What is a Fixed Indexed Annuity with Income Rider?
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- เผยแพร่เมื่อ 23 ก.พ. 2022
- Detailed explanation of the features and functions of a Fixed Indexed Annuity with an income rider; specifically a Guaranteed Living Withdrawal Benefit ("GLWB") rider
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DISCLAIMER: This video is only helpful hints and education. It is not specific tax, legal or investment advice. Before considering acting on anything you see in this video, first consult with your tax, legal or investment advisor. While the information expressed in this video is believed to be accurate, neither Andy Panko, CFP®, RICP®, EA nor Tenon Financial LLC make any guarantees to its accuracy.
The fact I do not have a work pension made a fixed indexed annuity with an income rider was perfect for me. I had 2 IRA's so I used one towards this annuity 8 years before my planned retirement. It has grown at a net 4.5% with no loss when the stock market went down. It will generate $18,000 per year for life. With zero debt or mortgage, and in conjunction with my SS, I will live very comfortably without touching my other IRA or my 2 year emergency fund. I think the key is making sure you invest in one many years before retirement to help it grow without touching it.
If you have become financially secure over your lifetime, this is a must watch!!!
Must watch before buying annuities. One of the best videos I have seen. Very detailed.
1:30:33
I thought I knew about annuities I knew nothing. Thank you so much for the education.
I never understood index annuity before. You made it easy to understand. Thanks.
Great video. We are using our FIA as bucket #1 in our bucket strategy( 10% penalty free withdrawal if we have abig negative year with our equities). Our particular contract has 1 year p to p , 85% participation rate, 13% Cap. Of the S&P. It also offers a 2 year p to p, 150% participation rate, Cap of 13%. So far It has performed better than I had hoped. My " reasonable" expected return was 6%. So far exceeded that return.
Again no additional riders to charge against the returns. I heard once " Buy an annuity for what it will do, not for what it might do."
Thanks,
RSB in NC
Thank you. I am at the for front of adding annuities to my portfolio and this training has been a great part of my learning curve.
I'm glad you found it helpful, thanks!
I need to READ what my current contract says. My deciphering / learning curve is flattening a bit from your video. Thank you.
Thank you so so much, Andy. Your presentation is awesome!!! It clears up a lot of my confusion due to their terminology ❤
Love your show andy. Hands down one of the best personal financial review and advice. One of these days i need to schedule an appointment with you.
Thank you for the kind words!
The best video about annuities!!must see
Thank you!
Well done - best explanation I've ever heard of annuities and fixed index annuities. Thank you!
Thank you very much!
Fantastic presentation. Great information for someone just learning about annuities. Thank you!
Thanks for explaining with the spreadsheet on how the mechanics work.
Great detailed information. Thank You
Great video. Extremely informative
Thank you and wow if you don’t know how this works you stuck with it.. Great video you educate a lot of people before they putting their money in annuity the better off with CD in some cases.
I’m glad you found it helpful
Andy I watched your TH-cam on the fix index annuity with great interest because I have two of them and together there is over $500,000 in them
I’m 65 and my wife is 66
We got them five years ago for the safety aspect of growth but no rider
I agree with you that the rider Is not worth it because of the fee
But the actual fix index annuity has been very good for us
We have 60% of our money in the fixed indexed annuities within an IRA and 40% in blue-chip growth fund’s inside of our IRA
The fix index annuity was more of a bond replacement
Up until last year we got 50% of the S&P 500 with absolute safety which was a lot better than bonds
The last two years they drop the 50% participation down to 22% so it was better to take the fix option which was 5% of the S&P and sure enough that’s what we got was 5%
So these figures are a heck of a lot better than Bonds during the low interest environment and this serviced us very well
So let’s look at this today
If we were to have structured our portfolio like you say and all the big brokerages say then we would be down 15% and probably that will be down even more in the coming days just like the 300,000 that we have in our blue chip stock funds Are worth 250,000 now
When we retire next year we will take some income from the fixed indexed annuity not because it has a rider but rather just take about 1000 bucks a month from the annuity to supplement our Social Security which will be about $76,000 a year so add the two together will be at 86,000 everything paid so will be set pretty good and we will not even touch our growth mutual funds for many years to come
So you might want to not present the information with such a negative attitude and do a little research for the positive things that a fix index annuity does and that’s very simple to do on TH-cam
One last word and that is the fixed indexed annuities are never pitched as getting all your money into one of them but rather in taking some risk off the table perhaps 20 to 40% depending upon your risk tolerance
For us we decided on taking 60% of the risk off the table and this seems like the very best product to do that and it certainly has done well for us as we have earned a high of 11% and a low of 4% with no fees and absolute safety
Anyway I just wanted to share this with you thank you
Thanks for sharing!
