An explanation of annuity rates
When you shop for and compare annuities, there are several different rates you want to consider to determine what’s best for your retirement needs. Click Quote Save offers a free comparison service that automatically compares the most important rates for purchasing an annuity and matches you up to these providers. Here is a rundown of the rates that may determine how much income your annuity may provide for your retirement:
Payout rate. The annual income you receive from the annuity is called the payout rate. If you are purchasing an annuity primarily for the income potential, this is the key rate to consider in your decision.
If you purchase an immediate annuity, the payout rate is a percentage of the total amount of premium you paid upfront. For example, if you invested $100,000 in an immediate annuity with a 6 percent payout rate, you would receive $6,000 annually until you pass away. If you purchase a deferred annuity, the payout rate is a percentage of the annuity’s account value at the time you begin income. In the case of lifetime income, payout rates are computed using actuarial tables that take into account the life expectancy of the annuitant.
Accumulated rate. If you purchase a deferred annuity whereby you will delay taking income from a number of years, it’s important to know how much interest will be credited to the contract each year. This will largely depend on the type of annuity you buy.
- A fixed annuity credits a fixed rate of interest each year for a established period of time. If your buy an annuity for $100,000 that guarantees a 4 percent compounded rate of growth each year for 10 years, the contract’s account value will be $148,000 at the end of that period.
- With a variable annuity, you direct the insurance company to invest those funds in one or more subaccounts, which are mutual-fund like investments. The money in those subaccounts will increase or decrease over time, depending on their performance.
Indexed annuities earn interest based on the movement of a market index, giving them the ability to grow higher in value than fixed annuities that charge a flat rate of interest. However, you are not actually invested in the market or in any index. The insurance company simply uses the index as a measuring stick for how much to credit to your contract. Indexed annuities also have a provision whereby the contract cannot lose value based on how the corresponding index performs.
Surrender rate and free withdrawal rate. If you decide to remove some or all of your money from your annuity before its surrender period, you will likely have to pay a surrender charge. This is typically a percentage of the amount withdrawn. The percentage will decline over time. For example, your annuity may have an 8 percent surrender charge if you withdraw funds in the first year, a 7 percent charge in year 2 and a 6 percent charge in year 3.
Many annuities, however, offer a free withdrawal percentage. This provision allows you to take out a percentage of the annuity’s value without a charge. A typical free withdrawal amount is 10 percent of the account value.
Cap rate. Applicable to indexed annuities, a cap is a ceiling on interest rate growth. Because indexed annuities do not lose principal, there has to be a limit on their upside. As an indexed annuity holder, you’re essentially trading unlimited interest rate growth for the protection against negative returns.
If your annuity’s crediting strategy has a cap of 8 percent, its account value can not increase more than 8 percent in any one period, regardless of how much the benchmark index increases. If the index increases 5 percent, your account value will increase 5 percent. If the index climbs 12 percent, the account value will be limited to 8 percent.
Participation rate. This is another rate used to limit the upside growth on indexed annuities. If your annuity’s indexed strategies have a participation rate, it refers to a percentage of the growth of the overall benchmark index will be credited to your account value. For example, an annuity with a 50 percent participation rate will credit half of the index’s growth, regardless of how much it increases. So if the benchmark index increased 20 percent, the annuity would earn 10 percent.
Renewal rate. Once your annuity’s initial guarantee period expires and you’re still deferring income until a later date, the insurer will reset the interest rate that is credited to the contract.
The new rate, called a renewal rate, will somewhat depend on the performance of the insurer’s investment portfolio. If the yield on the portion of the portfolio that funded the original investment has dropped considerably because of lower rates, the company will likely lower the renewal rate. After all, the yield on the assets backing the annuity has dropped. This can happen even though short term rates may have increased. In this situation, advisers may recommend cashing out the original annuity, provided it’s beyond its surrender period, and buying a new annuity at a higher crediting rate.
