Russell & Company
3174 Presidential Drive
Fairborn, OH 45324
Across from Wright State University on Presidential Dr.,
Map and Directions
3805 Edwards Rd Suite 550
Cincinnati, OH 45209
Map and Directions
Toll Free: 800-392-4378
So goes the claims of many fixed and variable annuity companies.
If you’re one of my loyal column readers it should come as no surprise to you that I’m not the biggest fan of annuities (especially variable annuities). I’m not trying to be a hater, fixed and hybrid annuities have their place in prudent retirement income planning, but for every decent annuity there’s at least a hundred awful options. Truth be told, I utilize certain varieties of fixed/hybrid annuities when the plan calls for guaranteed income or a principal protected strategy, but over the last few years the landscape has changed so much that I wouldn’t wish most annuities on my worst enemy.
How do you, the retirement saver, separate the few good annuities from the multitudes of bad?
Many annuities are loaded with optional rider fees, massive restrictions to accessing your money, hidden gotchas (like MVAs: Market Value Adjustments – many states have outlawed this practice), historically low caps on interest you can earn, and worst of all…they subject your hard-earned savings to the inescapable threat of inflation. That is, until now.
The biggest threat to the fixed/hybrid annuity industry is the continued anemic interest rate environment spurred by the Fed. Very much like a bank (although far better capitalized) insurance companies earn their keep on the “spread.” In other words, they earn the difference between what they’re earning on their investment portfolio minus what they’re paying you in interest. This conundrum has forced interest rate caps on fixed and hybrid annuities to near outright ugly levels. Unattractive interest rate caps around 2-3% have forced many smart wealth advisors to hunt for a more viable option with more upside potential, something with potential inflation protection and a safer hedge to the devaluing of the almighty U.S. dollar.
From my perspective the TVA (Total Value Annuity issued by Security Benefit Life) fits the bill, for the most part. It’s not to say this annuity doesn’t come with some strings attached; like waiting ten years to get the FULL value from your annuity without a liquidation charge, interest is vested over a five year period (similar to your 401k)…not every year like many annuities, and the upfront interest bonus is vested over time.
But, when properly used as part of a long-term retirement plan this principal protected hybrid annuity boasts some innovative game-changing features like:
5% Upfront Interest Bonus on your deposit. If you deposit $100,000 then $5,000 is added to your account day one (in some states the bonus may be as high as 10%, in Ohio the bonus is 5%).
The chassis of the Total Value Annuity is a fixed annuity, which is designed to protect your principal from market losses. The principal protection is backed by Security Benefit Life*, an A rated company owned by Guggenheim Capital – a Private Investment Group with over $125 billion in assets under management. The success of the TVA has been uncanny, in it’s first year it has attracted over $650,000,000 in new assets positioning it as one of the most attractive hybrid annuities in the industry.
INFLATION PROTECTED GROWTH:
The TVA’s hybrid feature is it’s unique indexing strategy. A commodity/currency index with no cap* on the interest you can earn is an industry first. This inflation sensitive proprietary index, known as the TVI (Trader Vic Index) is an interesting diversified market basket comprised of Commodities like gold, silver, cotton, coffee, corn, etc. and Currencies like the Aussie Dollar, Swiss Franc, etc. Historic back-testing shows that over 10 year periods the TVI index may produce an average return in the 5-8% range, far better than the potential 1-3% found in other fixed/hybrid annuities. In my opinion, as inflation really heats up in the coming years it’s possible for the index to perform even better.
Annuities are not where you put your emergency savings, but if you need to get money out of the Total Value Annuity after the first year you may withdraw up to 10% per year without any liquidation charges.
The TVA has no true fees* commonly found in competing annuities. Of course, there are some bells & whistles like a death benefit and income rider and while these optional rider fees are some of the lowest I’ve seen I generally steer away from these (but I concede that there may be certain scenarios where it may make sense to elect one of these optional features).
A feature of any annuity is the possibility of guaranteed lifetime income and what I like most about the TVA is the ability to protect and grow your money during high inflation and then turn on an income stream for the rest of your life. Obviously, the best thing to do is to let inflation do it’s thing over the next 5-10 years and then turn on the income feature of the TVA. In other words, take income from the TVA last.
While there are many things I like about the TVA, like any investment you make it’s important to weigh the pros, cons, and strings attached and since it’s long-term money you want to be careful on how much you allocate to this strategy. In a normal situation an allocation of 10-25% may be prudent. The hard part, believe it or not, is actually finding an advisor that even has access to the TVA because only select and specifically trained advisors can offer the TVA as part of a diversified common sense strategy.
By far, even with the few imperfections, I believe the TVA is the best, and really only, principal and inflation protected annuity available today. If you’re looking for a principal protected way to protect a portion of your life savings from Government fueled inflation, the Total Value Annuity may be a fit.
*Guarantees subject to the financial strength and claims paying ability of the issuing insurer. There’s no cap on the interest you can earn above and beyond .50% (known as a spread, not a fee). For example, if the TVI index earned 10% your return would be 9.50% (10%-.50%=9.50%).
Securities offered through Kalos Capital, Inc., Member FINRA, SIPC. Investment Advisory Services offered through Kalos Management, Inc., 3780 Mansell Rd. Suite 150, Alpharetta, GA 30022, (678) 356-1100. Russell & Company is not an affiliate or subsidiary of Kalos Capital, Inc. or Kalos Management, Inc. The opinions in the preceding commentary are as of the date of publication and are subject to change. Information has been obtained from third party sources we consider reliable, but we do not guarantee the facts cited are accurate or complete. This material is not intended to be relied upon as a forecast or investment advice regarding a particular investment or the markets in general, nor is it intended to predict or depict performance of any investment. Past performance is no guarantee of future results.