Guaranteed 17.42% First Year Indexed Annuity Return

Sure it’s a marketing gimmick but it’s also true, although it comes with conditions.  This strategy has been used to sell fixed indexed annuities for a long time and I’m going to give you the pros and cons.  Most sales pitches only fall apart because full details are not explained to the consumer.  Is the salesman afraid you won’t buy the product if you know everything?  If not it’s either ignorance or laziness and that’s not good either.  We’ll never get to 100% of financial transactions being optimal but I can sure try.  And let’s be honest, it happens in every corner of the financial services industry, from banking to investments.

Before we go any further I’ll state that we are talking about bonus annuities, and more specifically a true annuity bonus.  There are also income bonuses that only increase the value of income payments but do not translate to greater cash value.  Income bonuses can not be used for free withdrawals and you never get to walk away with the money.  So I don’t want to hear anyone talk about some “phantom” 50% bonus that’s getting pretty popular right now.  If you need more detail on the difference then you need to look at an episode I released almost a year ago that explains it well.  Click here to check it out… Are Bonus Annuities a Good Deal?

So, how do you get a guaranteed return of 17.42%?  Just start with a true bonus of 14% and allocate the contract to the fixed rate of 3% for the first year.  After a year of compounding it turns out to be an excellent way to start with an indexed annuity.  In all the years I’ve been working with them I know that the early years is what sets the experience.  There are a few advantages of starting this way.  I’ve said in the past that it works in some specific scenarios so I’ll explain where it works and to be fair give you the downsides as well.

First, sometimes it’s necessary to get out of an underperforming contract.  Contracts issued prior to three years ago were done so with low underlying rates.  The bonus offsets the surrender charges so the contract owner gets a boost to the cash value and higher rates going forward.  There are a few requirements common in the industry to get the new contract approved but basically it means that a clear benefit needs to be demonstrated.  I outlined that last year as well for anyone interested in upgrading an old annuity.  Check it out here… Surrendering an Annuity.

Next, some people just like the guaranteed boost that comes at the beginning of a long term contract.  The outcome of a fixed indexed annuity is not guaranteed so the bonus puts money in the account at the beginning, increasing the likelihood of a satisfactory result.  Using the fixed rate mentioned as the subject of this podcast makes it just a little bit better.  Then you don’t have to rely on the market at all for the first year.

The third situation where it comes as a plus is in terms of the death benefit.  A true bonus pays out as a death benefit immediately after the contract is issued.  Many death benefit enhancements require a multi-year payout which only reduces the present value, a lump sum will actually deliver more value.  For inheritance-minded people who like the idea of preserving cash value with some market upside, a bonus adds nice value right away.

The final situation where a true bonus is useful comes for those planning on using the contract for systematic withdrawals. One risk to doing this with an indexed annuity is in sequence of returns.  It’s not as bad as a fluctuating market asset but the bonus ensures you can start making withdrawals without invading the principal for a few years.  By then you’d surely have some positive returns in the account so this gives you a better chance at maintaining or even growing the balance over time.  Yes, the bonus will increase the free withdrawal amount and that should be factored into any plan to use an indexed annuity for necessary or discretionary spending.

Now it’s only fair that I list the downsides to it and there are two that I see.  First, nothing comes for free so indexed annuities with a bonus will have lower growth potential than an indexed annuity without a bonus.  This should average out in the long run and again the bonus guarantees the boost regardless of market performance.  Second, you will still have to own an indexed annuity for several years after so it has to be something you want for other reasons.  This may not be a bad thing because rates on bonus products are noticeably higher than those without a bonus just a few years ago.  That’s why a lot of people have swapped out in the past few years.

Bonus annuities are not for everyone but the early addition is appealing for some and really makes sense in some specific scenarios.  The best product on the market comes with 14% upfront and 21% if you want to pay a fee for a little bit more and some other benefits.  You guys should know that I don’t typically recommend the fee but the additional benefits might be something you want.  I’m going to talk about this product specifically next week because I sold it to a few people last year who finished with a good result.  For now think about the concept and get on my calendar if you want to talk about it ahead of time.  I’d be happy to run some numbers for you.

Have a great weekend…

Bryan

Last Updated on August 27, 2025 by Bryan Anderson