What’s Covered in this Prudential Variable Annuity Review?

In today’s review about Prudential annuities, I’ll be covering the following information on the Prudential Defined Income Variable Annuity:

  • Product typePrudential_Retirement
  • Fees
  • Current rates
  • Realistic long term investment expectations
  • How it is best used
  • How it is most poorly used

The Prudential Variable Annuity does a few things really well does a few things really well compared to other variable annuities, but there are certain limitations. There are also details some agents might say about its performance that is not entirely true.  It’s important you understand the differences (between what advisors say, and how the product really works), so you can determine if it really is a good fit as part of your financial plan.

Annuity and Retirement Income Planning Education You Can Actually Trust

Maybe this is your first time visiting our website and you don’t know much about what we do.

When using the internet to get annuity education and info, what you’ll find is that many of the websites are run by annuity agents pushing one single type of an annuity. They might appear (certainly trying their hardest) to look like unbiased educators, but you can rest assured their #1 motivation is to actually sell you an annuity. Others are adamantly opposed to annuities but have no idea how they really work.

Both of those approaches are flawed and don’t benefit you in any way.

Here at Annuity Gator, we publish the most comprehensive independent annuity reviews here on our website and have been doing it much longer than many of the copycat annuity review websites you see out there.

Let’s dig in!

Prudential Defined Income Variable Annuity at a Glance

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Opening Thoughts on the Prudential Defined Income Variable Annuity

Over the past 10 years variable annuity sales have been booming, but declining a touch the past couple. One of the reasons sales have largely been up, though, is due to “living benefit riders.” Living benefit riders are additional features of an annuity that guarantee a benefit to the contract owner while they are living.

One of the popular living benefit riders is a Guaranteed Lifetime Withdraw Benefit (GLWB).  The GLWB essentially guarantees a lifetime income for the contract owner regardless of how long the owner lives or what the market does. Even if the underlying investments go to zero, the GLWB keeps on paying income.

This has been really popular largely because of the volatility of the stock market, and also because low-interest rates have made it tough to find high paying fixed investment alternatives.

Given longer life expectancies today, retirees and investors alike are worried about outliving income in retirement. An annuity can help with that, because they are designed for paying out an ongoing income stream. But having the “wrong” annuity could mean that the financial tool you’re using won’t provide the solution that you’re looking for.

In addition, it is possible that various “solutions” are now no longer available. For instance….

Many of the insurance companies that offered the first generation GLWB riders are now exiting the business. It turns out the income guarantees cost too much money and put the insurance companies in too much risk. So over the past couple years, the riders have changed greatly. Insurance companies still want to pull in piles of investor deposits (so they have to look desirable), but don’t want to do so at the risk of not being able to make good on the guarantees.

The Prudential Defined Income Variable Annuity shows that Prudential has stepped up pretty big, because it truly has some of the best-guaranteed income payouts compared to other variable annuity competitors. It does so by being the first Variable Annuity with a GLWB to offer just a single “variable” investment option. This investment option is the AST Long Duration Bond Portfolio.

By only offering a bond portfolio, the risk to Prudential is much smaller than if they offered growth or balanced investment options. This is because they only have to pay the guaranteed income if the bond portfolio can’t produce the income on its own. When you compare this to the risk of, say, offering a stock portfolio option; it’s much smaller. A stock portfolio might drop 50%. If that were to happen, the insurance company could be on the hook for a substantial amount of guaranteed income payments because the “variable” component is not capable of providing the income by itself.

It’s not all roses, however. Just because the income guarantee for the Prudential Variable Annuity is higher than other variable annuity competitors, doesn’t mean it’s the best income guarantee available. By only allowing bond investments, this variable annuity actually has performance much closer to Fixed Index Annuities with GLWB riders. Many of those actually pay higher income guarantees.

You’ll see why later in this review exactly how it really works. I provide some insight into what the return potential is on the AST Long Duration Bond Portfolio.

If you’re wondering if this Prudential annuity is right for you, or if you have questions and need a little help getting pointed in the right direction; just reach out via our secure contact form here.

Before we get into the gritty details, here are some legal disclosures…

This is an independent product review of the Prudential Defined Income Variable Annuity, not a recommendation to buy or sell an annuity.  Prudential Financial has not endorsed this review in any way nor do I receive any compensation for this review.  This review is meant to be an independent review at the request of readers so they could see my 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 Prudential Financial Describes The Defined Income Variable Annuity

Prudential Defined Income Variable Annuity surrender schedule and contract fees
Prudential Defined Income Variable Annuity surrender schedule and contract fees. Just click on the image to make it larger and easier to read.

Per the Prudential Annuities website and brochure, here are some key points as to how it’s marketed:

  • Simplifies retirement income planning
  • Avoids exposure to equity markets
  • A potential alternative to money in cash, money markets, or CDs
  • The longer you wait, the more income you can get
  • Flexible income options, including lifetime income

There’s a few more bells and whistles, but those are the basics.  If you’re looking for the website and/or prospectus, you can find those here.

