35% Annuity Bonus
Dozens of people have called or emailed in the past few weeks regarding an annuity that raised the initial bonus to 35%. My first comment is to remind everyone that insurance companies don’t become strong financial institutions by giving money away. Clearly that size of bonus indicates there is some fine print in the contract. I’m not going to mention the company or product by name but many of you know which it is.
This giant bonus has given the sales army a pretty flashy initial pickup line. This bonus in particular has been raised a few times in the past year or so. Each time the army starts making phone calls and reserving banquet halls or restaurants. At some point, the bonus will be reduced and whole new pressure will come around in an attempt to convince you that you are about to miss out on this great deal.
Rates on all products have come up in the past couple of months. There are several good deals because of it but nothing that comes even close to free money. It’s the fine print that goes along with the bonuses that deserves your focus. When a bonus is involved it means that something has been subtracted from another part of the contract. There are also several restrictions in most cases so it just doesn’t work for a lot of people.
A true bonus is an initial boost to the cash value of an annuity. There are a few of them out there but I’ve told people to stay away from them in the past. A boost up front means the ongoing rates and growth potential will be lower. All contracts disclose that if you read deeper into the sales brochure. When large bonuses are involved it never translates to a boost in cash value. It just gives the insurance company a higher amount to calculate lifetime income or pay a death benefit.
It looks good on the surface but doesn’t really do anything besides entice your signature. Many times when the bonus is increased, the payout rates will drop so the result for you is no different than before. It isn’t always the case but it’s something that should be verified. A lot of people have a hard time grasping this so I’m going to run through it in simple terms.
If you put $100,000 into this annuity and you get a 35% bonus, you still only have $100,000.
The bonus is paid to the income value which would make it $135,000. It’s not extra money, just a bigger figure to calculate lifetime income.
Let’s assume the company makes you wait a number of years before you can exercise the bonus. It’s only for income, right? To make it simple let’s also assume that nothing has changed. Of course the contract would have grown some but we don’t need a complicated calculation.
The point in time when you can take income happens to be at the same time the contract is surrender free. You can either take your money and walk away, or activate guaranteed income for life. If you take your money and leave, you’ll walk with $100,000.
If you activate lifetime income, the amount will be calculated using a payout factor that depends on your age, the older you are the higher the payout, and the $135,000 income value. It’s not free money, only a factor.
If your payout rate is 5%, then you’ll get $6,750 annually for the rest of your life. This is considered to be the guaranteed minimum payout. Anything more is just a projection.
This may work for you but it does not work for everyone. There’s a bonus that boosts your income amount but you have to wait a while to get it. I have dozens upon dozens of stories from people who thought otherwise and it’s kind of frustrating.
Other contract benefits are available that make this contract seems like an annuity that can do everything. I’d like to remind everyone of something I’ve been saying for years. With an annuity that offers several benefits, you are most likely only going to receive one of them. It is not possible to get substantial growth, maximum guaranteed lifetime income and a significant death benefit all from one product.
The purpose of the contract in question is maximum guaranteed lifetime income after a certain period of years. If can’t leave the money alone for the required term then you will defeat the purpose of the contract. It’s not efficient or optimal for any other solution.
I’ve had close to a dozen brokers call to tell me I have to start selling the 35% bonus. Don’t forget that they make money too. So they dangle the bait in front of my face just like they do yours. When an unrelated third party takes a big part in making recommendations for your retirement plan there is a significant conflict of interest. Sales targets become more important than suitable recommendations.
The reason there is so much information on this website is because I had to do the research to figure it out. Otherwise I’d have to take someone’s word for it. I don’t like doing it that way and neither should you. My goal is to make money but never at the expense of anyone who asks me for help. When you see a banner ad for something that seems to good to be true, you need to start asking questions. I’ll do my best to make sure you can find the answers here.
The flashy banner ad is not the whole truth. The devil is in the details…
Podcast about 35% Annuity Bonus
What You’ll Learn From This Episode:
[2:50] Insurance companies didn’t become stable by giving away money.
[4:03] Many people sell annuities but they are too lazy to find something else, so they don’t know what’s in store for them.
[6:16] There’s a gap between what the sales agent says and what the company agent states.
[9:46] If you activate lifetime income, the amount will be calculated using a payout factor that depends on your age.
[10:25] What is the guaranteed minimum payout?
[11:05] It is a bonus that boosts your income, but you have to wait to get it.
[11:15] If you pull money out before the waiting period is over, if you take a free withdrawal, then you can take a free withdrawal.
[13:05] Bonus is available as a death benefit if paid over five years.
[15:29] Get the highest growth rate you can and the highest potential on your money if you want to protect it.
Key Quotes:
[4:39] “Many people sell annuities as if it is one size fits all.”
[5:28] “There’s nothing out there that is free money. There’s a fine print that everything goes along with bonuses, and you have to focus on that to wrap your mind around what the contract does.”
Last Updated on February 8, 2024 by Bryan Anderson
Thank you for the info. It’s nice refreshing to know that not everyone is a “shark”! Thanks again for the insight you provide. 🙂
Thank you for your professionalism, time and insight on this topic.
The part that I do not understand is when you say that at the time when the contract surrender without penalty the options are;
(a) walk away with the $100K
(b) elect for a lifetime income payout of a $135K
$100K ?!?!?! after 7 or 10 years. Could you elaborate on this.
Truly appreciated
Re Edwin J Cruz,
I think he just forgot to add the interests gained in these years to his math. So options would be:
(a) walk away with the $100K + interests earned
(b) elect for a lifetime income payout of a $135K + interests earned
You missed the point. I clearly mentioned that the annuity would grow but I left out earnings to make the math simple. Regardless, you are not guaranteed an income payout of $135K plus interest earned, you are only guaranteed to get your initial principal back. Bonus and earnings are gravy and are NOT guaranteed, just an additional calculation used for lifetime income. If you think you know more than me then go ahead and start your own website. Or, I’d be happy to debate you on my podcast. Take your pick and contact me if you’d like to go with the second option.
Bryan – for what it’s worth, I didn’t interpret Edwin J Cruz’s comments as something warranting a challenge to either a debate or to start another website.
I just signed paperwork today – but provided no money – on such an account.
What you are saying makes me consider backing out of it.
…and I might well have posted the same thing.
Not as a challenge, but please help me understand this.
So, nothing but your initial principle is guaranteed. Is that correct?
This is even if it is tracking S&P 500.
Yes Martin, the initial principal is guaranteed and nothing more. If you walk away after the surrender term you get principal plus interest. The bonus is only used to calculate guaranteed lifetime income after ten years or it can be used as a five pay death benefit. The contract works best if you put the money in and don’t touch it at all for at least ten years. Because it has no fee, some people use it for accumulation and consider the income benefit a back stop if needed but if that’s the intention then it’s better to go with an annuity purely meant for accumulation because you’ll actually make more money. The growth factor on the 222 is intentionally much lower than the market because of the bonus so if you don’t use the income feature then you would have left a lot of money on the table.
There was an additional comment that was a challenge to my intellect but it has apparently been deleted by the writer. If that makes me look bad now then so be it. I’m a pretty nice guy but not everyone likes me.