-Look by Joe Signorella, CFP®, RICP®

What Will We Cover in this Annuity Review?

In this annuity review we will be going over annuity details regarding the Prudential Flex Guard Structed Variable annuity.

  • Investment type
  • Rates
  • Optional Riders
  • Fees
  • Return expectations

 

Servicing the retirement income planning market has grown in popularity as baby boomers and retirees search for options to protect against market volatility and secure lifetime income. Annuities are one of the few strategies that can accomplish both secured growth and guaranteed income.

Investors like you doing research on annuities to combat the above concerns are finding it more difficult with all the different types of annuities like “hybrid” annuities, equity-linked annuities, buffer annuities, fixed index annuities (FIA), and variable annuities.  The best selling retirement annuity of 2021 is the registered index-linked annuity (RILA), the $17.4 billion market for structured variable annuities– also sometimes referred to as a variable indexed annuity, structured variable annuity, buffer annuity, or a structured annuity – is essentially a blend of the best part of a variable annuity and limited downside protection of a fixed indexed annuity (FIA). 

Started in 2010 with one company, these hybrid annuities do offer is a “limited loss” to an investor  – between 10% and 20% of the market’s decline during a specified period usually a year period. For example, if a RILA or buffer annuity has selected the optional 20% S&P 500 index protection against a market loss over one year period, an investor’s account would lose only 8% of its value if the market dropped by 28% in that given year because of the buffer annuity protects the first 20% loss from the market.

The more loss protection or buffer you select, the less upside gain from the index you will receive.

Buffer Annuity Chart

Taken from the interactive chart above the buffer annuity invested in the S&P 500 index over the last 20 years gain more than $86,000 than the S&P 500 index.  That was an increase of 45% gain from limiting market losses with the 20% market protection each year.  Click the chart to see how it works.

 

Annuity Company Issuer Review:  Prudential Financial

 

Prudential Financial, Inc. who’s symbol of the Rock of Gibraltar, has been keeping its promises since 1875. Prudential Financial, Inc. is an Fortune 500  and S&P 500 company whose subsidiaries provide insurance, investment management, and other retirement financial products to both retail and institutional customers. As of 2019, the Newark New Jersey company Prudential is the largest insurance provider in the United States with $815.1 billion in total assets. Prudential Financial was founded by soon to be US senator John Dryden in 1875 with it’s one product of burial insurance. Prudential’s A.M.Best rating is a A+ along with comdex score of 95.

 

Since this investment is usually for the long term such as 10 years, it is important that the annuity company itself is financially sound.  The guarantees in the annuity are back by the insurance company and not from a government agency.  However each state’s Guaranty Association has a dollar amount, usually $100,000, that it will refund if an annuity carrier went bankrupt. Think of it as a second layer of protection. 

 

Comparison:

Table below will update as the competition changes.  Currently, there are some great choices for retirement annuities.  To request a side by side, click on the compare button below, and our Certified Financial Planner® will be happy to answer any question you might have (Click Here).  

Surrender Fees:

Surrender charges/fees and periods for this annuity are the typical of most commissionable annuities. Most annuities will have a 5 year, 7 year, 10 year, and 14 year surrender variation to choose from.  Taking the longer surrender period will most likely give you a larger cap on indexes and a larger fixed rate option for index crediting.  Typically annuities allow you to withdraw 10% of your accumulation value after the first year without surrender fees.  However if you are under age 59 and a half, you are subject to a 10% IRS tax penalty as well as income taxes applied to the withdrawal.

 

Prudential FlexGuard commissionable annuity (B-shares) have a 6 year surrender charge starting at 7% charge in the first year and second year following with a 1% reduction every year after that.

