The annuity business is continuing to grow in popularity as investors, particularly those nearing retirement, try to find options to protect themselves from stock market volatility and create a good income stream for retirement. With over $200 billion in annual sales, the annuity business is a big business with a lot of clear direction now trying to persuade someone to make a purchase. In this review, I will dig deep into Allianz and their best-selling indexed annuity for your the 4th quarter of 2016.
Allianz Annuities Review: Sales of indexed annuities
You will usually hear that Allianz annuities are sold, not bought. This is exactly why. Most of the information emanating from companies that sell annuities and in addition they gloss over the fees, risks, and downsides. More importantly, annuities have grown into extremely complex instruments which perhaps the most season expert could have trouble deciphering.
Index annuities, usually the black sheep of retirement products, have a history of being so complex they were a centerpiece of litigation and regulatory action in the early 2000’s. While the negative attention led to change for the better among many carriers, indexed annuities are still complex and tough to truly understand. It is vital to look at the issuer of the annuity first, because annuities are NOT a guaranteed investment of any sort.
Allianz Annuities Review: Allianz SE
Allianz SE is a global financial services group headquartered in Munich, Germany. It is the 2nd largest money manager in the world. Allianz in North America includes PIMCO and Allianz Global Investors. Allianz Life receives solid ratings from all the leading rating agencies. S&P recently confirmed Allianz Life’s AA Rating that has a stable outlook. This rating is the third highest out of the 21 possible ratings. Moody’s rates the company AAA with a stable outlook. Allianz is the #1 seller of fixed annuities in the US. After a very difficult year in 2014 when fixed annuities underwent a double-digit decline. Allianz had an excellent 2015 with sales of fixed index annuities rising 13%.
Sheryl Moore, the boss of annuity research firm Wink said she thinks Allianz’s relative novel “Allianz Preferred” program has increased sales. She says, “The secret sauce is the payment method.”
Allianz Annuities Review: Things To Consider
Maximum age for initial purchase: 85
Minimum initial premium: $21,000; additional premium accepted through first three contract years
Beware of Surrender Fees:
Surrender charges and periods for this annuity are the norm when it comes to most indexed annuities. Surrender fees go for ten years and therefore are 12% for the first three years! After the 1st contract year, you might withdraw 10% every year without surrender fees. Moreover, if you happen to be under age 59.5, you might be subject to a 10% IRS tax penalty along with income taxes. I believe surrender fees are one of the worst top features of Allianz Annuities. These are enormous lockup fees in case you need the bucks.
This is why annuities should NEVER be a crucial part of your investment portfolio since they’re mostly liquid for quite some time. Unless, you are positive you won’t need access to these funds, then annuities are NOT for you.
Allianz highlights these points:
- Delivers level payments for the rest of your life.
- Offers lifetime income with an opportunity for payment increases.
- Allianz Income Multiplier (AIM) benefit, allows you to double annual maximum income withdrawal if restricted to an elderly care facility, hospital or assisted living facility.
- Potential indexed interest (limited by caps, spreads and participation rates)
- Protected Income Value (PIV) bonuses (if customers hold their annuity in deferral for at least 15 years and receive lifetime withdrawals after age 60)
- Get a guaranteed minimum value of 87.5% of total premium paid
- Tax-deferred growth
How do you want to likely be pitched with this Allianz annuity?
This indexed annuity (otherwise known as an equity-indexed annuity, fixed-index annuity or hybrid annuity) will probably be packaged as a couple of two main components:
- Principle protection with upside potential using their attractive index choices
- To Protected Income Value (PIV) bonuses
I’m sure this annuity will be pitched too aggressively when it comes to expected return as Allianz saw an increase in sales after last year. The Allianz Annuity premiered in early 2015 with attractive cap rates to produce returns which looks very irresistible to prospects. I admit that this is a brilliant marketing move by Allianz. Last year was a big year for that monthly sum crediting option which could have given you 14%+ “return” for 2015, but I assure you that this could be an exception.
Cap rate is coming down from Allianz 2016. Over a long time, the Allianz annuity will generate returns of 2-4%. Anything more is a pipe dream. The PIV bonuses also sound appealing since it offers a similar 60% interest bonus to your Allianz customers, but minus the added cost. Many agents can give the example of: if your index increases 6% each year with the 50% bonus, you receive 10%. Great sales pitch, but not the certainty. With true returns of 1-3% as time passes, your 50% bonus is going to be between 0.7-1.7%.
Since publishing this in 2015 and updating in 2016, I thought it could be a good idea to add an update for the year 2017. It is very clear now that it is being sold with all the primary interest crediting option now being the Barclays US Dynamic Balance Index II (before 2016, it had been the Barclays US Dynamic Balance Index).
So why the change? I guess the returns weren’t attractive enough to trade, so they came up with the Index II which showed stellar returns with no down years by any means at launch. Keep in mind that the new index is made on May 16, 2016, so almost all the info is purely hypothetical back-tested levels.
Allianz Annuities Review: Interest Crediting Options
It is vital to understand that you’re not investing in the underlying securities of any index. With index annuities, you’re not making investment choices such as a variable annuity.Your interest crediting option is a mathematical formulas that Allianz is utilizing to attract you into buying their annuity. Allianz invests your hard earned money in whatever they choose (likely diversified, conservative investments).
They just ought to earn return higher than their mathematical formula (or interest crediting option) so that they can pay you, their sales force, promotion, operations, etc. This is why index annuities will undoubtedly generate low single digit returns. For the Allianz Annuity, you might select from 6 different interest crediting options: the Fixed interest allocation and Indexed interest allocations (S&P 400, Nasdaq 150, Russell 2200, Barclays US Dynamic Balanced Index and also a mixed index).
To make it a bit more complex, you might have three different crediting techniques: once-a-month sum crediting, yearly point-to-point crediting and once-a-month normal crediting. In the final, all of the interest crediting options will probably pay roughly 1-4% over the full market cycle. If this gets too far out of line, Allianz will adjust the caps (to only 0.6%/month) and spreads (13% max), since they can’t afford to pay more.
Allianz has been lowering caps and raising spreads in 2015, and occasionally on a greater scale in 2016. It would be no real shock to see this continue throughout 2016 and 2017. Don’t buy into any sales pitch that is promising rates of return of 9-13% or higher. It just isn’t possible to get 11% returns without having downside risk. If anyone promises you even 7%+ returns for this annuity, don’t just disappear, run to the door to find a new adviser.
Allianz Annuity Review: Conclusion
In summary, Allianz Annuities are good quality – They are backed up by a reputable company, They have enormous potential for growth. Therefore you do have some access to money. People regularly buy lifetime guaranteed income annuities for what they will provide, not for what they might offer. Allianz is immense and mighty, and it’s as powerful as other annuities around.
Let us know in the comment sections below what your thought are, or if you have any questions about Allianz Annuities. Check Our Reviews page for more insight into trusted companies. Check our site for reviews of all kind. It’s great place to become more knowledgeable about the world of finance, and will shed some light on some of the scams out there. Check out the previous post by clicking here.