An Independent Review of the Security Benefit Secure Income Annuity (SIA)

Friday, January 20, 2012 | 58 Comments

Warning: This is a long post about annuities and contains a very detailed 50-minute video as well. If you have zero interest in annuities, how they work, or if they make sense at all then this post isn’t for you. But if you’ve been pitched an annuity by an advisor or agent and want a 100% independent, objective review – then you’re in the right place.

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Why this Annuity Review Will Help You

I often get a lot of annuity questions from blog readers and clients. I think the main reasons annuities have become such a hot topic as of late, are the following:

  1. Over the past 10 years we’ve had a lot of volatility in the stock market, and (rightfully so) shaken a lot of investors confidence in investments like stocks and funds
  2. We have a massive wave of baby boomers retiring or nearing retirement that want to protect their portfolio during retirement years
  3. Since one of the primary benefits of annuities is their protection of principal and guaranteed lifetime income – due to items (1) and (2) selling annuities is now much easier than it was during the great stock market run of the 80′s and 90′s

In the past few years annuities have evolved significantly. They now have major focus on income riders, home healthcare income enhancements, and so many ways to credit interest it will make your head spin. There’s even “hybrid annuities” which combine various features of other annuities. Sadly, there’s a lot of misinformation about how they really work.

Investors doing research on these new breed annuities (index annuities, fixed index annuities or equity index annuities, and hybrid annuities in particular) is becoming increasingly difficult. When using Google to do research for example, you often get search results that point directly to the sellers of them. Some of these sites are really just very well crafted sales sites without truly independent and helpful research.

This annuity review is just the opposite. It is 100% independent, breaks down the good and bad, and uses fully disclosed research. The purpose is to help those thinking of purchasing this (or similar) annuities make a well informed decision.

What’s Covered in This Review

In this review I’ll be covering the following information on the Security Benefit Secure Income Annuity:

  • Product type
  • Fees
  • Current rates
  • Realistic long term investment expectations
  • How it is best used
  • How it is most poorly used

What you’ll find is that like all annuities, the Secure Income Annuity does some things really well. However, there are things some agents might say about its performance that is not entirely clear. It’s important you understand the differences, so you can determine if it really is a good fit as part of your financial plan.

For readers who have found my website for the first time and don’t know much about me, I am a fee only financial planner. I don’t get paid to sell annuities nor do I personally sell annuities. Unlike other fee only planners though, I do think annuities can be a smart part of a comprehensive financial plan when used correctly. Since my compensation is not tied to their sale, I really have no incentive for or against them. I try to make my view of annuities as impartial and objective as possible.

Before I dig into today’s review let me clear the air with a little legal disclosure:

This is a review, not a recommendation to buy or sell an annuity. Security Benefit Life has not endorsed this review in any way nor do I receive any compensation for this review. This review is meant to be an independent review at the request of blog readers so they could see my perspective when breaking down the positives and negatives of this particular model annuity. Before purchasing any investment or insurance product be sure to do your own due diligence and consult a properly licensed professional should you have specific questions as they relate to your individual circumstances. All names, marks, and materials used for this review are property of their respective owners.

The Security Benefit Secure Income Annuity with Guaranteed Living Withdraw Benefit (GLWB)

Today I’m going to break down an annuity called the Security Benefit Secure Income Annuity. It’s issued by Security Benefit Life Insurance Corporation and is being sold all over the country. A popular way people are being introduced to this annuity is via Free Dinner Seminars – where agents/advisors invite people in their community generally ages 50 to 80 to a local restaurant for some free financial education and a free dinner.  Once the dinner is done they invite the attendees to visit for a free consultation/review of sorts, and among other product recommendations the Secure Income Annuity might be proposed as a potential solution for their retirement income needs.

I’ve done plenty of seminars over the years and feel they are a great way to educate/help people. I have observed though, that in recent years, more and more of the advisors doing seminars have become quite focused on annuities. Annuities aren’t for everyone, and given the commission incentive to sell annuities makes the “educational content” of many seminars slightly less reliable. There are plenty of great agents/advisors out there that only make suitable recommendations, but there are also some that aren’t always focused on their clients best interest.

There are also a lot of websites popping up advertising either education on annuities, or just flat out promising things like “8% Annuities” that are also responsible for introducing many people to the Secure Income Annuity.