Oftentimes, an annuity’s renewal rate will correspond with the prevailing interest rate at the time of renewal. That means if interest rates have risen since the time you purchased the annuity, your contract will begin earning a higher rate of interest upon renewal. The same holds true if interest rates have declined since purchase.
Roll-up rate. If you added an income rider — also known as a Guaranteed Minimum Income Rider — to your annuity, you will want to know its roll-up rate. This is the amount the rider’s value increases annually until you turn on the income stream. Roll-up rates can either be compound interest or simple interest.
Unlike the main annuity’s account value, the rider’s value is just that: a value. It is not an account you can access. You can not take free withdrawals from the income rider and you will never be able to receive a lump sum of the income rider value. An income rider’s account value is essentially the number that will determine how much income the rider will provide by using a payout percentage of that value.
Finally a free comparison of all top annuity providers in one place. We cover their annuity rates, rate of return, and ultimately how much money each company will provide you in return for your investment.
Below is a free comparison of the top rates annuity providers and their rates of returns for 2014. This in depth study should shed light on which annuities providers can provide you with the most guaranteed income in your retirement. We analyze the different annuity programs including fixed annuities, variable annuities, and hybrid annuity programs. You can easily calculate below your retirement income from our chart. Since this is from 2014 the list has changed and there are new interest rates of return for our 2015 annuity providers. By completing the short form below we will put you in contact with a local licensed annuity broker/agent who can secure a top rate for you at no charge. We offer this as a free comparison service for anyone over the age of 50 looking to potentially move their retirement funds into an annuity account in the US.
|To appeal to a wide selection of investors, the insurance industry has come up with a broad array of annuities, each of which offers different payout terms, depending on the investor’s age, when the monthly income stream is supposed to begin, whether a spouse is covered, and other factors.|
|IMMEDIATE-INCOME ANNUITIES: These contracts turn a lump sum into a lifelong guaranteed income that begins right away. Figures assume a $200,000 investment by a 60-year-old male.|
|IMMEDIATE “LIFE ONLY” ANNUITY||Company||Rating||Monthly Income for Life||Total Income by Age 85|
Pays income for life; if investor dies before principal is paid out, the insurer keeps the remaining principal.
|IMMEDIATE “10-YEAR CERTAIN” ANNUITY||Company||Rating||Monthly Income for Life||Total Income by Age 85|
If investor dies within the first 10 years of establishing the contract, heirs get paid until the end of the 7 0-year period.
|IMMEDIATE “CASH REFUND” ANNUITY||Company||Rating||Monthly Income for Life||Total Income by Age 85|
When investor dies, any remaining principal is paid out to heirs monthly
|Guardian Insurance & Amnuity||A+ +||931.57||279,471|
|PERSONAL PENSION||Company||Rating||Annual Income at Age 65||Total Income by Age 85|
Turns a lump sum into an income stream later in life. Figures assume a 55-year-old male puts in $200,000; income begins at age 65.
|New York Life||A+ +||$21,426||$428,520|
|Guardian Insurance & Annuity||A+ +||20,686||413,720|
|Mass Mutual||A+ +||20,504||410,080|
|PERSONAL PENSION||Company||Rating||Annual Income at Age 65||Total Income by Age 85|
Turns a lump sum into an income stream later in life. Figures assume a 45-year-old male puts in $200,000, income begins at age 65.
|LONGEVITY INSURANCE||Company||Rating||Annual Income at Age 80||Total Income by Age 90|
Turns a lump sum into an income stream later in life, after a deferment. Figures assume a $200,000 investment by a 60-year-old male; income starts at age 80.
