Guaranteed High Interest Growth is available today through Lifetime Income Roll Up Riders on Fixed Index Annuities. We spent the last several posts talking about the opportunity in fixed index annuities today to capture some of the upside of the stock market without participating in the downside of the market (which you can read starting here.)
Today, we’ll talk about the product addition over the last decade that has gotten us excited again about these products. It’s not right for everyone, but for a lot of people, it hard to imagine not having this in your asset mix.
These products offer roll up interest rate for lifetime income that is substantially above market rates. So they might offer you 6%, 7%, 8%, 9%, or 10% for a period of time. The most typical time period is 10 years although sometimes it’s 8 years or 20 years. So for instance, you might find yourself deciding between offerings that offer to guarantee you…
6.25% for 20 years,
8% for 12 years, or
10% for 8 years.
These are just examples. Don’t get too hung up on the numbers because company offerings change all the time, but once you buy a product, you lock in the guarantee for that set amount of time.
At any point during or after that time (with typically a one year waiting period), you can elect to start receiving income for life either based on one life or the lives of a couple. The payments would last until that person (or both spouses of a couple) die. This will last as long as one of them lives even if that is till age 120!
Another great thing about this rider is that unlike an Immediate Annuity, if the person or couple dies early and there is still principal left, that money will go to the heir(s) rather than being lost.
With these high interest rates, it’s possible to more than double your asset base within a set number of years and then receive income for life based on that much higher number.
Not for Everyone
As said above, this is not for everyone. If you’re 20, it would not make any sense to buy this product. If the guarantee only lasts 10 or 20 years, then that needs to be around the time period that you would want to begin receiving lifetime income. You don’t have to start taking it on that date, but the longer you wait past that period, the less powerful the guaranteed growth was because it does not keep growing at that guaranteed rate.
This growth of the income base is completely separate from what the Index accounts are actually doing. Those accounts could theoretically grow more than the guarantee over that period of time and then you wouldn’t need the guarantee. However, with interest rates and thus caps as low as they are today, it’s not possible for many products to outperform the guaranteed income roll ups today. Although, it certainly could be possible over a 10 year period if interest rates increase.
We would not put all of our money in this type of product, however, depending on your situation; this could be a powerful workhorse for you for a part of your capital. It makes a powerful component to any plan where you know you’re going to need lifetime income with some of your assets. It’s hard to see why most people in their 60’s and 70’s wouldn’t want to own a product like this with some of their money.
This type of product can also be great for someone who wants to immediately start receiving lifetime income. We’ve seen calculations with certain products that outperformed immediate annuities without the large tradeoff of saying good bye to your capital that an immediate annuity requires. This type of buyer would typically select a different annuity product than one that was trying to maximize lifetime income starting several years out because he would be more concerned with a large upfront bonus and the payout percentages of today.
Again, you want to look at the particulars of what the annuity (ies) that you are considering offer, but you can see that this type of feature can be a powerful addition to your plan.
This is the 10th post in our series of innovative new insurance products. You can find the previous posts at: 1) Innovative Insurance, 2) Long Term Care, 3) Long Term Care Solutions, 4) Free Long Term Care Insurance, 5) What is an Annuity?, 6) Immediate Annuities, & 7) Fixed & Variable Annuities, 8) Fixed Index Annuities, 9) FIA History & Promises, 10) High Guaranteed Interest, 11) Fixed Index Life Insurance, & 12) Tax Free Growth.