a 6% stacking with 200% participation. I used it for a m/60 500k turn income on at 65, able to get him 40k for life. Hope this helps.

I second this. Plus they have increasing income that will beat Allianz.

 

[scagnt83]

I second this. Plus they have increasing income that will beat Allianz.

I thought that Athene used CPI for the increases?

 

[aclaro]

I thought that Athene used CPI for the increases?

Their new product that came out a couple weeks ago has three income options: flat, inflation adjusted and performance based increasing.