On Apr 24, 4:53 pm, L <lcas...@[EMAIL PROTECTED]
> wrote:
> Began reading up on Index annuities. I get mixed messages on what the
> real return are after all cost ..particaption etc. Considerning how
> crazy the market seems to be 2000 to today would be a good period for
> calulating purposes.. if it makes any difference lets assume a person
> starts in 2000 with 100K. or even better there must be others who have
> real world returns. Thanks
Index annuities are dangerous and probably require more due diligence
than other annuity product available. I'm pro-annuity, for the record,
and yet I've never sold one. The reason you're get "mixed messages" is
because the insurance companies do a terrible job (intentionally?) of
disclosing exactly how equity-index annuities (EIA) work. Finra and
the SEC technically classify EIAs as fixed annuities and therefore are
exempt from the disclosure and liscensing requirements associated with
variable annuities. I, personally, feel this is a mistake on the
regulators part.
To answer your question, you're going to need to pour through the
prospectus. Each EIA is different and the devil is in the details. On
the surface, EIAs should seem simplistic, but there are caveats
galore! Most have a minimum interest rate they will credit and a
maximum interest cap. I saw one EIA just the other day in which the
max cap rate applied monthly and the minimum interest credit was
applied annually. In a volatile market, that's a pretty sneaky way to
lower your returns [you can wipe out an entire years returns in one
bad month, but you can't gain it back in an equally positive month].
EIAs also have a participation rate. Like the name suggests, if you
have an 80% participation rate, then you earn 80% of what the index
earned (subject to the minimum floor and maximum cap discussed
earlier). As Joe said, dividends are often not credited, either.
Fees are deducted from earnings and can be both elusive and excessive.
Again, read the prospectus.
Lastly, surrender fees can be brutal. For example, the "Allianz
Masterdex 10" EIA (this is the one I had the unfortunate chance to
encounter the other day) stipulated that if you EVER surrender the
contract you receive the LESSER of your original investment compounded
at 1.5% annually or the actual contract value. Suppose $100k with an
8% net annual return over 10 years. The account would be worth about
$216k. But if you surrendered the contract, you'd only get $116k. Even
after a decade they keep $100k in surrender fees! That's incredible!
Good luck and for God's sake, CAVEAT EMPTOR!
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