What’s covered in this Review?
In this review we’ll cover the following information on the WealthQuest Citadel 5 Diamond Series Fixed Annuity:
- Product Type
- Current Rates
- Realistic long term investment expectations
- What to expect, and what not to expect
Fixed annuities appeal to investors who want to know they won’t lose money to wild stock market fluctuations. However, the guaranteed interest rates offered by fixed annuities like the Citadel Five are so low, you might lose in other ways, especially if this is the money you are relying on for your retirement income needs.
Retiring today without a guaranteed pension income can be a scary prospect, and many investors who are looking to annuities want the fortitude that principal guarantees can provide. What’s difficult, however, is that not all annuities structure their guarantees the same way. Some of them can get expensive or lose your money, and with the advent of Living Benefits and Income Riders that offer interest rate enhancements and lifetime income, things can get awfully complicated awfully quick.
The WealthQuest Citadel Diamond 5 Series by American National is a simple fixed annuity that offers NO lifetime benefits or guaranteed income payouts, but it does offer you principal guarantees. It also has a five-year surrender charge – as advertised in its name – which means you can access your money without penalty after five years.
On the downside, a fixed annuity sounds like it has an interest rate that doesn’t change – however, this isn’t the case. The interest rate DOES change after the first two years, and even with the “enhancements” the rate isn’t able to stand up against today’s average rate of inflation. You might also be told that this annuity can offer you certain tax advantages that other investments cannot, but whether or not these tax advantages are helpful to you depends on what financial stage you are in.
This doesn’t mean that the annuity is bad; it just means that as an investor with one shot at allocating this money right, you have to know why you are purchasing the annuity. Furthermore, you want to make sure that the annuity you choose is the one that can get you the most with what you have to work with.
And this is where we come in.
If you’re looking for a translator who can spell out all the features and benefits for you in plain English and explain what’s what, then you’ve come to the right place.
Annuity and Retirement Income Planning Information That You Can Trust
If this is your first time here, welcome to AnnuityGator.com. We are a team of experienced financial professionals dedicated to publishing the most comprehensive, unbiased annuity reviews available on the Internet today, and we have been doing this longer than other copycat websites out there. Whether or not an annuity is too expensive for what you get, good at some things but not others, or if it falls short as compared to similar products on the market, we’ll let you know.
How do we go about this? First, we unearth all the details including current rates, fees, and realistic expectations, then we explain what those benefits mean and what we’ve seen based on our industry experience.
Why do we do this? Because we believe a better-educated consumer makes better decisions.
If you’ve been searching the web for information about a particular annuity, then you’ve probably heard conflicting information. Annuities are bad! Annuities are great! Annuities can do everything!
- Highest Payouts!
- Lowest Fees!
- Top Rated A+ Companies!
- Guaranteed Income For Life!
- Get Your Quote Now!
- Get 7-8% Returns With NO Market Risk!
That’s a lot of hype for one little investment. Can an annuity really do all of that? Well . . . it depends on who you talk to. Financial salespeople who sell annuities for a living can sometimes make it sound as if their annuity can get you everything but the kitchen sink. Truth is, every guarantee has its costs, either in terms of market risk, access to your money, or access to returns. Question is, what are the benefits most important to you?
Whether you are considering an annuity and want to test it against another or you want to know if a particular annuity is any good, we do the work of uncovering the details for you. We then translate the financial-speak and present our findings so you can make a decision based on
facts, not hype.
Now, let’s roll up our sleeves and get digging!
WealthQuest Citadel 5 Diamond Series Fixed Annuity at a Glance:
Product Name – Citadel 5 Diamond Fixed Annuity
Issuer – American National Life Insurance Company of New York
Standard & Poor’s Rating: A
Phone Number: (866) 490-3163
Website – http://www.anicony.com
Opening Thoughts on the WealthQuest Citadel 5 Diamond Fixed Annuity
It was back in 1905 that W.L. Moody Jr. founded American National with his vision of a flourishing company who used its profits to finance all future growth. So dedicated was Moody to his conservative investment philosophy, American National didn’t even pay out dividends to its investors during its first few years of operation.
Being thrifty paid off: American National has withstood wars, hurricanes and economic volatility and continues to soar today as an A-rated company. Why do ratings matter?
You sometimes hear from fee-only advisors who don’t sell annuities that these investments aren’t actually guaranteed. What they mean is that they aren’t FDIC insured but rather they are backed by the claims-paying ability of the insurance company that sells the annuity. Because today’s retirees are living longer than ever before, it’s important to do your homework and look into the company that is issuing the annuity you plan to purchase. Any grade less than the strength of an A should give you pause.
What insurance companies do particularly well is to give you security during insecure times. If you have invested in mutual funds, brokerage accounts or some type of securities product, then you’ve probably been riding the stock market roller coaster. Will your money be here tomorrow, or will it be gone? What stomach-dropping news is in store for us next?
