Annuity Stress Test™ & Annuity Drain Rate™ Analysis

Our proprietary software performs an annuity “stress test” to determine if your current variable annuity contract will in fact be able to provide both a lifetime income and a death benefit to your heirs.  For some annuity contracts, the simple mathematical truth is that they may only be able to provide one, but not both, of these benefits which you are currently paying for.

 

Whether an older or a more recently issued variable annuity contract is “better” depends entirely on exactly what benefits you have and the amount you are paying for these benefits.  This also depends on how you are planning to utilize the benefits and what you are hoping to achieve.  Bottom line... it's important to understand how your variable annuity will actually work.

 

Our proprietary annuity “stress test” software also includes our exclusive Annuity Drain Rate™ Analysis as well.  Our “drain rate” analysis will show how the combination of your income withdrawals and the fees charged against your contract affect the contract values over time.  The amount of fees paid each year are driven by various market conditions which, over time, may potentially have a negative impact on the total benefits that you can expect to receive from your variable annuity.

 

Our “stress test” and “drain rate” analysis has shown that in the event of a market correction or bear market, some variable annuity owners may have to choose between having either a lifetime income for them self (and possibly their spouse) or to suspend their income in an attempt to preserve the death benefit for their heirs.

 

Your personalized Annuity Report™ powered by our proprietary software will allow us to provide you with the following information:

  • Uncover and Calculate all of your annuity's fees 
  • Identify the potential long-term impact of your annuity's fees (on your annual returns, initial deposit, income and death benefit)
  • Compare the annuity's combined fees and withdrawal rates against numerous best and worst-case financial scenarios
  • Calculate how many years it will take for your annuity to “break-even” (when selecting certain income riders)

Please click here to inquire about 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.

 

 

Sample “Annuity Stress Test™” and “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.  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.

Hypothetical Projected VA Account Values - Strong Equity Market

This “Hypothetical Projected VA Account Values – Strong Equity Market” chart above illustrates that when assuming a “strong equity market” and a “stable fixed income market” the combined annual income withdrawals plus the contract fees will cause this annuity's contract to “go to zero” somewhere near the annuitant's age 84.  Once this annuity's contract value “goes to zero” the income benefit may continue paying an income to the annuitant, but the death benefit meant for heirs will be forfeited once the income rider is triggered. 

 

The income amount received from the income benefit rider may or may not be similar to the amount of the prior income withdrawals previously being taken from the contract as these future income payouts will be determined based on the elections made by the annuitant as well as the annuitant's age (at the time of electing to utilize the income benefit rider.) 

 

This chart also shows that the combined cumulative fees charged against this annuity contract over the next 19 years could total approximately $300,000 which is 75% of it's current value, while the cumulative income payout could total approximately $600,000 (or only 150% of the contract's current value) over the same time period.

 

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.   

 

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.

 

Hypothetical Projected VA Account Values - 33% Equity Market Loss

This “Hypothetcial Projected VA Account Values – 33% Equity Market Loss” chart* above illustrates that assuming a “33% equity market loss” and a “stable fixed income market” the combined annual income withdrawal plus the contract fees will cause this contract to “go to zero” somewhere near the annuitant's age 78.  Once this contract value “goes to zero” the income benefit will continue paying an income to the annuitant, but the death benefit meant for heirs will be forfeited once the income rider is triggered.  

 

The income amount received may or may not be similar to the amount of the prior income withdrawals previously being taken from the contract as these future income payouts will be adjusted based on the elections made by the annuitant as well as the annuitant's age at the time of electing to utilize the income benefit rider. 

 

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.) 

 

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%.

 

This chart shows that the initial “drain rate” at the annuitant's age 66 is approximately 12.5% and 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.

 

 
Please click here to inquire about 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 assuming 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.