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Independent Review of the Prudential Defined Income Variable Annuity

What’s Covered in this Prudential Defined Income Annuity Review?

In today’s review, 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 Defined Income Annuity 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.

Annuities can be complex. That's where having an Annuity Investigator who loves math comes in. We make the complex, simple.
Annuities can be complex. That’s where having an Annuity Investigator who loves math comes in. We make the complex, simple.

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

Product NameDefined Income Variable Annuity
IssuerPrudential Financial Inc
Type of ProductVariable Annuity
Standard & Poor's Rating"AA-" (Very Strong)
Phone Number888-778-2888
Websitewww.Annuities.Prudential.com

Opening Thoughts on the Prudential Defined Income Annuity

"So is this annuity good or bad?" - Read on to find out!
“So is this annuity good or bad?” – Read on to find out!

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.

The problem though is 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.

Prudential has stepped up pretty big with the Defined Income Annuity 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 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, most specifically in the 45-minute video we created that shows exactly how it really works. In the video, I illustrate how to calculate the real returns of the income guarantee, as well as provide some insight into what the return potential is of the AST Long Duration Bond Portfolio.

If you’re wondering if this 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, 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 Annuity

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

Per the Defined Income Annuity 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.

How Financial Advisors Might “Pitch” This 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 Defined Income 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 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.

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 Defined Income 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 Defined Income 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 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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Best,

The Annuity Gator

Here are some other independent annuity reviews we’ve recently done:

Is the Prudential Defined Income Variable Annuity the right annuity for you?

 

23 thoughts on “Independent Review of the Prudential Defined Income Variable Annuity”

  1. I’m 60 years old and I’m looking at purchasing a $100,000 annuity for future income. I’m considering one of three Annuities; Security Benefit Secure Income Annuity (Guggenheim), Security Benefit Total Value (Guggenheim), or Allianz 360 (Allianz).

    An income rider will be purchased with the annuity. I plan to start taking a “free withdrawal” of less than 10% at age 66, but if I don’t need the income I’m going to let it ride until 70.

    Have you done any independent reviews on the annuities listed above? If so, where would I find the information?

    One more item, what is your opinion on purchasing one of each of the annuities listed above at age 60, if the funds were available, and starting one at age 66 and letting the other two ride until needed.

    Thank in advance.

    1. Hi Phil – Thank you for your message. We do have reviews on our site that discuss the Allianz 360, as well as both of the Security Benefit products. We would be happy to assist you in deciding which of these may be right for you. In order to do so, though, we would need to get a bit more information from you. Rather than emailing sensitive personal details back and forth, it would be best to discuss via phone. Please feel free to reach out to us toll-free by phone at (888) 440-2468. We look forward to speaking with you. Best. – Annuity Gator Team

  2. Thanks – this article is helpful.

    Do you have comments about the Prudential “Highest Daily Lifetime Income” plan, which is a variable annuity with “highest daily lock-in”?

    Thanks.

    Martha

    1. Hi Martha – Thank you for your message. At this time, we do not have a review posted on our website for the Prudential Highest Daily Lifetime Income plan. However, we are always happy to take suggestions from our site visitors regarding additional reviews. We will add this annuity to our list of upcoming reviews, so please check back again soon. In the mean time, if we can answer any questions or concerns that you may have, please feel free to reach out to us directly via phone at (888) 440-2468. Best. – Annuity Gator Team

  3. I have yet to find one comment on your site that implies an annuity would be a good option.

    **the rest of this comment was edited as offending language was used**

    1. Annuity Gator

      Hi Mike,

      Thanks for writing and sorry some of your comments had to be edited out. It’s always a good idea to be careful what you write so as not to offend some site visitors.

      To help you out – I think annuities can be a great part of a portfolio when used correctly. So long as it meets and investors needs and they are comfortable with lowering the risk of their portfolio in exchange for modest returns and guaranteed income for life. Where a lot of annuity problems are created is when agents mislead investors into believing an annuity will get better returns than is likely. It’s a shame this happens, but it does. When illustrated correctly, many of the best annuities will still be considered desirable for more conservative investors. The big thing is most annuities today will only produce an effective annualized return in the 2% to 4% range over 20 or more years. This is fine when the benefits are truly desired for a client. When an agent tried to convince their potential client they will make 6% or more with no risk…well that’s just not honest.