Love your honesty and no agent will show the rate of return figures that you did. Amazing how the prevailing interest rates affect the payout amounts on SPIA's. They are paying much more today than a year or two ago, but still being pushed as paying you 7-8% on your money, when in fact you are just getting your own money back for the first 15 years or so.
You can be a customer of the insurance company and get 2-3% returns or be an investor in the insurance company and get real returns of 7-8%.. ie I just bought F&G bonds going out 6 years and paying 7.25%, and I get my money back then !
Biggest problem of all is that you are locked in for 10 years, but the cap is up to them every year, and usually goes down. One could also buy a MYGA and get higher rates and then 1031 exchange it into a spia in the future if you wanted to, or take your money and play elsewhere then.. you choose.
The main takeaway for me from this presentation is that GLWB riders on indexed annuities, over time, are pretty much guaranteed to be "in the money," meaning (as I'm sure you already know) that the benefit base will be higher than the actual account value. My question is: what will this mean for insurers down the line? If enough clients exercise their riders they will be paying out a lot from their coffers. Let's not forget the multiple major VA carriers exited the business because of the liabilities of living benefits they sold in the past; others have attempted to buy clients out (MetLife most recently). Why should we believe FIA carriers, most of which are much smaller than the VA leaders of the past, will be able to fare better?
Yes, the actual contract values are nearly guaranteed to always end up being less than the benefit bases. BUT, these guaranteed income riders are already assumed by the insurance companies to always be in the money and eventually used by the contract holder. As such, the insurance companies price them accordingly and account for the fact that most people will use these riders and withdraw income from them until they die. In other words, they aren't giving away more in benefits than they think their actuarial assumptions can handle.
However, there are times where insurance companies get it wrong. Such as long term care insurance...they grossly underestimated how many people would keep and use their policies, and how much usage they'd get out of them. That's why there have been continual increases in premiums on LTC insurance. And sometimes insurance companies get things a bit wrong with annuities, too. Such as realizing some benefits end up being too generous and so they try to buy people out of their contracts.
I don't think there is a ticking time bomb scenario with riders like these. But there is always risk in any insurance product, as the policy or contract is always subject to the claims paying ability of the issuer.
Great video!!!
thank you!
What is the difference between GLWB vs a FIA with Income Ryder? This video seemed to focus on GLWB and not a FIA with Income Ryder. The way I understand FIA with Income Ryder is that you are guaranteed an annual income that will not change.
Depends who's using the terms and what they're ultimately referring to. A GLWB rider is a specific type of rider that allows for the annuity holder to in effect convert their contract value into guaranteed lifetime annual withdrawals (even if/when the annuity contract value depletes down to zero). The term "income rider" is a more generic label to broadly refer to any sort of rider that allows for guaranteed lifetime income from the annuity. As such, a GLWB rider is a subset of the broader term "income rider." Or at least such is my usage of the term "income rider." Part of the challenge is that different insurers, different insurance agents and different planners may use the term "income rider" in slightly different ways. For example, it's possible some insurers may use the term "income rider" to refer to a particular rider they offer. As opposed to the more common usage of the term throughout the industry where it's a more generic term simply meaning any kind of rider that provides guaranteed lifetime income or withdrawals from the annuity. Clear as mud, right?!
Also Andy I’m quite impressed with your presentation- you’re clearly invested in the process and find it fascinating - not a salesman . I find these interesting my concern is does one of these exist where the insurance company doesn’t shuffle the cards and change the rules (Caps, Participation rates , spreads ) annually as the owner is stuck in a seven year surrender schedule ?
Thanks Scott. Policies will state what the minimum cap or participation rate can be over the life of the contract. For example, if you have a S&P 500 point-to-point indexing option, the policy will say the cap rate can't go below X%. So while the policy's first year of cap rate may be something much higher than X%, and it may decrease over time with each interest crediting period, it will never go below X%. So at a worst case, you should be able to know right from the inception of the policy what the absolute worst caps, participation rates and/or spreads could possibly be.
Great video and explanation!
Would you consider doing a video on "Buffered ETFs" such as the ones offered by Innovator? These seem to be like a fixed index annuity (without the income rider) but they seem easier to get out of. I've heard of them used in place of bonds. Thanks!
