Prudential Annuities, managed by Prudential Financial, Inc. (NYSE:PRU), announced August 20, 2012 the launch of Highest Daily Lifetime Income 2.0, which replaces all previous models of the highest daily lock feature on the income rider attached to Prudential variable annuities. This announcement signals the further decline in variable annuity benefits for new consumers. The new version effectively lowers payout rates and income guarantees. As has been reported on MyAnnuityGuy.com, a leading annuity website, the economic downturn has forced variable annuity insurance companies to cut back sharply on their offerings in response to market conditions. Many variable annuity carriers have exited the business or considering leaving the business including Sun Life, the Hartford and John Hancock.
The Prudential Annuities Highest Daily Lock In has been one of the most popular of the variable annuities offering unique twists on income riders, arriving on the scene in 2006. These are variable annuities which place the risk of principal on the owner. The lock in feature applies only to income, not to lump sum principal. Fixed and hybrid annuities take the risk from the owner and transfer it to a legal reserve life insurance company. Variable annuity owners do not enjoy protection of principal. The long secular bear environment that has dominated the markets has caused many variable annuity assumptions to be turned upside down. This has caused variable annuity carriers to drop many of the features they once offered.
With the announcement by Prudential annuities to eliminate the 5% guarantee that went along with the lock in feature, the annuity owner must now understand that the benefits have been diluted. In the past, the Prudential rider offered a highest daily lock in or 5% guarantee whichever is higher. Now, the 5% guarantee is gone on new contracts. Prudential is doing the responsible thing by making this suspension, however, the annuity consumer, may do much better with a hybrid annuity., depending on his or her goals.
The remarkable success of fixed index annuities in the early and mid 2000’s no doubt inspired the creative versions of income riders on variable annuities, including the Prudential annuities Highest Daily Lock In. Index annuities combined safety of principal along with a share of the market’s upside. Variable annuities on the other hand are very expensive to operate for an insurance carrier in an era of poor markets and low interest rates, which the global and U.S.economies have found themselves in for years. The Prudential annuities Highest Daily Lock in payouts have now been reduced as follows: – Ages 50-54: 3 percent withdrawal rate, Ages 55-64: 4 percent withdrawal rate, Ages 65-84: 5 percent withdrawal rate (not interest rate, withdrawal rate) and Age 85+: 6 percent. Spousal versions are 50 basis points lower for all age bands. Variable annuities are long-term investment vehicles designed for retirement purposes and contain underlying investment portfolios that are subject to investment risk, including possible loss of principal. Before making any decision to switch to another annuity, you should consider annual maintenance fees, surrender charges, death benefits, and the financial strength of the insurance carriers.
At MyAnnuityGuy.com, our research team can provide higher withdrawal rates issued by top level insurance companies. We have found that consumers are confused about the Prudential annuities Highest Daily Lock In. They think it is an index annuity, with safety of principal, however it is not. They have learned the hard way at times that the Prudential annuities Highest Daily Lock In feature does not actually protect any of the owner’s principal. The lock in mechanism is there strictly as a way to measure future lifetime income benefits. With recent reduction in variable annuity payouts, Hybrid annuities can now pay more to the consumer in the way of guaranteed lifetime income. This is a very relevant and compelling reason for the retiring baby boomer to explore hybrid index annuities. The most important reason is to preserve principal. No annuity should ever be taken out to get rich. Annuities were invented to keep the owner from going poor and to actually feel more wealthy because of steady income. Annuities replace the pension that most Americans no longer have. And now that variable annuity benefits have fallen, fixed index annuities, known as equity index annuities and hybrid annuities (all one and the same) may provide the missing link in a smart retiree’s financial plan. The research team and licensed agents at MyAnnuityGuy.com are well positioned to help with rollovers of 401ks, IRAs, and 403b plans into high quality hybrid index annuities.