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. -------
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:
- 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
- We have a massive wave of baby boomers retiring or nearing retirement that want to protect their portfolio during retirement years
- 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
- 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
[table id=19 /]
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.