Registered Index Linked Annuities (RILAs)
Registered Index Linked Annuities are an alternate type of annuity product that has been around for several years. People ask about it from time to time and I should have cleared this up a long time ago. There is nothing wrong with the product but I don’t like them. It’s more accurate to say that they don’t suit my style of planning but it is an available option that some might want to consider. I’ll explain the issues I have and let you be the judge.
An advisor has to be securities registered to sell these, just the same as a variable annuity. I have been registered in the past but I’m not now and don’t want the headache dealing with the added compliance requirements. Investment advisors are the guys who sell these and it typically goes along with managed money as well. I brought up this recommendation for a client a few weeks ago and that’s a real rub for me.
Registered Index Linked Annuities (RILAs) are very similar to fixed indexed annuities except for the fact that you can lose money. RILAs will offer a buffer, or in other words the insurance company will absorb a certain level of losses. The account only drops if the market decreases more than the buffer amount protects. Because you take some risk with this product you have much more growth potential. Depending on the period of years that are illustrated it can show a pretty impressive projection.
I’ve looked at several of these over the years and will share one specifically in the podcast to show you more how the potential looks. In no way am I saying this is the best one but it comes from a great company and is exactly what was proposed to the people who asked me about it a few weeks ago. Whether it’s the best doesn’t matter but someone certainly thinks it is. I’ll highlight a few of the material points below.
- Buffers available from 10% to 20% depending on the index and crediting period chosen. Remember, that’s the amount of initial loss the insurance company will absorb.
- Crediting periods ranging from one to six years. That’s correct, if chosen, one option will make you wait six years to receive a positive credit.
- Any withdrawals during the crediting period will have interest calculated on the date of withdrawal. Some fixed indexed annuities do this too but it could be a negative credit with a RILA.
- Several of the highest potential index options have a fee of 1.25% annually increasing the likelihood of experiencing a loss.
- Also includes no loss index options just like an FIA but the rates are no higher.
The bottom line is that you might be paying fees and you can lose money. Is that worth the potential tradeoff for higher yields? You have to make that choice but I don’t think it gives any real advantage to a well balanced portfolio. And it certainly can’t be considered perfectly safe so I don’t think it’s the optimal asset to actually balance a portfolio. The securities side most likely has fees and you can definitely lose money. Why would you want the same thing on the safe side of your portfolio?
I’ve run a lot of numbers in the past and a good fixed indexed annuity balanced with securities in a portfolio will at worst run neck and neck with a RILA instead. But the FIA reduces fees in total and you won’t lose any money on the safe side of a portfolio. If you are really conservative then just use a MYGA for the guaranteed return. By all means use a RILA if you understand the terms but a competent advisor will give you options that offer more security. The final choice is up to you so get in touch if you want a true look at everything available.
Have a great weekend…
Bryan
Watch Podcast Episode 168: Registered Index Linked Annuities
Download Episode 168: Registered Index Linked Annuities On Apple Podcast
Last Updated on February 7, 2025 by Bryan Anderson