Thanks, I'll put it on my list to consider. In the meantime, here's an article that sums them up pretty well: www.barrons.com/articles/buffer-etfs-51624046451
@@RetirementPlanningEducation Thanks Andy!
WHEN MAKING RETIREMENT PLANS, AN ANNUITY IS GOOD WHETHER FIXED OR FIXED INDEXED BUT HAVING PASSIVE INCOME IS MORE CRUCIAL. Big ups to everyone working effortlessly trying to earn a living while building wealth. I'm 40 oand my wife 34. We are both retired with over $3 million in net worth and no debts. Currently living smart and frugal with our money. Saving and investing lifestyle made it possible for us this early even till now we earn monthly through passive income.
Can you please help me with the pasive income method you used to accumulate such riches so i can retire early as well?
plz tell me more.
1:05:20 ok so NO one ever "withdraws "GAINS from a life policy why would they ?!?!?! so its really not even worth speaking on because no one will ever do it even the ins. company will try to stop you by telling you if you do this you will be paying taxes....people will either withdraw to basis then take loans on the gains i.e. ZERO tax by doing both or the MORE popular option of just taking loan on the cash value(both basis and gains) which results in paying ZERO taxes wether you pay the loan back or no which is a voluntary choice TAXES never enter the conversation
I have that Nationwide Zebra and Mozaic No idea what the equation to figure out my monthly payment. Figured out I think I'm getting 4% yr....
Andy can you post your excel model on your tools site?
Great stuff. Question how is the benefit (phantom) determined?
That will be based on some contractual rate that's spelled out in the contract. That "roll up" rate will likely be very prominent in the marketing material for the rider. Typically the roll up rate is mid-to-high single digits.
Wow only 2.85 cap on 100,000
You might of just put it in a CD THAT guaranteed 3% for 5 years then just keep renewing it .
If an annuity is not 6 % or higher you might as well use a CD
At the time this annuity contract was written, CD rates weren't as high as they are now. But the nature of your point is still quite valid!
Watching a number of educational video's pertaining to Fixed Index Annuities. As with all insurance products, they are designed to obfuscate and confuse customers. Why not just create a product that ways we will give you the same return as the S&P500 index but cap it at XX percent and if return is negative you earn nothing for that period. Since there are more up years than down, they use the up year cap/spread to offset for the down years. Why don't they do this and make it simple? Not enough money in it for them. I prefer Defined Outcome ETF's. Expense Ratio is clear to understand.
There are products like this out there. I've seen one that has a floor of 0% (if S&P is negative) and cap at 9%.
You need to update this now with participant rates at 300% and 20% bonus. Can you link to the sheet used in the video as well?
300% on straight up S&P 500??? Or are you referring to a target vol or vol controlled index?
So after listening to this today I better understand Annuities. I have one n was quite confused as to why no growth over the past 4 yrs. My question is can i roll over my qualified (pre-tax) annuities into mutual funds? I now understand when i told my financial planner that I didn't want to loose any money n i wanted to be able to get a monthly payout rhis is what i got.
What Im not getting is gain. I want growth n security. Whats the best option. Im already retired. Im 52 n working as a Real Estate agent. I still have time to invest, but not 15 n 20 yrs.
Yes, you can “surrender” the annuity and roll its proceeds into a normal IRA to then invest in traditional financial investments like mutual funds. But if you’re still within the annuity’s surrender period (generally the first five to 10 years), there will be a penalty to fully surrender it. You have to check your contract, or ask the agent who sold it to you, to confirm the details.
Why should I buy something I do not understand........ with a lot of legalize..?
The problem I have with these things and variable annuities is these rider fees. The insurance companies figured out that most people don’t want to annuitize and lose control so they came up with these cockamamie riders and income bases. So they’ve created this conduit of fees to them then when you start taking income your original pool drains first then you end up with a static income that is particularly dangerous if inflation turns out to be structural at 3+ %!
Exactly right. Not that those riders are inherently bad, but there is absolutely no free lunch. The more options and guarantees you want, the more you'll have to pay for them in one way or another.
You should have shown for illustration what the total amount would have been the person would have if invested in the S&P500 index for the 10 years. Money would have more than doubled vs having only 125k or 112k. Person could have then bought a SPIA annuity for 200k and been further ahead if they needed consistent income. A 62 yr old male could bet a lifetime guaranteed income from a SPIA of over $1,200/month ($14k+ annually). Better yet they wait until age 70 and the 200k grows to 300k (or more) and they purchase a SPIA, they get over $2,200/mo ($25k+/yr). Better approach IMO.