Before I get into the review I want to make a few things clear:

  • I have nothing against Security Benefit Life or the Secure Income Annuity
  • After reviewing quite a few annuities on the market I do think this is actually one of the best if used for the right circumstances
  • I think some investors have no idea how the Secure Income Annuity, or most annuities for that matter, really work

By doing this review I should be able to help potential investors better understand the real pros and cons of this particular annuity. So let’s dig in.

Security Benefit Life’s Secure Income Annuity

Product NameSecurity Income Annuity
Type of ProductFixed Index Annuity
IssuerSecurity Benefit Life Insurance Company
Standard & Poor's Rating"A-" (Strong)
Phone Number800-888-2461
Websitewww.securitybenefit.com

According to the Security Benefit website this annuity is described as “a sensible part of your income plan for retirement.” Its key features are described as:

  • Optional Guaranteed Lifetime Income via its Guaranteed Lifetime Withdrawal Benefit (GLWB)
  • Flexible Interest Options – it can earn interest based on gains in the S&P 500 (without dividends)
  • Can never lose money, even if the S&P 500 index goes down in value
  • 8% bonus – so if you invest $100,000 right out of the gates your annuity value is worth $108,000 (subject to surrender penalties and bonus recapture charges)
  • Tax-deferred growth – if purchased in a taxable account (non retirement account) the growth grows free of tax and is only taxed upon withdrawal (gains are taxable, not your original principal)
  • Home Healthcare Double – if you use the GLWB (see bullet one above) and you cannot perform 2 of 6 basic activities of daily living your income can double for up to five years (cannot be exercised in the first 2 years)

This is from their brochure and not tax or legal advice. I’m just reporting here, so you need to review the full contract for all the details.

Legal disclosures aside, it obviously has a lot of nice points in the sales material.

But those who know me well, also know that I’m a bit of a math junkie. So I wanted to really peel back the layers on this and get a better idea of just how it works and what an investor might really expect from it. Rather than typing all this out – I thought it would be a lot easier to just show you a in-depth video of how I did the analysis on the annuity.

Warning: Extreme Annuity Geekery Ahead and a 50 Minute Video (I know that’s long, even for me!)

In my opinion, some agents/advisors don’t fully explain how this product really works.  Given my fondness for math and Microsoft Excel, I took the liberty to run a number of long term tests on this annuity to help people see clearly how it really works and how earnings are calculated. Check this out if you really want to make sure you know how annuities (specifically the Secure Income Annuity) work:

My end take on the Secure Income Annuity

Where it works best:

  • For producing a reliable, “pension like” guaranteed income stream
  • For producing an income for life that cannot be outlived by a surviving spouse
  • For investors who have a family history of life longevity
  • For producing additional income for home healthcare needs (subject to state approvals and annuity holder qualification)

Where it works worst:

  • For those that do not plan on using the income for life benefit
  • For those seeking maximum long term growth
  • For those expecting real returns of greater than 5% per year on average

The Secure Income Annuity does best what its name implies – generate a secure income for retirement. The longer you (or your co-covered person) live, the greater the benefit of this annuity. However, it’s important investors understand that the “roll-up rate” is not the actual return, nor is the “lifetime withdraw rate” the actual return. It is sometimes explained in a way that implies these rates are the actual returns, which is not the case.

For someone strictly looking for guaranteed income with no market risk, and is willing to have long term returns in the 3% to 5% range, this is actually one of the leading fixed index annuities on the market for that purpose. I’m still not sure all agents know what the real returns are though, and some might significantly overpromise what’s realistic – so be especially wary of anyone who suggests this annuity will work better than how I illustrated it here. If the agents are being upfront and honest, you’ll notice their explanations match very closely (if not exactly) as described in this review. When that happens, you have an agent you can trust.

As a recap to the video (for those that don’t have 50 minutes to watch it) the Secure Income Annuity will not actually guarantee 7% or 8%.  Nor will it likely return better than 5%. When financial advisors use those numbers they are referring to percentages used to calculate the income guarantee. But since it will take quite a few years of this “income” to return your initial investment most investors are likely to get return more in the 3% to 5% range. More or less return is possible, I just think this is a realistic expectation.

