A hybrid annuity offers the potential for market based appreciation, protection from market volatility, and the benefits of lifetime income, all in one product. Hybrids also offer liquidity for emergencies, and accelerated payouts for home health care issues.
An Index Annuity with Guaranteed Lifetime Income Rider, or ‘hybrid annuity’, is invested conservatively. Earnings from the annuity are invested by the issuing Insurance Company in a way that credits you a portion of the gains in a market index, such as the S+P 500 or the Dow Jones. These gains can increase your account value, but losses in the market do NOT affect your account.
You have no volatility and no risk of loss to your money in an index annuity.
Lifetime Income Without Annuitization
Hybrid annuities also offer lifetime payout options, without ‘annuitizing’ your assets and forfeiting your money. To calculate the lifetime income amount, the Insurance Company grows an ‘income account’ every year that you leave your money invested. The longer you leave your money invested, the larger this income account grows.
When you decide to start taking lifetime income, the company uses a ‘payout rate’ to calculate your lifetime income. For example, if you started with $100,000, and your income account rolled up at 7% per year for 10 years, your income base would have grown from 100,000 to roughly 200,000 in that time. The payout rate depends on your age when you start income, but lets assume it’s a 6% payout. Rollup Rates and Payout Rates vary with each carrier.
When you decide to start the lifetime income, you receive 6% of the 200,000, or $12,000 per year, for life. Of course, this income can be a joint payout too for you and a spouse. Even if your actual account value drops to $0, the lifetime income continues.
One of the many benefits is that if you die after only a few years of income, your heirs will get whatever is in your account value. This is a huge advantage over other kinds of annuities.
A few other perks of these contracts include: provisions to increase your income if you have a Long Term Care or disability issue, enhanced death benefits for your heirs, and provisions to allow withdrawals of a portion of your money each year for liquidity needs. Some also offer a signup ‘Bonus’ credit to your Income Account when you open a new account.
One of the best aspects of hybrid index annuity contracts is that they come with very low fees. The lifetime income rider is typically just 1% of the account per year. And while there are no other fees, you may be subject to surrender schedules just as you would have with a CD. Overall, the low fees are a major advantage over expensive Variable Annuities.
Hybrid Annuity Benefits Summary
In sum, Hybrid Annuities offer potential appreciation, zero volatility, lifetime income, together with liquidity options and long term care benefits. They are a great option for investors seeking safety, security, income, and flexibility in retirement.
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