As a follow-up to my question, how do they determine the withdrawal rate, mathematically? Thanks.
The guaranteed withdrawal rate will also be prominently spelled out in your contract and likely also very visible in the marketing material for the rider.
But if you mean how the insurance company actually comes up with the guaranteed withdrawal rates, that's all a function of "actuarial science." Basically, the insurance company projects how much money they can earn on your money while they have it and they know with pretty good precision how long you're anticipated to live. So, based on what age you start your guaranteed withdrawal, they can reasonably guess how many years of payments they'll have to make to you. And knowing that and the expected investment returns they assume they'll make on your money, they figure out how much they can commit to pay you. That is ultimately how they determine the withdrawal percentage rate.
@@RetirementPlanningEducation Thanks!!
What happens to the rider if you take a pre-income withdrawal out of a fixed indexed annuity? Does it reduce the income base and benefit amount?
Typically yes
I think the new name for these contracts is Hybrid Pensions.
Annuity payments are adjusted to inflation?
No, typically not. Some annuities offer the ability to have payments inflation-adjusted (maybe not based on FULL inflation, but something up to a few percent per year). However, that's not common. And, all else equal, getting a payment that has inflation adjustments will mean you start off with a much smaller payment than if you didn't have inflation adjustments
Does RMD apply to FIA?
If it's a "qualified" FIA (i.e. bought with IRA money), yes, RMDs apply. However, the amount of distributions taken under the guaranteed withdrawal riders will typically be larger than the RMD amount anyway
Is this what other people call hybrid pension?
I'm not sure; I haven't heard that term before. But I'm sure lots of people call annuities lots of things. I've heard things like "personal pension" before.
@@RetirementPlanningEducation they said it's FIA plus living benefit rider.
@@jocunningham That product (i.e. FIA plus living benefit rider) is what's summarized in the video. The specifics of your particular product will be different that what's in the video. But at it's core, it will function similarly. If someone is calling it a "hybrid pension," that's not a formal term. It's just a generic informal marketing name. Annuities are NOT technically pensions. But they can provide guaranteed lifetime income like traditional pensions can. Which is why some folks refer to annuities as "pensions"
The annuity fees are paid on the backside by the insurance company and not out of your principal .Or at least that’s what I’ve been told
For the base built-in costs, that’s correct. Unless you surrender it early, in which case there is typically a surrender fee you pay out of your contract value.
But when adding guaranteed withdrawal riders like what’s shown in the video, the fee for those normally are deducted out of your contract value; they’re not inherently covered by the insurance company.
Why not just buy a CD? No fees and it’s 5.6%
Depends on what your intention is for the money, and what your timeline is for needing it and/or being willing to leave it untouched. CDs and FIAs with income riders are very different animals. Yes, you can get a guaranteed 5+% in CDs now, with maturities up to a handful of years. But CDs don't come with any guaranteed lifetime income streams, whereas FIAs with the income riders do. So, if you're looking for guaranteed lifetime income, a CD simply isn't a feasible solution. But if you're looking to keep your money principally protected and get some guaranteed rate of interest for 1y, 3y, 5y, etc., yes a CD could be a perfect solution and better than an FIA
@@RetirementPlanningEducationI always see examples for people 55+
I am retired now at 40. What would my current rate be MINUS fees, so NET rate, on $250k for lifetime income paid monthly?
@@jimmymcgill5572 FIA's i've seen do not have fees taken out of your principle on front or backend.
you pay back the fat commissions in hidden imbedded costs
It’s correct that the cost of the commission is ultimately worked into the economics received by the contract holder. All else equal, if there were no commission expense paid by the insurance company, they’d be able to pass through more benefit to the contract holder.
Man you cherry picked a bad annuity. I would like to see this re done with one of the Athene products let’s say the Athene Performance Elite 10.
I can tell this is cherry picked because you chose a product with a low cap.
I’m not saying an annuity will beat stocks but they are designed to preserve your cash but there are annuities getting better caps than that.
This wasn’t cherry picked; it was sent to me by someone in my Facebook group. He voluntarily asked me if I could review and explain it for him. So I did.
Feel free to send me a current statement and initial contract from another one and I’ll gladly do a video on it.
Oh my god! Nonqualified annuities is taxed at ordinary rates! That's some BS.