Over the past few months I’ve done quite a few annuity reviews. They’ve all taken some time but most have been fairly easy for me to break down, test, and get complete comprehensive reviews done and online.
A few weeks ago I had a blog reader want my view on The National Western Global Lookback Annuity.
And let me tell you – that one was a doozy.
The NWL Global Lookback is a Fixed Index Annuity very different than anything I’ve seen on the market. Basically it has an option that tracks 4 different equity indexes and after a year is complete it “looks back” at the four and allocates your money retroactively toward the index that performs the best. Which sounds really cool at first. So I had to dig pretty deep to see exactly how that works and if it really adds value for annuity holders.
Before we dig in, let me do some customary legal disclosures:
This is a review, not a recommendation to buy or sell an annuity. National Western Life Insurance Corporation 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 readers so they could see my perspective when breaking down the positives and negatives of this particular model annuity. Before purchasing any investment 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.
Per the NWL Global Lookback brochure here are some key points as to how it’s marketed:
- Globally diversified by having interest linked in part to 4 indexes (S&P 500, EURO STOXX 50, Nikkei 225, and Heng Seng Index)
- Unique “lookback” performance weighting
- Income Outlook – withdrawal benefit rider
- 9 year surrender charge period
- 10% free withdraw each year during surrender period
There’s a few more bells and whistles, but those are the basics.
The primary jist of the sales pitch (I’ve heard) is that when you choose the global lookback option each of the four global indexes will have had different performance. Instead of guessing at the beginning of the year which will be the leader and having to choose your asset allocation the annuity instead “looks back” after the year is complete and calculates the return based on 40% of the best index, 30% from the second best, 20% the third, and 10% the fourth. This allows annuity holders to get maximum market upside with the principal guarantee of an index annuity.
So far it sounds pretty good right? I mean, you automatically get the best allocation and you have no risk.
Well, that’s just part of the equation.
And unfortunately that equation is very, very complicated.
This is best illustrated in the video review I did on the NWL Global Lookback, which you can watch here (warning: extreme nerdiness in this review):
As you can see from the video review there are some major flaws in the sales pitch vs. reality going on here. Yes, this annuity could produce some nice years. Yes, it really does “look back” and choose the best allocation. But no, it doesn’t really kick out any better returns than other index annuities I’ve reviewed. In fact, it’s actually lower than some others.
Part of this could be because I can’t do a 50 year test of this annuity. That’s because some of the indexes have limited historical data available, which limited my test to roughly 10 years. Even then, comparing just 10 years side by side with other annuities with no lookback feature the returns are pretty similar – in the neighborhood of 2%-4% per year.
Conclusions on the National Western Global Lookback Annuity
I would suspect this will be a pretty hot seller – especially for investors that have a bent on getting international exposure and don’t want market risk. Sadly, I believe most of these folks will be operating under the assumption they might make 5% or better more years. I only think this because I’ve had a few blog readers email me about this annuity and that seems to be the consensus they were suggested – a safe way to be globally diversified with a likely return of around 5% (*blog readers words as suggested to them by agents, not mine). Given how low current participation rates are with all annuities though that’s simply not likely to happen. Instead this annuity just offers a different way to get the same result as most other annuities I’ve reviewed.
What’s more – I have a background in investment analytics and write thousands of lines of computer code each year. And I STILL had a very hard time really understanding the intricacies of how this annuity credited interest and doing the calculations to determine what reasonable returns might be. While this is just my opinion, I would guess 99.9% of financial advisors and 99.99999% of annuity buyers either will not or could not do this same type of analysis to figure out reasonable expectations. So be careful believing everything your told on this (or any) investment. You really have to read the fine print, do hours of analysis, and fully understand what you’re getting into before making this (or any) investment.
At the end of the day I defer to the old (but good) saying: “If it sounds too good to be true, it probably is.”
There are plenty of solid, safe investments out there. Many are straightforward, easy to understand, and don’t require complicated algorithms to determine your returns. That’s where most people should be looking. The NWL Global Lookback has a nice story, is safe, and has potential to produce reasonable returns. I’m just afraid it’s a touch too complicated for the average person to really understand. That said, I’m sure talented sales and marketing folks can make it much easier to partially understand – I’d just beware of anyone who suggests this annuity is likely to produce better than middle-low single digit returns.
Have Questions on the National Western Annuity? See any Mistakes?
I get a lot of financial advisors and insurance company home office folks who visit my blog. Like all humans – I do make mistakes. If you see one on this review please reach out and let me know. I’m always more than happy to make corrections and give credit where it is due. If you’re an investor and this review causes confusion and creates questions feel free to reach out as well. I can’t always get back right away but usually I can clear up those questions within a few days.