|New York Life||A+ +||$72,402||$724,020|
|Annuities That Can Swing With the Markets|
|The performance of fixed index and variable annuities are based-at least in part-on how the markets perform. The fixed versions have a minimum interest rate as a safety net but do fluctuate with the markets. Variable annuities are subject to gains and losses.|
|FIXED-INDEX ANNUITY WITH INCOME GUARANTEE: This agreement guarantees a set return at minimum and a market-based return as possible upside. Assumes a $200,000 investment by a 55-year-old male; pay-out at age 65.|
|LEVEL INCOME IN RETIREMENT|
|Company||Rating||Contract Name||10-Year Fixed Interest Rate||First Year Bonus||Payout Rate||Annual Income Starting at Age 65||Total income by Age 85|
|American Equity||A-||Bonus Gold||7.0%||10%||5.0%||$21,639||$432,780|
|Midland National||A+||MNL Flex III Innovator Choice||6.75||10||5.0||21,138||422,760|
|American General||A||Power Select Plus||7.50||7||5.25||21,000||420,000|
|North American||A+||Flex Ill/Premium Plus||6.75||10||4.75||20,081||401,620|
|RISING INCOME IN RETIREMENT|
|Company||Rating||Contract Name||10-Year Fixed Interest Rate||First Year Bonus||Payout Rate||Annual Income Starting at Age 65||Total Income by Age 85|
|¹ Annual income increases depend on stock market performance; investors participate partially in the market’s upside; this scenario assumes a 2% increase per year|
|ANNUITIES DESIGNED FOR TAX-DEFERRED ASSET ACCUMULATION|
|TRADITIONAL VARIABLE ANNUITIES||Company||Contract name||Annual Contract Fee²||Number of Investment Options||5-Year Annual Return for Top U,S. Growth Funds³|
Assets grow tax-deferred in underlying mutual fund-like investments. Figures assume a $200,000 investment.
|Great-West Financial||Smart Track Variable Annuity||0.25||70||N.A.|
|Monumental Life⁵||Vanguard Variable Annuity||0.3||17||21.72|
|Allianz||Retirement Pro Variable Annuity||0.3||80||24.13|
|TIAA-CREF||Intelligent Variable Annuity||0.35⁶||55||23.73|
|Pacific Life||Pacific Odyssey||0.4||85||18.99|
|Nationwide||Destination Architect 2.0||0.4||110||27.78|
|Lincoln Financial||ChoicePlus Assurance Fee-based||0.6||88||19.81|
|Ameritas||No-Load Variable Annuity||0.6||61||18.93|
|VARIABLE ANNUITIES w/ALTERNATIVE INVESTMENTS||Company||Contract name||Annual Contract Fee²||Number of Investment Options (traditional/ alternative)||5-Year Annual Return for Top U.S. Growth Fund³|
These contracts come with both traditional and alternative investment choices.
|Jefferson National||Monument Advisor||$240.00||371 (308/63)||24.47%|
|Lincoln Financial||Investor Advantage Fee-Based||0.30%||125 (115/10)||22.77|
|Nationwide||marketFLEX Advisor||0.45||169 (122/47)||42.07|
|Symetra||True Variable Annuity||0.60||118 (106/12)||27.34|
|Guardian Life||ProStrategies||0.60||30 (21/9)||N.A.|
|FIXED ANNUITY w/GUARANTEED RATE||Company||Rate||Contract Name||Guarantee Period (years)||Guaranteed Rate|
Assets accumulate at a fixed rate for a specified period; then the rate fluctuates.
|Royal Neighbors of America||A-||Choice 5||Five||3.05%|
|Delaware Life||A-||Pinnacle MYGA 5||Five||3.00|
|Delaware Life||A-||Pinnacle MYGA 7||Seven||3.35|
|American Equity||A-||Guarantee 7||Seven||2.70|
|Delaware Life||A-||Pinnacle MYGA 10||Ten||3.65|
|Note: Data as of 6/6. ²Includes mortality and expense fees, and any administration fees; fees can vary slightly in certain states. ³ Through 5/30/14. ⁴ Drops to 0.10% on assets of $1 million or more. ⁵ln New York State, the annuity is issued by Transamenca. ⁶Drops to 0.25% when assets reach $500,000; drops to 0.10 after 10 years.|
Data above comes from Barrons website.