Question About Equity Index Annuities
- Thread starter Drifting
- Start date
- 17,048
The real money account grows. There doesn't have to be any fees at all. Depends on the annuity you choose and options.
- 10,711
It grows based on the Index you chose.
If it is subject to Fees depends on the specific annuity you chose. 3%-4% is EXTREMELY HIGH for an indexed annuity (assuming it is a true Fee) .... are you sure it is not a Variable Annuity?
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- Thread starter
- #4
I'm not looking at any specific annuity. I'm just trying to understand how they work. For example if you skip to PDF page 19 (listed as page 18) of this report, they are talking about annualized returns or accumulation value that determines the payout rate -- not ROI. So what would likely be the REAL surrender value after 14 years? It CAN'T be that 313,219 figure. Too good to be true.
http://corporate.morningstar.com/ib/documents/UserGuides/UnSupermodelsFIA.pdf
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3-4% fees...you have been reading about variable annuities. FIAs have fees around 0-1%. Also, over 90% of annuities are NEVER ANNUITIZED. So, the end of the accumulation phase rarely involves annuitization. Rather , it involves withdrawals.
- 10,711
First, I must say that it is not everyday that a consumer refers such an in depth and technical article like that to me. Especially one from the securities side of the industry that was so non-biased against Index Annuities. It was an excellent analysis.
On to the specifics:
On that page they are talking about Accumulation Value. Not the value of the Income Rider.
Too good to be true? Why is that? Did you read the date that chart stops at? (10/31/2008) I dont think I need to tell you that is when all hell broke loose in the economic universe... (& Index Annuities do not go down in value due to drops in the market)
When I use my Index Annuity software I get basically the same numbers. I have to use full years and their last year is missing 2 months, so mine are a few tenths of a percentage off. I can email it to you if you want.
Index Annuities main benefit is that they do not loose money when the market goes down. So when the market goes back up again, the Index Annuity is just adding to previous gains, instead of trying to make up lost ground.
The assumptions for the Index Annuity in that model was a Monthly Cap of 3.5%. That means that the account is credited up to 3.5% per month, with the possibility of up to 42% gains per year (which will never happen obviously... in a historical look back using 14 year periods the highest annualized return was 10.75%, highest single year was 24.77% in 95).
Again, those returns are the actual indexed returns for the Accumulation Value (get your hands on in a lump sum value).
Not the optional Income Rider that pays you a guaranteed income for life based on a certain accumulation rate and age based payout rate.
It is important to note that 99% of Index Annuities do not automatically have a Fee. Most of the time a Fee is only imposed for an optional Guaranteed Income Rider, usually it is between 0.5%-1.5%.
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- #7
Actually the time period ends AFTER the 2008 crash. So this study assumes the WORST timing for a 14 year period.
Again this study looks at annualized return. What would be the total return on investment if someone needed to get out at this point (full surrender). Assuming the surrender period has passed and they are over age 59 1/2 would they actually get $313,219 or would it be less or much less? That is my question.
- 11,471
That depends on if it's a qualified or non-qualified annuity... and your total taxable income.
- Thread starter
- #9
Are there any fees applied by the insurance company to the annuity itself? Is $313,219 the payout? Seems too good to be true that the insurance company would pay more than what the market returns. $313,219 is more than even a conservative bond heavy portfolio would return.
- 17,048
If the market is down or just starting to recover the annuities definitely pay more than the market. That's why people buy them in the first place.
The market will always outperform indexed annuities in up years. The market will always perform worse than indexed annuities in down years. In the long run the market should perform better but there are no guarantees of that. That's why indexed annuities are so popular. They are very attractive to people with low risk tolorence.
