Allianz 222 vs Fully Guaranteed Income

It’s time again to talk about the most popular indexed annuity and I’ve got a case study that illustrates a pretty solid point.  Lazy agents love the Allianz 222 because it has a huge bonus that makes for an easy sales pitch.  Many people have bought it thinking it truly is free money but that’s not the case.  Those who chased it now own a product that doesn’t really work for their financial plan.  It’s getting better because I don’t see it as often but I still believe it’s sold more than it should be.

A Case Study: When the Allianz 222 Works

This case happens to be one where the 222 is perfectly suited to this couple.  They are in their early 50s and don’t plan to retire for at least ten years.  They own a non-qualified annuity that is coming surrender free soon and someone recommended they roll it into the 222 and get some retirement income guaranteed in ten years or so.  They found me and discovered a few things about the new contract that the agent didn’t disclose so they asked me for a second opinion.

Pros and Cons of the Allianz 222

One nice thing about the 222 is that it doesn’t have a fee.  The base income guarantee is very low and all potential depends on performance of the contract.  It’s a hypothetical income figure and you really won’t know how much to expect for several years.  The sticking point for these guys was the possible allocation fee the company could add down the road, which would decrease performance and decrease potential income.  At the very least they needed to see an alternative.

Setting Benchmarks and Comparing Alternatives

I talk a lot about setting benchmarks.  If you can find the highest guarantee available then you can evaluate the likelihood of the 222 meeting or exceeding the income figures.  In this case, the money is a small part of the couple’s total assets so there’s no negative implications for whichever path they choose.  They projected to have roughly $218K to roll into the new contract so I ran it through the database and North American came with the top number.  If they deferred for ten years, this company would guarantee to give them just over $27,000 per year for joint life.

Evaluating the Allianz 222’s Performance

The numbers for the 222 work a bit differently.  Like I said, the guarantee is low because there’s no fee.  If you factor in the initial purchase price along with a 35% bonus, in ten years the minimum guarantee is set at $13,250 for joint life.  This obviously assumes that there is no growth in the contract which is very unlikely because you can expect to grow some but the contract has to more than double in value to equal the North American guarantee.  It’s going to grow some but it won’t grow that much.

Assessing the Best Case Scenario

The 222 has a 6% cap rate on the S&P 500 and that’s the best index to use for projection because we have actual numbers to test the hypothetical output.  They asked me to assume the contract hits the cap every year.  The agent who was selling the contract said he couldn’t do it but I figured it was easy enough.  The income amount is increased by the index growth plus a 50% boost to that each year so it’s basically 9% compounding if it caps out every year.

I plugged the numbers in and found that in a best case scenario, the income would be over $31,000 per year.  For that to happen the S&P has to go up every year by at least 6% and Allianz can’t change the rate or add an allocation fee along the way.  There’s nearly an eighteen thousand dollar difference between the minimum guarantee and the best case outcome.  It’s all based on performance and it surprises me that people go for it, considering the widespread skepticism of indexed annuity performance.

Weighing the Risks and Alternatives

Do I have to even explain how unlikely this is to happen?  I like indexed annuities just fine but no one should rely on top line growth when there’s a guarantee that is just as strong. With too many levers for the company to pull and an overly optimistic scenario as the only way to get there, it makes more sense to take the guarantee.  In this case, the guarantee is high enough that the 222 has little to no chance of beating it.  Why take the risk?

The Allianz 222: Not Always the Best Option

I’ve told people for years that there are plenty of alternatives to the Allianz 222.  Whether for growth, income or legacy there is usually a better way to do it.  It boggles my mind that it has traditionally been the best selling annuity contract.  The fact that it’s not suitable for many people who buy it is one thing but lack of profitable outcome is a whole different story.  I won’t sell it because I’ve never considered it to be the best option.

Seek a Second Opinion and Explore Alternatives

It’s up to you when it comes to your money but I suggest a second opinion and a list of alternatives.  That’s what I do and I’m available if you need it.

Episode 84: Allianz 222 vs Fully Guaranteed Income

What You’ll Learn from This Episode:
[2:05] The Most Popular Index Annuity in the Market
[4:05] A Comparative Illustration of Alianz 222 versus a Fully Guaranteed Income Plan
[5:26] Independently Verify all Material Details
[6:12] 222’s Future Income Performance Basis
[8:10] Establish Benchmarks by Identifying the Highest Guarantee Available to Evaluate 222’s Performance
[9:30] The Allianz 222’s Guarantee is Low Due to the Absence of Fees
[12:53] It’s Crucial to Explore Other Alternatives Regardless of Your Decision

Key Quotes:
[13:35] “You are in charge of your actions and decisions.”

Last Updated on February 8, 2024 by Bryan Anderson