After analyzing the most popular fixed index annuity last week the most common request I received was for a comparison to products I would recommend. So rather than just asking you to take my word for it I’m going to show you why the Allianz 222 is not as good as it seems. In comparison to a couple contracts without crazy restrictions it just doesn’t really yield all that well.
One of my new clients came to me after purchasing the Allianz 222 earlier this summer. She is retired early at age 52 and happens to be appropriately suited for the contract’s purpose, as she can’t touch her qualified retirement funds until age 60 anyway. Even still, projections for the contract are weak and the only strong point is the bonus.
She was gracious enough to show me her contract so I can see how the index options are allocated and will share that with you. Since she bought it from a guy who claims to be Allianz’s top salesman then I’m assuming the allocations are standard recommendations.
I’m looking back five years to see how a contract with terms from today would have performed since 2013. Yes, all contracts I will reference are longer in term than five years but the past five years had a lot of market activity that will test the validity of an index annuity. You’ll see why by the screenshot below that show how the S&P 500 performed since this time in 2013.
This shows relatively moderate growth from 2013 thru 2016 with a pretty bumpy ride along the way and a steep rise up to 2018 with some volatility at the top that we all recognize from recent events.
For this post I’m going to explain the numbers that I calculated based on quotes from each insurance company. The growth comparison is clear and supports my claims from last week. First, let’s look at how each contract was allocated with the index options available.
The Allianz 222 was allocated as follows:
- 25% S&P 500 Monthly Sum with 1.5% monthly cap
- 25% Nasdaq 100 Annual Point to Point with 3.25% annual cap
- 25%Bloomberg US Dynamic Balance Index II with 3.2% annual spread
- 25% PIMCO Tactical Balance Index with 3.1% annual spread
Two Comparison Contracts
Great American Life Legend 7:
- 25% S&P 500 Monthly Sum with 2.5% monthly cap
- 25% S&P 500 Annual Point to Point with 6.4% annual cap
- 25% S&P 500 Risk Control 10% with 70% participation rate
- 25% S&P Retiree Spending with 75% participation rate
Midland National RetireVantage 10:
- 20% S&P 500 Daily Average with 1% spread
- 20% DJIA Daily Average with 1.55% spread
- 20% S&P 500 Monthly Sum with 2.35% monthly cap
- 20% S&P 500 Monthly Average with 80% participation rate
- 20% DJIA Monthly Average with 75% participation rate
Okay, the numbers I am going to show you below come directly from each carrier. These yields show the period from Jan. 1st, 2013 thru Dec. 31, 2017 because that is how the insurance companies present the numbers. Different periods will produce different yields and each contract will change depending on what time period is being analyzed. I took annual yields for each of the chosen indices and equally weighted them in the blended annual yield column. Account value growth is in the far-right column and the ending account value is in bold on the last row. This is how each contract would have performed over an identical five-year term.
|S&P 500 Monthly Sum||Nasdaq 100 Monthly Sum||Bloomberg with Spread||PIMCO with Spread||Blended Yield||Account Value|
Five year effective yield: 3.746%
Midland National RetireVantage
|S&P 500 Daily Average||DJIA Daily Average||S&P 500 Monthly Sum||S&P 500 Monthly Average||DJIA Monthly Average||Blended Yield||Account Value|
Five year effective yield: 5.679%
Great American Legend 7
|S&P 500 Monthly Sum||S&P 500 Annual PTP||S&P 500 Risk Control||S&P Retiree Spending||Blended Yield||Account Value|
Five year effective yield: 6.503%
From an account value perspective the Midland and Great American contracts substantially outpace growth over a five year period. For those of you who may get defensive and suggest that Allianz would do better with a different allocation I will say that each of the others could be allocated differently to produce more as well. I didn’t cherry-pick data and could change any of the above to create better or worse returns.
So I’ll ask you, what is better? $300K, $329K or $342K? Over a five year period the differences are fairly dramatic. After ten years it’s going to be an even bigger gap. The Protected Income Value of the Allianz 222 would be higher but with the greater cash value of either of the alternatives you could buy more income than you’d get from the 222, and the important thing is you have the choice by going with an alternative. I meet a lot of people that don’t necessarily need the income and even more still that might need it but not exactly in ten years.
Another frequent comment I received last week was in regards to the death benefit of the Allianz 222 which pays out the entire Protected Income Value out in five annual installments. I did intentionally leave that out as it is irrelevant when you calculate the actual return. Most agents are not inquisitive enough to look into it and just rely on the beneficiaries not knowing any better. The death benefit is just window dressing and the 222 is not the only contract that pays the income value out as a death benefit over five years.
So, many of you asked for a recommendation and there it is. I have to be competitive so I had to find contracts that would grow best and with growth you can beat any bonus or income guarantee available. When you add an asset management strategy that shows you how to use it then it gets even better.
Many advisors will tell you otherwise but none can do the analysis to prove it. If you have any questions or would like more detail on any of the above points please call or make an appointment and we can talk about it.
Have a great weekend!