continue from Indexed Annuity: Virtual vs Real Money (1)

Allianz 222 is a very popular index annuity that is primarily for using to generate lifetime income. It has a premium bonus currently at 22% of the initial deposit. That looks very attractive. But be aware with a note. First, the big bonus is added to the income-based value, which is not the “real money” in your account. It is set aside in a separate “virtual money” account, and the contract has to be held for at least 10 years for you to be able to keep the bonus.

Also if you pay attention to the fine lines on their marketing piece, it states that “with premium bonus, it may include HIGHER surrender charges, LONGER surrender charge periods, LOWER caps, HIGHER spreads.”

Secondly most people buying annuity is for the purpose of guaranteed lifetime income for retirement. That guarantee normally comes in the form of an additional income rider, which needs to be purchased with rider charge, because it guarantees a rate of accumulation value.

With Allianz 222, its income rider is free, because there is NO guarantee, which may not be a good thing. In fact, fee is irrelevant for an income-focused annuity.

In other words, your virtual money account accumulation value pretty much depends on the growth power of its index crediting strategies* available. A rule of thumb for estimating the growth power is to see its cap rate for S&P 500 annual point to point index crediting strategy. In the case of Allianz 222, the rate is around 3.25%~3.75%. Although it also offers many other index crediting strategies, you can be sure that its rate will be hovered at around 3% for life. With its 150% interest bonus, the return is around 4.50%. As a comparison, many other income-focused annuity products offer guaranteed annual compound 6.0%-7.2% to simple 7.5%-10%.

One thing to keep in mind is once you buy these types of income-focused annuity, It’s better that you don’t try to walk away with this money again, because it is for generating future income. The bigger this money grows to, the more income you will take for the lifetime.

Another way to buy the annuity is not buying income rider. Simple buy into the power of its index crediting engine. There is no fee, and money in the account is all real. The initial deposit is guaranteed not to lose, and with strong upside potential. you can walk away with your money after 7 or 10 years depending on the surrender charge your annuity contract stipulates. AIG Power 7 Protector and Power 10 Protector are such product.

index crediting strategies* : With index annuity, your money is never put in the market with exposure to risks. It simply references a market index to calculate the interest that’s earned for your account. The beauty of it is its downside protection and upside potential. When the market index falls into negative territory, your account will not be affected, but your account earns interest when the referenced market index goes up. Therefore, the core of an index annuity is its index crediting strategy, such as S&P 500 with a cap rate. For detail, please contact us.