There are exceptions to the rules though, so be sure to analyze the annuity for your unique situation to determine what your realistic returns might be. Better yet, just get in touch with me and I’ll use the calculator from the video to illustrate for you what they are likely to be. If your agent was honest with you the numbers will match up – if not, well then you might want to reconsider who your agent is.

Have Questions on the Security Benefit Secure Income Annuity?

If you have questions please let me know. [You can reach me via my contact form here] I know annuities can be confusing and a lot of financial advisors/agents have been recommending them for retirement the past few years. But, you need to know the real facts to make sure if you go that route you don’t end up regretting it later. After all, annuities are long term commitments with contracts, surrender penalties, etc. For some people they won’t make sense at all, but for some they might be a really great fit.

If you know anyone who has an annuity or is thinking of buying one, please share this post with them. I know a lot of people are getting very conflicting information and my goal in writing this review and making the video was to educate in an objective way. If you have a Facebook account you can click on the little “Facebook” icon and share this article. That way more people will be able to find it and hopefully more people will benefit.

Thanks for bearing with me on this rather long post, I hope you found it beneficial in your research on the Security Benefit Secure Income Annuity.

Best,

Jason Wenk

In Index annuities Investor Alert Investor Education | | |

58 Comments to An Independent Review of the Security Benefit Secure Income Annuity (SIA)

  • Stuart Crabtree

    Thanks Jason! You are 100% correct. I had 2 agents try to sell me this and both insisted the returns were going to be 8%! I wasn’t born yesterday and knew it was too good to be true!

  • jerry donnelly

    Hi – I listened to the whole 50 min. and wish I had known some of this before I met Joe Fabian. — I’ve been trying to find out what happened to his sentencing that was supposed to take place Dec. 19, 2011. I’ve tried to find federal court records or any newspaper reference to this but can’t find anything. Maybe some of your friends in the business know what became of him.
    Keep up your informative blogs and if any of my friends or relatives ever have enough money to meet your $1,000,000 minimum portfolio I’ll be sure to recommend your services.

    Good luck and good health for you and your family in 2012

    • admin

      Thanks Jerry – best wishes to you and yours in 2012 as well. I’m not sure what happened to Mr. Fabian either but will let you know if I hear anything. Best – Jason

  • Tim Dawes

    Jason I found your review of the Security Benefit Income Annuity very thorough and helpful. I am in the process of deciding about purchasing one. The agent that I am working with has been helpful, not high pressured but not being a finance person the number crunching can get pretty confusing to me. I found your video review extremely helpful and am watching it several times over.
    Thanks again,
    Tim

    • Jason

      Hi Tim,

      You’re very welcome and thank you for the feedback. Good to hear you’re working with a good agent – hopefully my analysis here clears up anything they don’t fully explain. Feel free to reach out directly with the “contact” page if you need any specific numbers crunched :).

  • Mike

    Thanks Jason. You not only provided the unbiased analysis and assessment I sought, but I think your effort realized your personal
    mission of “making a difference in the world”. As I’m sure you’re aware, 10,000 of us boomers are retiring a day and as we’re living longer, we need guidance to face the challenges of not outliving our money. Your explanation provided a far greater comprehension of the contracts consideration than recieved from the finacial advisors meeting. Also, given my level of interest and the ease of comprehending your presentation, the 50 minutes wasn’t long at all.
    You have performed a great service and I wish you and yours all the best for your generous gesture. I found you simply by googling
    assessment of Security Benefit Income Annuity.

    • Jason

      Hi Mike,

      THANK YOU!!! for the great feedback. Comments like this really help validate my work and motivate me to continue plugging away with independent research that helps investors. You are correct, I am aware how many boomers are retiring. That’s one of the main reasons so many financial folks are suggesting hybrid annuities like Security Benefit, and also why I think there needs to be more transparency in how they really work.

      Thanks again and best of luck to you and yours.

      Jason

  • KellyB

    Hi Jason … I was wondering if you have any info on American Equity Investment Insurance Company’s “Bonus Gold” account. It is a fixed (hybrid) annuity with a bonus here in California of 10% and a 6.5% growth rate guarantee.

    • Jason

      Hi Kelly,

      Sorry, but I don’t have that review done just yet. I will, however, be posting a whole new set of reviews shortly including American Equity Bonus Gold. I’ll keep all blog readers posted on when that is live.

