This is an Exceptional Time for Prospective Annuity Buyers
Learn why this is an excellent time for would-be annuity owners and repeat annuity owners to seriously consider purchasing an annuity.
Those with some interest in annuities may have heard or noticed in passing that payout rates have been climbing this year. What many potential annuity investors probably don’t realize, however, is just how much they have been rising in 2022.
Some annuities — especially plain vanilla fixed annuities and growth-oriented fixed indexed annuities (FIAs) – are offering the best deals in at least a decade and in a few cases perhaps the best ever.
Consider, for instance, growth FIA Athene Accumulator, in which a 65-year-old Florida man who invests at least $100,000 can nab a 10-year contract that invests in BNP Paribas, a popular low-volatility index, with a whopping index participation over that period of 380%. The same person who invests in the seven-year version of Athene Accumulator receives a participation rate of 375% and in the five-year version 360%.
Those who prefer to invest instead in the highly popular S&P 500 index now get an annual cap ranging from 11.50% to 12.25%, depending upon the timeframe of the contract – nearly double the index’s participation rate at the start of the year.
(The payout rates of annuities cited in this article require a $100,000 investment, unless noted otherwise, and always assume the investor is a 65-year-old man living in Florida, thereby comparing apples with apples. Payout rates in the industry differ according to age and marital status and sometimes due the state in which you live.)
Clearly, this is an excellent time for would-be annuity owners or repeat annuity owners to seriously consider purchasing one of these insurance products, which are fundamentally guaranteed not to lose money. With interest rates soaring, courtesy of the Federal Reserve’s strategy to get inflation under control, some folks no doubt think it best to wait until interest rates rise still further and buy an annuity then.
A problem, however, is that they risk not finding a better deal or the deal currently available. Unusually generous rates on annuities typically ebb and flow over time, even in a rising rate environment, partly because insurance companies often shut down their most attractive offerings once they reach capacity. In addition, waiting longer typically leads to a so-called opportunity cost because the money that would be used in an annuity purchase sits in a low interest rate money market fund or, even worse, in a standard stock or bond fund, both of which have been losing a lot of money.
Also, such investments, unlike annuities, do not compound tax-free.
A case in point about the risks of a better deal cropping up dates back to 2008, the last terrible year for financial markets, when a Pacific Life five-year plain vanilla fixed annuity (a MYGA) markedly increased payout rates to 5.75% annually. Some investors bought it quickly. Others delayed, waiting for a more generous deal in coming months. Unfortunately for them, the interest rate on this annuity never rose much more and, in fact, eventually fell to 3.5% annually.
Many annuity pros say the best path forward for those considering the purchase of an annuity today might be to dollar cost average monthly for an investment in an annuity or annuities over a period of, say, four to six months. This is a way to open some avenues to a better deal without waiting too long for purchases of especially attractive annuities – annuities that may not remain available beyond a specific period of time.
Here is a list of other top annuities today, including an additional growth FIA.
Midland Income Vantage Pro is another highly attractive growth FIA. If investors pay an enhanced participation rate fee of 1.5% annually, Midland offers a 10-year growth FIA with a participation rate of 320% on the Fidelity Multi Factor Yield index over the life of the product. (Without this fee, the index participation rate is 235%.) While less attractive than Athene Accumulator, these terms are available for an investment of only $20,000. Highly conservative investors may also like the fact that this product has a stellar A.M. Best rating of A+, compared to A- for Athene Accumulator.
MYGAs (Multi-Year Guaranteed Annuities)
Guaranty Income Life. Guaranty Rate Lock 5 offers a 5.60% annual return on $100,000-plus investments in its seven-year contract. At the start of the year, Oceanview was paying only 3.25%.
Nationwide Life Insurance Co.’ Secure Growth MYGA offers a 5% annual return on a five-year contract, and 5.35% on a seven-year contract. At the start of the year, Nationwide offered an unusually low payout rate of 0.5% on its five-year MYGA and 1.85% on its seven-year contract. At the time, the company was focused mostly on deferred and immediate income annuities. This strategy has obviously changed, but could revert backward at some point and make this product less attractive.
Unlike growth FIAs, which emphasize growth potential, these emphasize high guaranteed payouts. One particularly strong income FIA is Athene Ascent Pro 10. Investors who buy this product and wait five years before taking payments, as many do, receive $853 in monthly payments At the start of the year, the payment would have been $103 less. This product initially offers annual rollups, which is typical, but also a 25% bonus on the income base.
Another strong income FIA is American Equity Income Shield 10. Investors receive $799 monthly after five years, less than the Athene annuity but still attractive to investors who prefer heightened product diversification. At the start of the year, monthly payments were only $716.
Most investors in these two products opt for so-called level income — a set, guaranteed payout. They are also tied to market indexes, but gains there accrue only to the overall value of the investment, not the base on which income is calculated.
A $100,000 investment in Nationwide Income Promise Select will buy you $622 monthly indefinitely. This up from $458 monthly at the start of the year. These are the amounts if you opt for life with cash income, which means a beneficiary collects the unspent portion of the $100,000 in the event of your death. There is no beneficiary if you opt for a life only option, which pays $33 more a month.
The same investment in New York Life Guaranteed Lifetime Income Annuity II pays $583 monthly, up from $483 at the start of the year, adopting the life with cash income option. This is less generous than the Nationwide annuity, but may still appeal to the most conservative investors because New York Life has a superb A++ rating from A.M. Best. Those who opt for the Life Only option receive $618 monthly.
Deferred Income Annuities
A $100,000 investment in Integrity Life Income Source Select pays $861 monthly if five years pass before you take payments, up from $687 at the start of the year. This assumes the adoption of the life with cash income option.
The same investment in Mass Mutual Retire Ease pays slightly less — $845 monthly after a five year hiatus, up from $730 at the start of the year.
In conclusion, which of these investments is best for you? It depends on many different financial and personal factors. An annuity professional can guide you in the proper direction.