You can also find more details on this annuity’s income percentages, as well as current rates, here.

How Financial Advisors Might “Pitch” The Prudential Variable Annuity

While this is technically a Variable Annuity, it looks a lot like other annuities that brokers/agents call a hybrid annuity. In the past few years, insurance agents have fallen in love with the term “hybrid annuity.” Even though the insurance companies don’t seem to like the term a whole lot, I guess the cool sounding name makes it easier to sell annuities, so it’s caught on nonetheless.  When agents use the term “hybrid,” they are referring to an annuity that has multiple annuity features rolled into a single product.

In the case of the Prudential Variable Annuity, it combines a lifetime income guarantee with the possibility of higher returns linked to the AST Long Duration Bond Portfolio; so whether Prudential likes it or not – some advisors might call it a hybrid annuity.

If you hear it described as a “hybrid annuity” – there are a few different ways it might be pitched.  My experience, however, is that most sales agents will cling to two main components:

  1. The safety combined with return potential of the bond market
  2. The guaranteed income for life (Defined Income) that makes the worse case scenario pretty desirable

While those are true statements, this annuity is not perfect (nor all bad). It can work well when used correctly but has shortcomings just like any other financial product. One of the biggest issues I’ve run into is that many agents misrepresent how this Prudential variable annuity will actually perform. That’s a problem.

From the many people I’ve talked to personally about their experience with agents, most seem to have been told this annuity will perform “better” than other annuities.  Because the income growth is currently 5.5%, and the payout rate can be over 5%; some people seem to think that is the actual return.

For the most updated income percentages, go here, and for updated rates, go here.

Is any of that true?  Eh, not exactly.

If your agent/advisor explains this annuity correctly, you should never get the impression you’ll earn more than 2% to 5%. It could produce a return of 0%. If bigger returns than that are part of your agent’s sales pitch – run, don’t walk, to find a more honest financial advisor.

The Annuity Gator’s End Take On The Prudential Variable Annuity

Where it works best:

  • For producing a reliable, “pension-like” guaranteed income stream
  • For producing an income for life that cannot be outlived by a surviving spouse
  • For investors who have a family history of life longevity
  • For investors that have no need for their money or generating large returns, but want it to grow safely until transferred to their beneficiaries

Where it works worst:

  • For those that do not plan on using the Defined Income Benefit
  • For those seeking maximum long-term growth
  • For those needing retirement income that goes up with inflation

In Summary

One of the most important things for investors to understand is that the “income growth rate” is not the actual return, nor is the “income percentage” the actual return.  In no way will it produce the 5% to 8% return numbers a lot of uneducated advisors toss around when trying to sell it.

For someone strictly looking for guaranteed income with no market risk, there may be better options available.  For someone looking for an investment that cannot go down, is content with lower single digit returns, and wants the financial strength of a really solid company – this might be a good fit.

I’m still convinced most agents don’t realize what the real returns are though and significantly over promise what’s realistic – so be especially wary of anyone who suggests this annuity will work better than how I illustrated it here.  If the agents are being upfront and honest, you’ll notice their explanations match very closely (if not exactly) as described in this review.  When that happens, you have an agent you can trust.

As a recap to the video (for those that don’t have 40+ minutes to watch it), the Prudential Variable Annuity will not actually return 6%. Nor will it likely return 5%. When financial advisors use those numbers they are referring to percentages used to calculate the income guarantee.

The only way to know if this annuity is a good fit for you is to have it tested.  We do this free at AnnuityGator.com, so just get in touch with me and I’ll use the calculator from the video to illustrate for you what returns for your situation are likely to be.  If your agent was honest with you the numbers will match up – if not, well then you might want to reconsider who your agent is.

Have Questions on the Prudential Defined Income Variable Annuity?  See any Mistakes?

If you have questions please let me know. You can reach the Annuity Gator Team via the Free Annuity Help form here.

I know annuities can be confusing and a lot of people are pushing investors very hard to buy them.  But you need to know the real facts to make sure if you go that route you don’t end up regretting it later.  After all, annuities are long-term investments with contracts, surrender penalties, etc.  For some people, they won’t make sense at all, but for some, they might.

If you know anyone who has an annuity or is thinking of buying one, please share this post with them.  I know a lot of people are getting very conflicting information and my goal in writing this review and making the video was to educate in an objective way.  If you have a Facebook account you can click on the little “Facebook” icon and share this article.  That way more people will be able to find it and hopefully, more people will benefit.

Thanks for bearing with me on this rather long post, I hope you found it beneficial in your research.

Lastly, like all humans – I do make mistakes.  If you see one on this review please reach out and let me know.  I’m 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.  I can’t always get back right away but usually, I can clear up those questions within a day or two.

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