      Best,

      Jason

  • Ofelia

    Jason,I am deciding whether to get out of anING variable annuity with a death benefit of 1.5 million(IRA) and accumulation value of 1.175 million.Initial investment of 1.1 mill. Which has been ther for 7.5 years.The charge was approximately 3.5 percent! Per year. Should I close this and go to a fixed index Security Benefit with a bonus of 5 percent? And. A cap of 2 percent? I am 74 years old female? Ofelia

    • Jason

      Hello Ofelia,

      Thanks for finding my blog and reaching out.

      This sounds like a situation where talking to a professional advisor would be very helpful. Generally it is very unwise to surrender an existing annuity with an accrued death benefit of $325,000 (the difference between surrender value and death benefit), especially when you are 74 years old. That said, every situation is unique so better understanding your unique circumstances would be necessary before giving any specific suggestions.

      For those that are faced with a similar situation as this – where an agent is suggesting surrendering one annuity to buy another – always be careful. While many agents are very good and mean well, there are plenty that look at the $70,000+ commission they would earn on this transaction and put their interests before yours. That’s not good.

      Best of luck and hopefully you’ll get some personalized guidance on this soon.

      Jason

  • Scott Walker

    Interested if you will be doing anyting on the new Security Benefit Life product call the Total Value. You do a great job on explaining them and this one is getting some buzz. Thanks

    • Jason

      Hi Scott,

      Thanks for visting my blog and your comment.

      Yes, I have a full review on the Security Benefit Total Value Annuity. A lot of agents have been proposing that lately but based on my analysis it has quite a few shortcomings. When I publish the full review you’ll see what I mean. Hopefully I’ll have that online in the next couple of weeks.

      Thanks again and Happy New Year!

      Jason

  • Chris

    So basically the highest probability scenario is that an investor maybe gets their money back. For a better outcome, there needs to be either 1) significant and steady upward monthly growth (as opposed to”growth” in 2009 with negative months) or 2) person outlives the actuarial life expectancy. A 65 yr old male with a 17 yr life expectancy according to the gov’t starts immediate income and receives $5400/yr for 17yrs = $91,800. 50% of the males get less than $92k, 50% get more. Similar in the deferred income scenario… a 65yr old male who waits until age 70 to take $8,728 annual payments has a 13yr life expectancy or $113,464. Seems like a great deal of opportunity cost. Also, do your spreadsheets take into account the .95% rider fee is assessed against the higher income benefits base and deducted from the lower cash value? If not, how would the cash value hold up with that fee structure. Third, what if someone defers until the end of their surrender period. Can they walk away with their initial investment plus 1-3% return per year liquid or take the income benefit available at that time?

    • Jason

      Hi Chris,

      I think the most likely scenario is a modest return of 1-3% per year, though it is possible to earn nothing (just not real likely). As you point out, much of the real return depends on how long the annuity holder lives. If they pass prematurely the annuity doesn’t work out very well at all. If they live 10 years beyond typical life expectancy it actually works out reasonably well.

      There is absolutely opportunity cost, but depending on an investors objective it might be worth it. Some people would much prefer to have certainty of return even if it means that return could be very little.

      About my spreadsheet – yes, it does take into account the 0.95% rider fee. However, that fee is only applicable to the “growth/real account value” and is does not impact the “income base” (as that isn’t real money).

      And, yes, the longer someone waits to take income the more return potential they have. Think of it like Social Security. The longer you wait the more income you will get, but you have to live long enough for it to actually work out for your benefit.

      Thanks again for the comments/questions. Hopefully my answers helped out.

      Cheers,

      Jason Wenk

  • Jose Bruno

    Extremely good information. Great job.
    I am visiting with an agent who gave the delicious dinner, and is now recommending Security Benefit Annuities to me. I was very impressed with your blog and will make time to watch the video.
    You mentioned there are “..more flexible ways to protect and grow money”. I’m 58. Can you briefly touch on what other choices can compete with annuities?

    • Jason

      Hi Jose,

      Technically the best an investor can do if they pass right at life expectancy would be to get their principal back and earn whatever the “market linked” returns would be. This could be anywhere from zero (though not likely) to 1-3% per year (fairly likely).

      As for other options…

      I often share that what an insurance company does with the money annuity holders give them as a viable option. In other words, just invest the money very conservatively without the high cost of commission and fees.

