Your Mid Year Check Up

We’re nearly halfway through 2018 – and the market continues to experience volatility as it digests the outcomes of last year’s tax cuts, the comeback of inflation, geo-political policy uncertainties, and the likelihood of the Fed to increase rates in 2019.

A key reason to consider an index annuity in a client’s retirement portfolio is to further diversify traditional fixed income assets.  As interest rates rise, bond prices will experience downward pressure.  An index annuity as a component in a fixed income portfolio can be used as an uncorrelated asset which participates in the upside volatility of the markets with protection from any downside losses.

In our experience, clients who have an index annuity positioned as a fixed income asset have been pleased with outcomes when compared to the performance to other fixed income peers.

The Barclays US Aggregate Bond Index, which is a broad base bond index used to represent investment grade US bonds, has returned -1.02% for the year.

When looking at the same timeframe, the trailing 1-year period, we have several indexes that standout:

  • The PIMCO index at AIG has returned 13.42% – with an annualized spread of 2.65%, a client would be on track to earn over 10%
  • The S&P 500 Risk Control Index at Great American has returned 13.24% – with a 70% participation rate, a client would have locked in a 9.27% return
  • The Janus index at Athene has returned 14.12% – with a 100% participation rate, a client would be on pace for a 14.12% return

Expecting these double digit returns every year is unrealistic.  However, it’s important to understand the earning opportunity that an index annuity can have as a growth vehicle over the long term. Your clients’ results will be based on several factors, including index performance and rates.

 

Index Insurance Co. YTD 1 Year
Barclays US Aggregate Bond Index Index Benchmark -2.07% -1.02%
Merrill Lynch Strategic Balanced Index AIG -1.46% 0.51%
Bloomberg US Dynamic Balance II Index Allianz 2.05% 9.28%
S&P US Retiree Spending Index Great American 1.07% 5.03%
S&P 500 Daily Risk Control 5% Index Lincoln 3.08% 11.44%
S&P 500 Average Daily Risk Control 10% USD Price Return Index Great American 3.09% 13.24%
BNP Paribas Multi Asset Diversified 5 Index Athene -0.86% 1.97%
Goldman Sachs Momentum Builder Multi Asset 5 Index Integrity 0.58% 7.05%
Morningstar Dividend Yield Focus Target Vol 5 TR Athene -0.70% 5.07%
Citi Flexible Allocation 6 Excess Return Index Protective -1.74% 4.72%
Janus SG Market Consensus Index Athene -3.98% 14.12%
PIMCO Global Optima Index AIG 1.74% 13.42%
S&P 500 Daily RC2 8% Athene 2.92% 14.07%

Q1 Performance Check

Since the beginning of the new year, markets have experienced some turbulence. Volatility, a variable somewhat absent in 2017, has returned to the markets at the end of January.

The S&P 500 has returned just over 2.5% year-to-date and 16.12% over the previous year.

One advantage of index annuities, is that your clients have the opportunity to participate in the upside of a bull run, but without the downside risk.

Looking at the trailing 1-year period, we have several indexes that standout:

  • The PIMCO index at AIG has returned 17.93% – with an annualized spread of 2.90%, a client would be on track to earn just over 15%
  • The S&P 500 Risk Control Index at Great American has returned 14.54% – with a 65% participation rate, a client would have locked in a 9.45% return
  • The Janus index at Athene has returned 18.06% – with a 90% participation rate, a client would be on pace for a 16.25% return

Clients who are currently allocated to these indexes have been thrilled with the performance – especially since they’re not exposed to equity market risk.

It would be grossly inappropriate for one to expect these types of returns every year. However, it’s important to understand the earning potential that an index annuity can have as a growth vehicle over the long term. Your client’s results will be based on several factors, including index performance and rates.

Would this idea resonate with one of your clients? Let us know how we can help.

