Variable Annuity Recommendation

[kenbill]

Which variable annuity do you recommend in the following case?

Age 50, with $300K cash to put into a variable annuity, won’t need the money in 15 years. Want to invest in the stock market and need a guaranteed withdrawal benefit beginning at age 65.

Is there any company still provides the 6% increase and annual step-up to the withdrawal base (minimum 5% withdrawal rate) with <1% rider charge?

 

[HarryRenard]

I recently replaced a Prudential Variable annuity the HD series (i think thats what it's called), and did some research on it and it seems like a pretty good variable if thats what you want.

Why not indexed though?

If only there was an annuity GOD.

 

[TRSecurity]

It might be a good situation for one of the indexed products with the income rider. You could get one that has a 10% premium bonus with an 8% rollup for 15 years which would put that income account at over $1MM. 5% payout would be about $52,000 a year from age 65 for life.

That's my initial thought - I'd have to double-check regarding a variable option to truly answer your question.

 

[kenbill]

I think the Prudential HD series will automatically rebalance the account to the investment-grade sub-account if the account value is lower than the withdrawal base using a formula. I prefer a product with % asset allocation limit so the client has more control. In the initial years, I usually suggest allocate more to the risky sub-accounts for the step-ups.

 

[scagnt83]

Jackson National has a better income rider available than Pru does. But Pru has the highest daily lock-in available vs. JNL's annual step up... but JNL's annual step up is built into their "Life Guard Freedom rider" which is a guaranteed distribution rider.
At age 65 I think the current guarantee is 5%...

If your worried about distribution, go with JNL. Accumulation, go with Pru.

 

[BNTRS]

Yes, JNL is preferred over Pru. Pru will stuff your clients money into a fixed account they cannot get out of if the market starts to tank. Plus, Pru's sub accounts are terrible. Jackson will let you invest in whatever you want. Give you the 6% bump at least, and 5% will be the withdrawal amount at 65.

 

[scagnt83]

Pru will stuff your clients money into a fixed account they cannot get out of if the market starts to tank. Plus, Pru's sub accounts are terrible. Jackson will let you invest in whatever you want.

I forgot to mention that, great point.
And its not just if the market starts to tank, whenever you start taking distributions using the rider they automatically reallocate to a stronger bond position, you have no say in it. This could possibly push your overall portfolio out of balance, along with limiting your potential returns; and if anything, it just sucks not having a say!

 

[kenbill]

Thanks everyone for the recommendations.

I am considering TRSecurity’s recommendation about the index annuity’s income rider option. Please let me know if the following is correct or not.

Initial premium = $300K
With 10% bonus, income base = $300K * 1.1 = $330K

Assuming no withdrawal for 15 years and 8% roll-up rate,
Income base at age 65 = $330K * 1.08 ^15= $1,046,816

Guaranteed annual withdrawal = $1,046,816 * 5% = $52,341

In order to generate $52,341 lifetime income, the amount required to buy a single life annuity (age 65, male) is $689,057 based on today’s market rate.

So basically, the guaranteed internal rate of return is (689,057/300,000)^(1/15)-1 = 5.7% per year for 15 years.

 

[scagnt83]

why are you now thinking of switching from a VA to an EIA?

It sounds like you need to evaluate your clients risk tolerance...

 

[TRSecurity]

That looks accurate kenbill.

Just make sure the client understands that this amount is only available as an income stream for life. The underlying annuity has it's own crediting methods and will be hit with an annual fee for this income rider. The underlying annuity will serve as the death benefit amount too.

Bottom line- there should be a commitment to implement the rider as planned.