      Since most insurance companies look to make a 30% gross profit margin from investor deposits that is ultimately the cost of using an annuity. So if they have a very conservative portfolio (think 90% or more into very diversified bonds) and they earn 6% over 10+ years – they will take about 1.8% of the return for them and provide 4.2% for the annuity holder.

      There are many other options too, but most would be better for you to discuss with a properly licensed, experienced, and knowledgable advisor that fully understands your goals and financial situation.

      Thanks for the comments and feel free to reach out if you have more questions.

      Cheers,

      Jason

  • Richard

    I wish I had seen this video when you published it. I purchased this product in June 2012. I worked through all the examples on growth just as you did by using 60 years of S&P returns and came to the same conclusions. But where I failed was in calculating the annualized annual returns on the income side – I didn’t!

    My 401K lost over 45% of it’s value in 2008 (like lots of people) and I was so intent on investing in something that I knew would provide my wife and I with a guaranteed lifetime income stream that I neglected to look at the total return.

    Also, my understanding is similar to Chris’s regarding the .95% rider fee. I believe that the fee is calculated against the income account value, i.e. .95% of that number but then it’s actually paid out of the growth account since that’s the “real” money. I believe that’s what Chris was asking – do you take .95% of the income account value or .95% of the grown account value?

    • Jason

      Hi Richard,

      Thanks for finding my blog and reaching out. I’m sorry you couldn’t have found my site sooner too ;).

      About the 0.95% fee – it is only taken against the actual account value, not the income value (since that is not a real value). So the good news is the income guarantee is truly fixed with no surprises. The bad news is the fee further reduces the already poor real account value.

      Thanks again and best of luck,

      Jason Wenk

  • glen king

    Jason: I was touted on to this annuity by a local agent and even cashed out some securities to fund it, but after watching your video, the whole thing, I’m having second thoughts, even considering that we wouldn’t be withdrawing anything for at least the first five years. Without a name, what other types of annuities or investments would be more secure and still pay a decent rate of return. and how could someone annuitize a non annuity to insure a yearly return. Thanks for your help and great analysis.

    • Jason

      Hello Glen,

      Thanks for the comment and positive feedback.

      In the end it all depends on what you’re looking to accomplish, what your needs are, and whether or not any financial strategy is a good fit. I think where most people fail is they turn to product salespeople for advice. That’s always going to be biased. A better solution is to have a comprehensive plan developed that is indifferent to all the products out there. That way you can test many different ways to reach your goals and ultimately choose the direction you feel most comfortable with.

      As for alternatives, I think what most people should know is that you can do the same thing with your money the insurance company ultimately does when you buy an annuity, which is just develop a very low cost, conservative portfolio (think 90% or more in fixed income). That way you still have security, can earn more interest when rates go up, and don’t have to pay the 30% or so margin most insurance companies aim to make on investor deposits.

      This isn’t a recommendation, just food for thought.

      Hope this helps and best of luck.

      Jason

  • Christina

    As a result of the ups and downs in the stock market, my mutual fund/stock performance was basically flat over the last 20 years even when they were professionally managed. I will be retiring in several years and I cannot afford to be in a down market again. I put everything in a cash position last year when DOW hits 13000. Right now, I am looking at putting 1/2 into annuities, fixed or variable which has a guaranteed income stream and the other 1/2 in conservative ETF. Security Benefits appears to have an exceptionally high guaranteed income stream. Do you have an overall recommendation for my strategy? Thanks.

    • Jason

      Hi Christina,

      Thanks for finding my blog and reaching out.

      Unfortunately I think you’re approach should be more personalized and scientific. Just dividing funds into two pots without knowing what your goals/needs are could be very dangerous. Like the comment I made for Glen, I think you just need to take a step back before buying anything with a long term commitment and have a true plan developed by someone that won’t make a commission if you buy products.

      Feel free to reach out via the “contact” form on this site. Maybe with a little more info on your situation I could better point you in the right direction.

      Best,

      Jason

  • dennis

    Jason,
    I am 63 and saved 1mil. and willing to tie it up for 10 years for a secure income for me and my wife.
    Uncertain about giving it to an annuity company. What would you suggest?
    Thanks

  • Peter LePage

    Jason,

    Nice job. Your presentation was very professional, fair, and accurate. I appreciate your report no matter what side of the fence it was intended for.

