Question About Equity Index Annuities

[scagnt83]

Actually the time period ends AFTER the 2008 crash. So this study assumes the WORST timing for a 14 year period.
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Kind of but not really. You are correct that it assumes the worst 14 year time period. But the 2008 crash technically bottomed out in 2009.

Either way you are looking at the worst 14 year period in recent market history. Which is why the 0% floor caused the Index Annuity to beat the actual Indexes.

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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.

Again, the $313k is the actual Accumulation Value... the lump sum amount that you can get your hands on/walk away with.

Again, since the Index Annuity does not decrease in value it kept its market-linked gains while the market dropped off a cliff.


So the full surrender value would be the $313k.


Annualized Returns are just the final absolute return evenly distributed throughout the given time frame. The final dollar number is the final dollar number.... just like any other type of savings/investment vehicle.

 

[Josh Landis]

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.

Drifting, it would obviously depend on the details as we aren't looking at all of the factors going into this, but in general, the answer is yes you would receive that amount. That return shown in your article is extremely high as they looked at a high monthly cap during a great time in the market so you're not likely to get that kind of return. The return they are showing is just over 15%/year on average.

Most FIA's do not have fees unless you have an income rider or you have a product with an uncapped strategy (which may be a spread or fee). If you have a traditional FIA with no riders attached, then most likely you do not have a fee (but that's why you have a cap).

It makes sense that the value of an FIA would be higher than the market in certain years because an FIA will never return less than 0 in any year. This is important because of average return vs real return.

Ex FIA: Year 1 client has $100k in FIA...market goes down 20% or $20k...End of year 1/Beg of year 2, client still has $100k. Year 2 market goes up 20%. End of year 2/Beg of year 3, client has $120k...locked in, and can't go down (assuming the returns are spread out over the monthly cap to allow this to happen).

Ex Market: Year 1 client has $100k in market...market goes down 20% or $20k...End of year 1/Beg year 2, client has $80k. Year 2 market goes up 20%. End of year 2/Beg of year 3, client only has $96k.

As you can see in the examples, there is a big difference between average return and real return. The average return is 0% which makes you think that the original $100k would still be $100k. However it depends on sequence of returns. If you like, I can send you more information on the power of annual reset with an annuity and the tax-deferral benefits.

Obviously, if you have a cap on a product and the market is on a tear, you won't be seeing all of the gains, but over the long-term, depending on where you are in life, not losing turns out to be more important than winning big.

Here is an article you might be interested...

http://www.businessinsider.com/the-charts-wall-street-doesnt-want-you-to-see-2011-10

 

[Drifting]

The market will always outperform indexed annuities in up years. The market will always perform worse than indexed annuities in down years.

Not so. In this chart the index annuity outperformed in only 1 out of 4 down stock years. And in that one year the index annuity didn't outperform by much. I'd say after taxes the annuity probably didn't even win 1 out of 4.

 

[Tahoe Ray]

Not so. In this chart the index annuity outperformed in only 1 out of 4 down stock years. And in that one year the index annuity didn't outperform by much. I'd say after taxes the annuity probably didn't even win 1 out of 4.

Index annuities aren't built to "beat" the market. They are meant for conservative investors who want a shot at better returns than some other fixed products but without the risk of equities.

That being said, Josh is talking about the "market" being a single index, the S&P. If that index is down, and the index annuity (which is also using the S&P) is never less than 0 (assuming no rider fees), then the index annuity will mostly outperform in down markets.

It looks like you're comparing a blended index (bonds and stocks) to an index annuity focused only on the S&P. Several index products today offer multiple crediting options (gold, real estate, bonds, etc.) So if you want to compare a blended index, you should do it with a product that also has those options.

 

[Newby]

Not so. In this chart the index annuity outperformed in only 1 out of 4 down stock years. And in that one year the index annuity didn't outperform by much. I'd say after taxes the annuity probably didn't even win 1 out of 4.

You must have the chart upside down.

The 75% Barclays kicked ass on that chart.

 

[KRobby]

With the thread title 'Equity' Index Annuities rather than Fixed Index Annuities, I had a feeling the disguise of general questions would gradually lead to some annuity bashing. Drifting, are you broker/dealer affiliated?

 

[Tahoe Ray]

With the thread title 'Equity' Index Annuities rather than Fixed Index Annuities, I had a feeling the disguise of general questions would gradually lead to some annuity bashing. Drifting, are you broker/dealer affiliated?

He/she is a consumer.

 

[Drifting]

With the thread title 'Equity' Index Annuities rather than Fixed Index Annuities, I had a feeling the disguise of general questions would gradually lead to some annuity bashing. Drifting, are you broker/dealer affiliated?

No.

You call it bashing. I call it searching for the truth. Let the facts fall as they may.

 

[indiana260]

The facts are what they are. Take a look at the American Equity chart from 98-2013. The FIA Outperformed by over 30k on an initial 100k investment.

This is not the reason to buy. The reason to buy is three fold...

One your money is safe

Two you can add an income/ltc rider

Three, is and when the market tanks your saving 10 bucks a week on mylanta and adding years to your life by not worrying, but don't worry about adding years cause guess what... you can't outlive your money.

 

[Drifting]

The facts are what they are. Take a look at the American Equity chart from 98-2013. The FIA Outperformed by over 30k on an initial 100k investment.

This is not the reason to buy. The reason to buy is three fold...

One your money is safe

Two you can add an income/ltc rider

Three, is and when the market tanks your saving 10 bucks a week on mylanta and adding years to your life by not worrying, but don't worry about adding years cause guess what... you can't outlive your money.

Where is this chart?
The key question is WHAT did it outperform? 100% stocks (high risk) or a low risk bond/stock combo? I think the key is to compare apples to apples to see how the IA did.