here is another look at new very popular variable fixed income annuity from prudential . they call it a defined variable income annuity .
it isn't a bad deal if you just accept it as a proxy for a cash instrument and not an investment .
this one guarantees you a minimum return of 5.50% year regardless and is linked to a bond index so if the bond index does better you get the higher of the two .
sounds great right ? a min of 5.50% or higher .
so lets dissect it under the hood which annuity gaitor already did for us with a spread sheet you will never see from the annuity company . .
looking at the prudential defined income variable annuity you see starting the annuity at 55 and deferring taking payments until 65 gives a single about 9k a year based on 100k.
it has a 5.50% guaranteed minimum growth on the money you give them up until you draw an income. it also has a variable sub account in the ast bond index.
with 2.90% in fees the bond index will likely never be higher than the minimum guaranteed growth rate. it would take an act of god to ever have the index do better with those yearly fees .
see the guaranteed amount is inclusive of fees , the sub index account is not . ( it is in the fine print ) .
see how that balance grows nicely being compounded by the 5.50% minimum ? you have 180k by the time you are ready to draw an income at 65 .
you cannot get access to that money that is given via the growth rate. all you will ever see of that 5.50% compounded balance is you get to take 1/10% a year more of it for every year you delay drawing .
so while they guarantee you a 5.50% growth rate you can never access that money totally . you only get 1/10% a year of what it compounds to.
if you lived to age 82-83 your actual compounded return would be 3.80%
at age 90 you would see 4.55 %
so you never really see the 5.50%
the joint annuity chart which is the 2nd one increases less then 1/10% a year so at 82-83 you really averaged only 2.88 %
at age 90 the joint annuity has not even hit 4% yet the guaranteed minimum is 5.50%
if anyone does not follow this concept i will be glad to explain it .
all bonus bucks in annuity's work the same way . it isn't really all your money . this is an important concept to understand before buying any variable annuity product . they all have some similar twist .
here is the break out of the annuity.
this is for a joint plan