    Great Work.

    • Jason

      Thanks Peter! The goal is always to be accurate and help readers understand both the positives and negatives, so I’m especially glad to hear your feedback.

      Jason

  • Richard DeRitis

    Hello Jason,
    What a great eye opener and review on the Security Benefit Annuity. The “honest” financial planner I was using focus in on the income rider, with the 7%+ guaranteed return, like that was my money not the non-guaranteed account.

    • Jason

      Thanks Richard for the great feedback! While the 7% “roll up” is a nice benefit, it should never be suggested by agents/advisors as an actual return. Hopefully the agent only made a one time mistake ;).

      Best,

      Jason

  • Brad

    In all of your spreadsheet rider examples, your Growth Account is not being reduced by your rider fee despite your comment above. This is clear for the 10-year deferral example, where you can see the Growth Account growing at exactly 1.43%.

  • Keith

    Hi Jason: Thank you for a very informative analysis. I’ve been looking at the Security Benefit products for about a year now and am about to pull the trigger. My advisor has suggested 50% of my savings go into the Secure Income Annuity for lifetime income and the other 50% in the Total Value Annuity for a combination of income and growth. I won’t be touching either until I’m 71 as I have a separate source of income for the next 10 years (I’m 61 right now, and will retire next year). What do you think of this for a very financially conservative and risk averse about-to-be-retiree?

    • Jason

      Hi Keith,

      I was out of town last week – so my appologies for not writing back sooner. One of my partners should have reached out, since your question was fairly specific and we can’t really put personal suggestions online publicly. Thanks for the comments though, and hopefully in my absence you still got some good feedback already.

      Best,

      Jason

  • Anne

    Hi Jason,
    Just checking see if you every published a similar review of the Security Benefit Total Value Annuity.

    • Jason

      Hi Anne – thanks for checking in.

      I’ve been holding off on publishing new reviews for awhile as I’ve been working on a separate website just for annuity reviews. They’ve gotten quite popular over the past year and I thought have a dedicated site just for independent annuity reviews would be quite helpful. As soon as the new site goes live, I’ll be sure to let everyone know about it.

      Thanks again and have a great day,

      Jason

  • Calvin

    Thanks Jason the video was very informative and was helpful in making my decision about this annuity as part of my retirement plan.

    Calvin

  • Don

    Jason,
    The comments above say it all. To have an independent review about a subject that is complicated at best for many of us is quite helpful. Thank you. Keep up the good work.

  • Chris

    I guess to be clear since another person also asked. Is the .95% rider fee calculated from the benefit base (which increases each year) and then deducted against the actual account or cash value? In other words, seems like the rider cost increases each year, being pegged to the income benefit base, and creates headwind that impedes the real return of the actual account value from 1-3% to something less.

    • Jason

      Hi Chris -

      Thanks for the comment. Yes, the rider fee is based on the benefit base so it does make the net impact of the fee greater than 0.95%. This also reduces the returns that are illustrated in the video, because for simplicity sake I just illustrated 0.95% per year. So realistically, the “growth” rate given current caps is more than likely going to be less than 1.5% per year in a true testing environment.

      Cheers,

      Jason

  • Barb

    Very informative!
    Question. I am assuming that if you didn’t take anything out of the annuity for ten years, it will grow tax deferred; but when you do start the monthly payout, how is it taxed? Is it on the whole amount, like a pension….or the gain, like a CD?

    • Jason

      Hello Barb,

      Thanks for finding my blog and reaching out. Only the gains are taxable, but it is quite different than a CD. The best thing to do is request an illustration that shows the portion of income that will be taxable each year. What you’ll find is that quite a bit of the early years of income are taxable, but not as much in the latter years. It is quite different than both a CD or a Pension.

      Best,

      Jason

  • Barry Snider

    Would the Security Benefit Secure Income Annuity (SIA) be appropriate for IRA of a male 75 years, with spouse of 67? Both reasonably healthy & with minimum funds available. My agent recommends it with total withdrawals of income beginning in year 2, and annually thereafter. He states that by so doing we would be able to recoup all of our money in a few years & therefore be utilizing only their funds thereafter.

