Whats the catch with Equitable Cornerstone Variable Annuity

[Joseph C Barretta]

I'm trying to help my mom make a decision. She is retiring 9/1/2021. She has a main pension and also approx $180,000 in a fixed annuity from her union. We have the opportunity to roll the $180k over. The problem with that product is you are only guaranteed 60 payments, and if you die they keep the principal.

Our goals are to protect the principal and still have monthly income for her in the range of $600 to $700/ month. A "friend" from Allstate is pushing this Equitable retirement Cornerstone product which sounds perfect. He is claiming we can't touch the principal for 7 years (which is not a problem for us) and she will get $600+/ month for life and the principal will be protected to passed on to myself and my sister. This sounds perfect but I sense there's a catch. The product claims to guarantee 5% returns for the first 7 years and then 2% margin above the 10 year treasury.

Can someone help me?

 

[Tahoe Ray]

The product claims to guarantee 5% returns for the first 7 years and then 2% margin above the 10 year treasury.

You have to look at these products like they're two separate accounts. One account is your income base, the other is your account value (real money).

Those guarantees are for the income base and while I have no knowledge of that particular product, I wholesaled (worked with the agent/advisor) variable annuities for several years.

So, the income account will likely generate what your agent is saying (you should get a copy of an illustration that will show what's guaranteed) but the account value (real money) is going to be invested in mutual fund sub-accounts and subject to fees and stock market volatility.

That may be ok, but just know what you're getting into.

*This is not investment advice, just a general description of how these products work.

 

[Joseph C Barretta]

There is something in the prospectus that i can choose from 100 funds how the money is invested. I would just pick something with 80% bonds 20% equites. Hopefully somebody on here knows the product well

 

[DHK]

Our goals are to protect the principal

This goal... and the word 'variable' are at odds with each other, regardless of "income base", etc.

Anyone who desires principal protection should not be invested in a variable annuity. Period.

A fixed or fixed indexed annuity would be a better choice.

If everything was equal, it's a better choice for the remaining beneficiaries as they will inherit the CASH, not the income base.

Oh, and with fees ranging to about 3-3.5% per year (Mortality & Expense, mutual fund sub account fees, + income rider), it would add up quick. So even if the income was the same to your mom, the cash erodes and isn't as good for the beneficiaries.

 

[Tahoe Ray]

This goal... and the word 'variable' are at odds with each other, regardless of "income base", etc.

Anyone who desires principal protection should not be invested in a variable annuity. Period.

A fixed or fixed indexed annuity would be a better choice.

If everything was equal, it's a better choice for the remaining beneficiaries as they will inherit the CASH, not the income base.

I agree, David, but OP is in NY so the options are super limited there. AIG Assured Edge and their Power Index product are the only two lifetime income ridered fixed products in NY (outside of SPIAs).

 

[Tahoe Ray]

There is something in the prospectus that i can choose from 100 funds how the money is invested. I would just pick something with 80% bonds 20% equites. Hopefully somebody on here knows the product well

Hopefully, your agent knows it well since he/she is recommending it. If you don't trust the agent/advisor, you should consider getting a second (and even a third) opinion from someone licensed in NY to offer this same product and see what they say.

You only get one shot at this so make sure you know all of your options and choose wisely once properly informed.

Very few people on this site are securities licensed (which you need to sell a variable product) so you may not find anyone here who truly knows it well.

 

[DHK]

I agree, David, but OP is in NY so the options are super limited there. AIG Assured Edge and their Power Index product are the only two lifetime income ridered fixed products in NY (outside of SPIAs).

Agreed. He and I just talked by phone and I recommended that he reach out to you. I gave him your 800#.

 

[Allen Trent]

protect the principal and still have monthly income

and the principal will be protected to passed on to myself and my sister.

I think you may be hearing something incorrectly from the rep. Otherwise, he is not explaining or doesnt understand the concept fully.

While the product may protect your mother for lifetime income, it likely is not guaranteeing the principal be protected for her or you as an heir. If that was indeed the case, I dont think you would see so many places on the product prospectus that warns of the loss of principal or investment losses. Ask for the full prospectus (could be potentially 200+ pages as some are)

 

[bmarsh]

you don't understand the product correctly