 

Fee-Only planners have access to “Advisory or I- share fee advised” structured annuities,  They usually have zero surrender charges, instant liquidity, and higher index rates.  These planners charge annual fees to manage the indexes around 1.00% per year of assets in the annuity.  Still, a better option as these fee-only RILA annuities have higher upside cap rates than the commissionable traditional RILA/ buffer annuities.  Check out BufferQuote.com for available fee-only buffer annuities

 

Earning Interest: 

FlexGuard is a customizable indexed variable annuity that allows you to make choices

based on your individual retirement needs and change themes those needs evolve.

One of the most valuable aspects of FlexGuard is its potential to cushion your account against loss.  With FlexGuard’s index strategies, you can select a level of protection, called a buffer,

which may help limit loss in down markets, partially shielding your account in the case of a negative index return.

With the help of the buffer, your risk of loss could be lessened. You also have the opportunity to grow your money in up markets by choosing from FlexGuard’s three index strategies.

Each index strategy determines how your money can grow and calculates the interest you can earn differently. FlexGuard’s three index strategies include a cap rate strategy, which allows you to earn interest on any index growth up to a defined limit, called a cap; as well as two index

strategies called Tiered Participation Rate and Step Rate Plus, that can enable you to accelerate a portion of your growth potential in up markets, providing you with the possibility of earning even more.

FlexGuard also enables you to diversify where you put your money by allocating

across well-known indices. S&P 500, MSCI EAFE, iSHARES RUSSELL 2000 ETF, and INVESCO QQQ ETF. Because different indices perform differently under similar market conditions, diversification can help improve your opportunity for growth.  Finally, unlike some indexed variable annuities, FlexGuard offers the security of a return of premium legacy benefit at no extra cost.  This means if you pass away, your beneficiary will receive the money in your account or the total of the payments you made since the issue date, reduced proportionately by any withdrawals, whichever is greater.

 

Fiduciary Annuity and Retirement Income Planning Information From a CFP®

In 2017 Department of Labor’s fiduciary rule being struck down in federal court of Appeals has been especially helpful in the sales of indexed annuities. The rule, which raised investment-advice standards in retirement accounts, would of made brokers and insurance agents become fiduciaries to sell indexed annuity and other financial products opening up potential lawsuits from “bad” sales of annuity products. Unfortunately, that didn’t rule holding agent up to a higher standard, as a fiduciary, did not pass.

Our annuity review also called “look” is overseen by our in house Certified Financial Planner® that has to put you first, as a fiduciary thru the CFP® Board so you will have the confidence to use these annuities in your retirement plan after our reviews. Let’s get to it.

The Agent sales pitch for this annuity?

This indexed variable annuity, also called an Registered Indexed Linked annuity, RILA, Buffer annuity, will likely be presented on three ideas:

  1. Protect – Select a level of protection that will limit losses
  2. Grow- Participate in the limit upside of market indexes
  3. Death Benefit of initial deposit

 

The Prudential FlexGuard Annuity is for investors that want to participate in stock market like return with a loss provision or buffer selected of 10% or 20% a year.

Remember that the index credits are capped at a lower rate than the index itself like your index mutual funds or EFT at Charles Schwab or Fidelity.  They are options held on the indexes at the annuity carrier’s investment department.  Most indexes described above will NOT include the dividends which historically represent some returns in the case of the S&P 500 index. Because this a tax qualified annuity gains are tax deferred until income/money is taken out of the annuity.

Have questions about this Annuity?

If you’re considering this annuity and have additional questions, feel free contact us via our secure contact form. Our Certified Financial Planner™ professional (CFP®) will answer your questions FREE within 24 hours. I hope you found this look informative and found value in your time.  Aloha!

Our lawyers made us do it, some legal disclosures…

This is an independent product review, not a recommendation to buy or sell an annuity. The annuity carrier has not endorsed this review in any way nor do we receive any compensation for this review.  This is an independent review  for you to see the pros and cons of this particular annuity.  Before purchasing any investment product be sure to do your own due diligence and consult a properly licensed professional, preferably a certified financial planner® practitioner, should you have specific questions as they relate to your individual circumstances.  All names, marks, and materials used for this review are the property of their respective owners.