    Your annuity review is Excellent, as well as appreciated. Thank you

    • Jason

      Hi Barry,

      Thanks for visiting my blog and the comments. Check your email for some more specific feedback as this was some very bad advice you were given. While an annuity might make sense, it most definitely will not pay back all of your initial investment in the first few years. Most likely it will take 15 years or more to break even.

      Thanks again and best of luck!

      Jason

  • Joe

    Great review Jason. I’m 68 years old and thinking of investing $600,000 for the income starting at age 70. Is this a sound plan?. My agent said the bonus paid on this annuity in Minnesota is not 8%, but 5.6% as of May 1, 2013. Is this correct? Thanks. I’ll spread the word.

    • Jason

      Hi Joe,

      Thanks for finding my blog, reaching out, and the nice feedback.

      You are correct about the bonus going down, but it’s actually 5.5% (not 5.6%). Not really a huge deal, just thought I’d clear that up.

      Also, be on the lookout for a personal email from my team. Depending on a lot of factors, this may or may not be a good plan. I think there are a few things you’ll definitely want to consider before moving forward. Namely, at age 68 it will take about 17 years before the investment breaks even. So you’ll have to live at least to 85 before you actually make any investment return at all. I’ve said this before on my blog – but with these types of annuities, you don’t get a return ON your investment until you get a return OF your investment.

      Since the annuity would really be a lifetime commitment, I think most people should really do their homework and make sure it’s absolutely a good fit. For some people it makes sense, for others not at all. For most that end up using the annuity, typically a smaller amount than agents recommend is actually the smartest option. Since the commission is pretty large, a lot of folks selling them seem to push for large deposits, even if there are lower cost options that work much better.

      Hope this helps – and feel free to reach out if you have any other questions.

      Best,

      Jason

  • Robert Thaggard

    Nice review Jason. It seems that many insurers are lowering their lifetime withdrawal rates. They have lowered their caps and participation percentages and the only thing left to lower are the withdrawal rates. It seems to me that Secruity Benefit’s lifetime withdrawal rates are still pretty generous. Any comments? Thanks.

    • Jason

      Hi Robert,

      Thanks for reaching out and the compliments.

      You are correct that companies are by and large reducing rates. This is largely because interest rates continue to fall, and since most insurance companies end up investing in bonds, their reserve portfolio returns are likely be lower going forward.

      Security Benefit has started dropping some rates (bonuses, for example), and it’s hard to know if anything else will go down in the future (caps, roll up rates, distribution rates, etc). Since their caps are already very low, the primary reason one might use the SIA is the income rider. And since that’s likely the only return most investors will realize, it’s not like there’s a huge risk when it will take a lot of people 20+ years just to break even.

      That said, their distribution rate is still reasonable, and so long as the product really fits an investors needs it can make sense for a portion of an investors assets. The big thing is that people need to understand the roll up rate and distribution rate are not “returns.” The return only happens after the original investment is paid back, and that can take quite a long time.

      Thanks again and feel welcome to reach out if you have any other comments or questions.

      - Jason

  • John

    what is difference between an equity index annuity and a variable annuity? thanks

    • Jason Wenk

      Hi John,

      Thanks for finding my blog and reaching out.

      An equity index annuity (now called a fixed index annuity) is technically a fixed annuity. This means that it cannot go down in value, whereas a variable annuity is a securities product, so it can go down in value. With all the riders, bells and whistles, and bad promises by financial advisors – it’s getting harder and harder to tell the difference.

      Hope that helps,

      Jason

  • doug

    hi Jason

    if someone passes away before receiving an income from the rider, does the account value pass to the beneficiary in the form of an accumulation value? is the cost of the rider refunded ?

    • Jason Wenk

      Hi Doug,

      Thanks for finding my blog and reaching out.

      If the income hasn’t yet started, the value of the annuity can be passed to your beneficiaries. However, the value will not be the income base, but rather the cash value. This is likely to be equal to what the initial deposit is plus earned interest credits (think 2% or less per year growth).

      If the income has started, the remaining cash value will pay to beneficiaries. For example, if someone puts in $100,000 and has taken $20,000 of income payments, slightly more than $80,000 is likely to pay to the beneficiaries.

      If you have a specific scenario you’d like feedback on just let me know. You can use the contact form on my site to send a secure, private message.

      Thanks again and good luck,

      Jason

  • mike k

    Thanks for the lesson-very informative.

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