Nobody really knows what the stock market will do, and anyone who claims to is only speculating. That’s why many investors approaching or entering into retirement might be feeling a little sick of the roller coaster ride. If it’s time to get off, or at least move a portion of your retirement into a safer place, then annuities might be right for you.
Annuities are designed to be long-term investments. Insurance companies like the predictability of long-term investments because over time, they can earn more stable returns in exchange for the commitment of your money. This is how they give you those principle guarantees you might be looking for.
What’s interesting about the Citadel Five Diamond, however, is that as an annuity, it has a relatively short-term contract. After five years, the surrender fee disappears, which means you can get out of the contract if you so choose.
While it might comfort you to know that you can change your mind in five years’ time, this privilege does come with a cost.
Like many annuities available today, the Citadel 5 comes with an interest rate enhancement. Unlike some annuities which offer rate enhancements for as long as 10 years and as high as 5.5% guaranteed, the Citadel Five is currently offering (as of July 1, 2016) an enhancement rate of 1% for 1 year. Hmmm.
The Citadel 5 also offers a floor. Unlike some annuities which can lose your money and still others which promise the worse you can do is earn nothing, the Citadel 5 promises that the worse you will do is earn 1%. Okay – not bad. At least you won’t be going backward, right?
Well, not really.
The current average annual rate of inflation is 3.22%. That means for every dollar you have in this fixed annuity, you’re losing around 2%. What about those guarantees?
Let’s take a look at what those guaranteed rates would pay if you signed up for this annuity today.
Using the rates available for agent use only effective as of July 1, 2016, the WealthQuest Citadel 5 has a minimum guarantee of 1.20% for deposits under $100,000, which, combined with that interest rate enhancement would give you an interest rate of 2.30% for the first year. This rate is good for all premium payments received (the money you put into the annuity) during Year One only.
When you compare that rate with the current rate of inflation, you’ll see that even with the bonus rate, you’re losing .92% annually.
After that first year, the interest rate drops back down to the minimum guarantee, which would be 1.30%. Again, still losing by 1.92%.
After the first two contract years, the interest rate is changed again and set for another year. We’re two years into the investment, and so far, not once have we been able to keep up with the average annual rate of inflation.
Sounds like a lot of losing and a lot of changing for a fixed and guaranteed product, doesn’t it?
Now let’s take a look at the income side of things. According to the terms of this annuity contract, after the first year, you can’t put any more money into the annuity. Why does this matter? Because once the five-year surrender charge period is over, you no longer have to limit your withdrawals to under 10%. That means you can withdraw as much as you need for income, and there are no fees! This is a positive.
Here are the negatives: this annuity works very much like a savings account, where once the money’s gone, it’s gone, only you can’t put any more money back in. What happens if you live longer than expected and you run out of money? Your retirement is sunk.
If income protection is on your mind, you might want to consider investing in something that can give you better long-term benefits. The average 65-year old male retiring today can expect to live for at least another 21 years according to the Social Security Administration, and women are likely to live even longer. That means your money needs to last at least another 20 years.
What about the advertised tax benefits and principal guarantees? More details coming soon . . . but first, a brief commercial break sponsored by our legal department – AKA – we have some disclaimers:
This is an independent product review, not a recommendation to buy or sell an annuity. American National has not endorsed this review in any way nor do we receive any compensation for this review. This review is meant to be an independent review at the request of readers so they could see our perspective when breaking down the positives and negatives of this particular model annuity. Before purchasing any investment product, be sure to do your own due diligence and consult a properly licensed professional 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.
How American National Describes The WealthQuest Citadel 5 Diamond Annuity.
American National describes the benefits and features of this annuity on their website as follows:
- An individual fixed deferred annuity with premium payments allowed during the first year only.
- Two important guarantees: 100% guarantee of principal (less any applicable surrender charges) and a minimum guaranteed interest rate.
- Tax-deferred growth for triple-compounding.
- A 1% interest rate enhancement on all premium payments made within the first year of the contract.
- Protection for your beneficiaries with no surrender charges or the expenses and inconvenience of probate.
There are also illness and disability waivers that give you access to your money penalty-free, but this list covers the main attractions. If you want to find the website and/or prospectus, you can click HERE.
How Financial Advisors or Salespersons Might Present This Annuity to You
Here are the three main concepts you might hear from your financial salesperson when they try to sell you on the features of this annuity:
- This investment gives you tax-deferred growth so you can immediately realize a decrease in your Federal and State income taxes.
- This investment will give you two important guarantees: the guarantee of principal and a guaranteed interest rate.
- This investment will give you free withdrawals after 5 years using systematic payments for a fixed amount that can be used for mandatory distributions on your IRA.
Let’s start with the tax benefits.
The nice thing about any deferred annuity is that you get to benefit from what we, in the biz, call triple compounding. Like a triple decker sandwich or a triple ice cream cone, triple money sounds like a great deal, right?
