Annuity Drain Rate™ Analysis

Sample “Annuity Drain Rate™” Analysis Output:

The following are sample charts generated by our proprietary software.  A brief description of what the chart illustrates is provided immediately following each of the charts below. 

NOTE:  For an in depth disclosure of the hypothetical assumptions used in the analysis which yielded these results below please review the disclosures at the bottom of this page.

 

 

Annuity Drain Rate Analysis - Strong Equity Market

This “Annuity Drain Rate™ Analysis – Strong Equity Market” chart above illustrates that despite the hypothetical assumption of a “strong equity market” and a “stable fixed income market”, the combined annual income withdrawals plus the total contract fees charged against the annuity's contract values will push the Annuity Drain Rate™ above an annual level that is sustainable over the expected life of the contract (assuming a normal life expectancy of a 66 year old female.) 

This chart shows that the initial “drain rate” at the annuitant's age 66 is approximately 12.5% and then jumps higher when there are slight market losses or even a “flat” market return during any given contract year.  Even when assuming very favorable total return assumptions, the combined effects of the contract's fees and the income withdrawals allowed by the income benefit rider may create an Annuity Drain Rate™ that is above sustainable levels and above what we define as a "critical" drain rate.   

 

Annuity Drain Rate Analysis - 33% Equity Market Loss

This “Annuity Drain Rate™ Analysis – 33% Equity Market Loss” chart above illustrates that when the annuity contract value experiences a loss of 23.1%* (in year 2), the combined annual income withdrawals plus the total contract fees charged against the contract will push the Annuity Drain Rate™ above what we define as a "terminal" drain rate which is well above the annual amount that is sustainable over the expected life of the annuity contract (assuming normal life expectancies.) 

These two charts combined show that the initial “drain rate” at the annuitant's age 66 is approximately 12.5% and then jumps to approximately 17.5% as a result of the equity market loss of 33% (in year 2 of this analysis) which results in a 23.1% contract value loss. 

Even when assuming very favorable total return assumptions from Year 3 onward, the combined effects of the annuity contract's fees and the income withdrawals allowed by the income benefit rider will continue to impact the Annuity Drain Rate™ and will eventually push the drain rate above the "terminal" drain rate.

Critical Drain Rate™
A "critical" drain rate is where the combination of annul income withdrawals and the contract fees exceed 10% of the actual contract value.  You may want to consider reducing your annual income withdrawal rate when the Annuity Drain Rate™ exceeds 10% if you are concerned with preserving annuity contract values for your heirs.

Terminal Drain Rate™
A "terminal" drain rate is where the combination of annual income withdrawals and contract fees exceed 20% of the actual current contract value.  Future contract values may decline significantly when the Annuity Drain Rate™ exceeds 20%.

 

 
Please click here to begin the process of having your variable annuity “stress tested” by the Annuity Report™ team using our proprietary software.  Your personalized report will include our exclusive Annuity Drain Rate™ Analysis.

 

 

* NOTE:  A 33% equity market loss with only 70% allocated to equities results in only a 23.1% loss on the total contract value if we assume there were no losses to the 30% allocated to fixed income.

IMPORTANT Disclosures:  The projections or other information generated by this report regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results.  Results will vary with each use and over time.  This is a hypothetical example and is not representative of any specific situation.  Indices are unmanaged and cannot be invested into directly. 

Equity markets are represented by the historical returns of the S&P 500 Index.  The S&P 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of stocks representing all major industries.  The S&P 500 Index is an unmanaged index which cannot be invested into directly.  Unmanaged index returns do not reflect fees, expenses or sales charges.  Index performance is not indicative of the performance of any investment.  Past performance is no guarantee of future results.

Fixed income markets are illustrated using an assumed fixed rate of return as disclosed on the actual report output.