Best Variable Annuities

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Best Variable Annuities

If you search the Internet for “the best lawnmowers,” you get over 7 million results and 7 million different opinions.  What's the best variable annuity? It depend not only on who you ask, but when. That's because by the time you ask the question, the answer has probably changed. Insurance companies constantly change their products.

Variable annuities are retirement products, so the way to find the best value is to take a longer view. If you;re not familiar with variable annuities click here and check out these articles first.

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What Is the Best Variable Annuity To Buy?

Well, first things first. There are plenty of variable annuities on the market to choose from. Before you decide which one to buy, be clear about what your goals are. What features are important to you? Are you looking for a low-cost product for tax deferral and portfolio management? Do you want protection from down markets? If the variable annuity you're looking at doesn’t offer the features you want, the rest doesn’t matter.

Variable annuities are retirement products. They're designed to do two things, build wealth and create lifetime retirement income. They should fit into your retirement plan. If you haven’t done any retirement planning yet, that should be your first step. That said, here’s a quick review of variable annuity features:

  • Tax-deferred growth: There is no tax on subaccount capital gains or dividends until there are distributions, and also no tax on transfers between subaccounts. There are, however, no additional tax benefits to purchasing a variable annuity in your IRA or employer-sponsored retirement plan.
  • Lifetime retirement income: Variable annuities have income options that can pay for one lifetime or the longer of two lifetimes.
  • Downside protection: Living benefits offer a guaranteed minimum lifetime income, regardless of market performance. Variable indexed annuities can protect retirement money from market losses.
  • Professional money management: Variable annuities offer a selection of diversified and professionally managed investments.
  • Death benefits: Variable annuities offer death benefit protection for beneficiaries. Some products offer enhanced minimum death benefits.

The Best Variable Annuity Products

The best variable annuity products offer the features you're looking for at the lowest cost. The chart below shows fees and expenses to look at for comparison purposes.

Charge Typical Charge Description
Mortality & Expense 1.25% of the account value Cost of providing insurance.
Management Fees .25% - 2% of subaccount values Fees paid to subaccount investment managers.
Administrative Fees $25.00 - $50.00 per transaction Cost of transactions and record-keeping.
Surrender Charges 7%, 6% ,5%, 4%, 3%, 2%, 1%, 0  Charge declines over a period of years, usually 5-7. Withdrawals up to 10% of the account value are usually free of surrender charges.
GMIB, GLWB 1% and up of benefit base Charges for guaranteed minimum income riders.
GMAB 1.4% and up of benefit base Charge for optional guaranteed minimum accumulation benefit.
Enhanced Death Benefits .65% and up of benefit base Charges for stepped-up death benefit option.
Premium Tax Premium-based 8 states charge a premium tax: CA, FL, ME, NV, PR, SD,  WV, and WY

Again, your objectives are important. Be sure to comparison shop the total cost as well as the features that you're looking for. Don't overlook subaccount management fees. Many variable annuities have low-cost options available.


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Variable Annuities with Living Benefits

Living benefits offer minimum income or account value guarantees, regardless of how the variable annuity subaccount investments perform.

  • Guaranteed minimum income benefits (GMIB) provide a minimum amount of lifetime income, regardless of the account value. The minimum income is based on the greater of the original investment accumulated at an interest rate specified in the policy and the actual account value.  Once the option is selected, the owner has no access to policy values.
  • Guaranteed lifetime withdrawal benefits (GLWB) provide a minimum amount of lifetime income when policyholders retire, regardless of the account value. Unlike the GMIB, the owner does have access to the account values. Withdrawing money beyond the guarantee will reduce or eliminate the minimum income.
  • Guaranteed minimum accumulation benefits (GMAB) guarantee a minimum account value regardless of investment performance. The minimum is usually 100% of the purchase payments after a 7-10 year holding period.
  • Lock-ins and step-ups: Living benefit riders recalculate the basis for minimum income at least once a year. If the account value is greater than the current minimum, the account value is used as the new minimum and accumulated. This process is called a step-up, or locking in gains

While living benefits can be attractive, the protection comes at a cost (see chart above).

The Best Variable Annuity Companies

Companies that sell variable annuities have to be licensed as insurance companies by the states where they are selling, and registered with the SEC as investment companies.  

Out of the 773 life insurance and annuity companies in the US, 20 sell 95% of the variable annuities. That makes it a little easier to decide who to buy from.

One good thing to know is if other people are buying from this company. Are they a leader? While it doesn’t tell you about the company, it’s a good indication that financial professionals have some confidence in them. 

It’s true that Mom says, “If your friend jumped off a bridge, would you do it too?” While that’s good advice, it doesn’t apply here.

How does the company treat its customers? One way to find out is the J.D. Power consumer satisfaction survey of annuity companies. They use a rating system of "Among the Best," "Better Than Most," "Average," and "The Rest."

Here's a handy chart to show you the sales ranking, financial strength ratings, and J.D. Power satisfaction ratings (where available) of the top 20 variable annuity companies.

Claims-Paying Ability Tier

Rank by Premium Sales * Company A.M. Best S&P Moody's  Fitch J.D. Power Satisfaction**
1 Jackson National Highest Highest Medium Highest Average
2 AXA US Highest Highest Highest Highest Better Than Most
3 TIAA Highest Highest Highest Highest Better than Most
4 Lincoln Financial Highest Highest Medium  Medium Average
5 Prudential Annuities Highest Highest Highest Highest Average
6 AIG Highest Highest Medium Medium Average
7 Brighthouse Financial Highest Highest Medium Medium The Rest
8 Nationwide Highest Highest Medium N/A Not Rated
9 Riversource Highest Highest Highest N/A Among The Best
10 Transamerica Highest Highest Highest Highest The Rest
11 Allianz Highest Highest Medium N/A The Rest
12 Pacific Life Highest Highest Medium Highest Average
13 N.Y. Life HIghest Highest Highest Highest Among The Best
14 Thrivent Financial Highest N/A N/A Highest Not Rated
15 Fidelity Investments Life Highest N/A N/A N/A Not Rated
16 Northwestern Mutual Highest Highest Highest Highest Not Rated
17 CMFG Life Highest Highest Medium N/A Not Rated
18 Principal Financial Highest Highest Medium Highest Not Rated
19 Great- west Financial Highest Highest Highest Highest Not Rated
20 MassMutual Highest Highest Highest Highest Not Rated

* Source: LIMRA Secure Retirement Institute, U.S. Individual Annuities Sales Survey, 2nd Quarter 2019

** Source: J.D. Power 2019 US Life Insurance Study

The Best Variable Annuity on the Market

And the winner is... it depends. Some products are less expensive than others. Some products have better features, and the differences can be very subtle. Just like finding the best companies, a good place to start is to look at the top selling variable annuity in the marketplace.  According to Winkintel's 3rd quarter variable annuity industry sales results report, Jackson National's Perspective II is the Number 1 selling variable annuity. Perspective II doesn't limit living benefit investment choices, as most other variable annuities do. Of course, that doesn't matter if you're looking for a low-cost option. What’s important is matching the variable annuity features to your retirement plan.

The Benefits of an Independent Insurance Agent

Variable annuities can be an important part of your retirement plan. While they have many features and benefits, they aren't for everyone. Independent insurance agents are annuity professionals. They can answer your questions and do the comparison shopping for you. 

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Winkintel 3rd quarter 2019 annuity sales

Insured Retirement Institute 2-019 annuity sales