With no current taxes due on the amount of interest earned, you get to earn more money in three ways:
1. Interest on the amount you invested
2. Interest on the interest as it grows
3. Interest on the money you don’t have to pay in taxes
So that’s the scoop with triple compounding. Thing is, while you certainly don’t want to pay income taxes on money that you aren’t spending now if you have a 401(k) or IRA, then you’ve already benefitted from tax-deferred growth. If you are trying to grow your money for later needs, the triple compounding will help, but you’re not going to be growing by much more than 1% annually.
The WealthQuest Citadel 5 is pretty proud of their tax-deferral. They advertise that you don’t have to worry about taxes eroding the interest earnings on your annuity contract, yet they fail to point out that:
1). All deferred annuities grow tax-deferred, not just this one
2). Inflation WILL erode the earnings in your annuity contract.
We’ve seen other annuities out there that give you these same tax benefits and principal guarantees with stepped-up enhancements that, for a small fee, grow your money at a much healthier rate.
When shopping around, keep in mind that increasing your guaranteed “floor” or interest rate usually increases your fees. The Citadel 5 is a rock-bottom cheap annuity when you compare it against other annuities on the market. As mentioned earlier, it offers investors a simplified way of structuring income that goes like this:
You can request systematic withdrawal benefits to access no more than 10% of your money penalty-free for the first 5 years, or you can take an interest-only payment and structure that monthly, quarterly, semi-annual or on an annual basis. Fixed payments can be as low as $50 if direct deposited, and you can use this system for the mandatory IRA distributions once you reach age 701/2.
What About the Fees?
When people say that annuities are expensive investments to own, they are most likely talking about the variable kind. (Here you can read our free 2016 Consumer Report: The Truth About Variable Annuities). The WealthQuest Citadel 5 does do a nice job of keeping its fees low.
It used to be standard practice to charge investors a sales charge just to get into an annuity. These fees – called a front-load fee or sales charge – have gotten so much negative attention, many insurance companies are removing the fee. (If you find that you ARE paying this fee, give us a call – we’ll see what we can do to help.) These fees can be especially destructive to someone entering retirement because right off the bat, you enter into the contract with a big bite taken out of your nest egg.
The Citadel 5 doesn’t do that, which is nice. When you roll over or deposit your premium into your policy, this amount less any withdrawals or surrender charges is what you are guaranteed to have when you surrender the policy.
The Citadel 5 also has a relatively short surrender period, but if you are getting into this annuity in order to get an income, you’ll want to be aware of how much it will cost you to get your own money out. Here is a breakdown of what those fees look like:
Surrender Charge during first 5 years:
- 7% at 1 years
- 7% at 2 years
- 7% at 3 years
- 6% at 4 years
- 5% at 5 years
- Withdrawal Charge: You can access 10% free. After that, surrender charges apply for first 5 years.
- Front End Sales Fee: 0%
- Annual Administration Fee: 0%
Fee Total: 0% to .07%
The Annuity Gator’s End-Take on the WealthQuest Citadel 5 Diamond Fixed Annuity.
Where it works best:
- For investors who need a place to put a portion of their retirement savings where it is protected from stock market loss.
- For the investor who already has a portion of their money growing at a respectable rate.
- As a cheap source of backup income funds during retirement.
- For the investor who does not need access to their money for 5 or more years.
- For the mature investor who wants to self-fund their future long-term care costs.
Where it works WORST:
- For the investor who wants to accumulate a sum of money for retirement tax-deferred.
- For retirees who want to keep up with the average rate of inflation.
- For retirees who need income right away.
- For investors who need an annual income greater than 10% of their savings.
- For younger investors who have a longer time period to save.
The WealthQuest Citadel 5 is a fixed annuity with low fees that guarantees your principal, which means you can’t lose a dime to stock market loss. It gives you a fixed interest rate for the first two years, an enhanced rate guaranteed for the first year only, and a minimum guaranteed rate of 1% annually. None of these rates can keep up with the average annual rate of inflation.
In terms of growth, the tax-deferred benefits offered by all deferred annuities means the money growing at that low, guaranteed rate will not be taxed until the money is withdrawn.
As an income producing investment, this annuity can give you free systematic payments as long as you don’t need to access more than 10% of your money annually. After the five-year surrender period is over, you can access your money much like a savings account except you can’t put any more money in.
So what does all this mean to you? If getting a guaranteed income is your goal, there are annuities out there that can guarantee lifetime income and give you spousal protection. If you are 10 or more years away from retirement and want to grow your money for later needs, an annuity with principal guarantees and higher rates of growth might be able to give you more bang for the same number of investment bucks.
Thanks for bearing with us on this rather long post. If you found it helpful, please spread the word and share it with others. If you want to learn more about other kinds of annuities, get your free copy of the 2016 Consumer Report: The Truth about Variable Annuities.
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Lastly, like all humans – we do make mistakes. If you see one on this review please reach out and let us know since this annuity’s terms may have changed since we published this review. We are always more than happy to make corrections and give credit where it is due. If you’re an investor and this review causes confusion and creates questions, feel free to reach out as well. We can’t always get back right away, but we can usually clear up any questions within a day or two.
The Annuity Gator