10% Guaranteed Return

[oldcodger]

Wounded investors might want to check out the Allianz simple income guarantee for 10% per annum simple interest on deposits. The money annuitizes to favorable rates and may not be recovered on a lump sum basis but can be annuitized on a favorable financial planning strategy. $100,000 in grows to $200,000 over 10 years and can continue to grow to age 90 at the same rate. Thus older retiree clients may have a shot at getting longer term recovery. www.incentivecap.com for more information.

[David Williams]

Interest in Guaranteed Minimum Withdrawal Benefit (GMWB) and Guaranteed Minimum Income Benefit (GMIB) has certainly increased over the last year. Most Variable Annuities have some form of one or both of the guarantees. They make sense as our clients shift from accumulation to distribution. These are insurance contracts on future benefits. Just as we insure a worker's current income (disability income insurance), this is a way to insure a minimum income during retirement.


The actual terms of the guaranteed benefits vary from policy to policy. Some provide simple interest (like Allianz), others provide compound interest (ING is just one example). Some calculate the interest on premiums, others on the benefit base (benefit base is the value that guaranteed distritributions are calculated from, and often has a "high water mark" provision). Distributions are virtually always based on annuitant or owner age, and the rate-per-age varies from policy to policy. Additionally, some policies distribute more during the governing life while others leave more for the beneficiaries. An advisor should identify a few policies they understand and choose between them for their clients on a case-by-case basis.



Something important to remember: Separate accounts of variable annuities are not part of the policy reserves of the insurance company. They aren't affected if the insurance company runs into difficulty. The guarantees, however, are supported by the company's assets and would be affected by any financial difficulty the company experiences. (My comments are unrelated to the financial strength of any insurance company.)

[Lucullus]

Money doubles in ten years at 7.17% interest, not at 10%. And I doubt that Allianz is GUARANTEEING a crediting rate of even the former rate (much less the latter) all the way to age 90 on the "benefit base". If I am wrong, I will welcome being proven wrong. Just what contract offers that guarantee for that duration?


John Olsen

[Zek, The Grand Nagus]

Can you say "Lifetime Surrender Charge Period"?

[Lucullus]

Ron,


You mention a "lifetime surrender charge period". That may apply to the contract under discussion, but the point I'm addressing is whether Allianz is actually guaranteeing to credit 7.17% (or 10%) to the "benefit base" all the way to age 90!



I don't believe it.



John Olsen

[RightSedFred]

It's all in the wording -- Allianz's MasterDex 10 product guarantees 10% bonus credit for the first 5 years, and an issue age cap of 85 so technically a 10% guaranteed credit could be availble to age 90. Of course that's not what we all read into the original post.

[Lucullus]

The MasterDex X "simple income rider 2" does, indeed, guarantee a crediting of 10% SIMPLE interest to the withdrawal base, up to the earlier of the first withdrawal or age 90. It's basically a "guaranteed lifetime withdrawal rider" where the withdrawal percentage rate varies by attained age. This is in addition to the 10% (simple) annual bonus on the base contract, which vests over 10 years.


It's a "tiered" contract, so the annuity value (which is higher than the accumulation [cash] value) is paid only on annuitization, except that, upon death of the owner, the beneficiary may take the annuitization value in a lump sum.



This is an index annuity. Like virtually all index annuities, its interest crediting methods are complicated, and I believe that few agents, an fewer policy owner, understand them properly. That said, I confess that this contract is a considerable improvement over the old MasterDex 10 - which was, in my judgment, an embarrassment to the industry.



Incidentally, Allianz non-qualified annuities offer LOAN provisions. I just perused their consumer information, and, in my judgment, that disclosure DOES NOT make it clear that cash value taken as a loan (subject to a 7+% loan interest rate) will, to the extent of contract gain, be taxed, in the year of the loan, as ORDINARY INCOME. (IRC 72(e)(4)).



- John Olsen