Index Insurance Co YTD 1 Year
Barclays US Aggregate Bond Index Index Benchmark -1.86% 2.06%
Merrill Lynch Strategic Balanced
Index
AIG -1.73% 3.60%
Bloomberg US DynamicBalance II Index Allianz 1.22% 10.33%
S&P US Retiree Spending Index Great American -1.07% 6.16%
S&P 500 Daily Risk Control 5% Index Lincoln 2.22% 12.84%
S&P 500 Average Daily Risk Control 10% USD Price Return
Index
Great American 1.35% 14.54%
BNP Paribas Multi Asset
Diversified 5 Index
Athene -1.61% 4.13%
Goldman Sachs Momentum
Builder Multi Asset 5 Index
Integrity 0.06% 9.21%
Morningstar Dividend Yield Focus Target Vol 5 TR Athene -1.13% 4.94%
Citi Flexible Allocation
6 Excess Return Index
Protective -0.55% 9.26%
Janus SG Market Consensus
Index
Athene -2.60% 18.06%
PIMCO Global Optima Index AIG 1.19% 17.93%
S&P 500 Daily RC2 8% Athene 2.05% 16.79%

*All performance figures are gross of carrier participation or spread rate – as of 3/15/2018

Annuity Rates Continue to Climb!

Below are the top fixed annuity rates as of 2/5/18.

Don’t let your client settle for 1.5% at the bank.

 

CARRIER PRODUCT A.M. BEST
RATING
GUARANTEE
PERIOD
YEAR 1 YEARS
2+
YIELD ISSUE
AGES
Oxford Life MultiSelect 3 A- 3 years 2.40% 2.40% 2.40% 0-80
New York Life Secure Term MVA II A++ 3 years 2.30% 2.30% 2.30% 0-90
Oxford Life MultiSelect 4 A- 4 years 2.85% 2.85% 2.85% 0-80
Guarantee Income Life Guarantee 4 B+ 4 years 2.60% 2.60% 2.60% 0-100
Atlantic Coast Life Safe Haven 5 B+ 5 years 4.20% 3.20% 3.40% 0-85
Sentinel Security Life Person Choice Annuity 5 B++ 5 years 3.35% 3.35% 3.35% 0-90
Fidelity & Guarantee Platinum 5 B++ 5 years 3.25% 3.25% 3.25% 0-90
Reliance Standard Eleos MVA A+ 5 years 3.00% 3.00% 3.00% 0-85
American General American Pathway A 5 years 3.00% 3.00% 3.00% 0-70*

*Will issue to older ages for NQ funds

 

3% For 5 Years With An A+ Rated Carrier Is Here!

Below are the top fixed annuity rates as of 1/23/18. Don’t let your client settle for 1.5% at the bank.

CARRIER PRODUCT A.M. BEST
RATING
GUARANTEE
PERIOD
YEAR 1 YEARS
2+
YIELD ISSUE
AGES
New York Life Secure Term MVA II A++ 3 years 2.20% 2.20% 2.20% 0-90
Oxford Life MultiSelect 3 A- 3 years 2.15% 2.15% 2.15% 0-80
Oxford Life MultiSelect 4 A- 4 years 2.65% 2.65% 2.65% 0-80
Guaranty Income Life Guarantee 4 B+ 4 years 2.60% 2.60% 2.60% 0-100
Atlantic Coast Life Safe Haven 5 B+ 5 years 4.20% 3.20% 3.40% 0-85
Sentinel Security Life Personal Choice Annuity 5 B++ 5 years 3.35% 3.35% 3.35% 0-90
Fidelity & Guaranty Platinum 5 B++ 5 years 3.25% 3.25% 3.25% 0-90
Reliance Standard Eleos MVA A+ 5 years 3.00% 3.00% 3.00% 0-85

 

Tax Saving Sales Idea – QLACs

As the year draws close to its end, now’s an opportune time to start discussing your clients’ IRAs and RMDs that will need to be taken next year based on year-end balances.

A qualified longevity annuity contract (QLAC) can be a great way to pivot from this conversation into one that will save money for your clients and create a sale for you.

With a QLAC, clients can take 25% of their previous year’s IRA balance or $125,000 (whichever is less) and place those monies into a QLAC. Funds within a QLAC are excluded from the RMD calculation and this bucket does not have to be liquidated until age 85 – providing 14-15 years of tax savings on this portion of the IRA and added deferral past the normal 70.5 age where RMDs are required. Once at age 85, the income derived is approximately 20-25% cash flow per year off the initial deposit – and it’s guaranteed for the rest of the client’s life.

Positioning this to hedge for rising health care costs or to supplement a Long-Term Care (LTC) plan that may be in place are a few of the creative ways to earmark this income for the “no go years” of one’s retirement.