      Hope that clarifies some things.

      Best,

      -Annuity Gator

    2. Hope that you do not buy Prudential Variable Annuities (“VAs”)
      yet. Read the prospectus carefully. Advanced Series Trust (“AST”)
      Investment Options documented in Prudential VA prospectus and its
      VA application form are not underlying SEC-registered mutual funds
      and AST Investment Grade Bond Portfolio has no investment grade
      bonds but rather has “junk bonds”.
      If you already bought Prudential VAs, ask your broker-dealer
      to show you the certificates of your chosen Investment Options and
      AST Investment Grade Bond Portfolio in your broker-dealer account
      to make sure that your broker-dealer did buy you what you chose
      when you signed the application form or reallocated thereafter..

      1. Hi Michael – Thank you for your reply. Yes, it is always recommended to check the prospectus carefully so as to fully understand which investments are available in variable annuities and how they work. In addition, because VAs can be somewhat riddled with fees – both in the annuity itself, and from the individual funds that are in the annuity – it is essential to know how much is coming out each year, as it could drastically impact the return. Please feel free to check back in again soon. Best. – Annuity Gator Team

  4. Three years ago when I retired I put about 20% of my liquid assets into a VA……a guaranteed 7%/yr net of all fees for 10 years (double the deposited amount), then a 5% payout for life. At the three year mark the investment is up 10.2% per year, if it only goes up 7%/yr for the remaining 7 years I’ll net a cumulative rate of return of 7.8%/yr. I CAN LIVE WITH THAT……..it takes money off the table and guarantees me a good payoff for life. These plans aren’t suitable for all people, but for those with a moderate level of liquid assets they can play a part in a portfolio. Most people are annutiy challenged, as I was, but once you dig into them you will find there are positive things about them. DO YOUR HOMEWORK and don’t listen to water cooler talk exclusively

    – Tom

    1. Hi Tom – Thank you for your comment, and we’re glad to hear that the information is helpful. Recently, we have added more information to our AnnuityGator.com website, so please feel free to check back again for additional annuity details. And, if we can answer any additional questions that you might have regarding your current VA, or another annuity scenario, please feel free to reach out to us directly by phone, toll-free, at (888) 440-2468. Best. – Annuity Gator Team

  5. So I take it Mike is an insurance agent who is upset because Jason is not bragging up annuities. Annuities are not for everyone. An honest opinion really helps. When it comes to annuities, they are designed for the conservative investor and bragging annuities up in my mind will hinder the conservative investor from purchasing an annuity.

    1. Hi Don – Thank you for your comment. It is true that, while annuities do have some attractive features, they are not for everyone. We try to reiterate that in our reviews, and also stress that even if an annuity initially sounds appealing, people should really read all of the fine print before moving forward. Doing so can help to avoid any surprises down the road. Best. – Annuity Gator Team

  6. What about if a 78 year old were to purchase this product? It doesn’t seem to be a good fit. She is giving up a 4% fixed rate that is completely liquad. The interest is credited daily and compounds annually on here existing contract. The 4% is the minimum interest rate for the life of the contract. It is from the late 1980’s.

    Thanks

    Brian

    Brian

    1. Hi Brian – Thank you for your message. We would be happy to discuss some potential options with you. In order to provide you with the best advice, we would need to get a bit more information from you. Rather than emailing sensitive details back and forth, though, it would be best to chat via phone. Please feel free to reach out to us directly, toll-free, at (888) 440-2468. We look forward to speaking with you. Best. -AnnuityGator Team

  7. Thanks for your information on this product. It was just offered to me. I liked it very well, but absolutely hate the fees..which much lowers the 6 percent guaranteed rate. I just thought there may be something better, but I am dumb when it comes to investments.

    What should I look for?

    #2 question..I found no reference to a penalty if you need to withdraw some amount.

    1. Hi Lucy – Thank you for your message. We would be happy to walk you through the information regarding what to look for, and in turn, whether or not the Defined Income VA would be a good option for you. In order to provide you with the best advice, though, we’d need to get more information from you. This would best be done via phone, as versus emailing sensitive personal details back and forth. Please feel free to contact us via phone, toll-free, at (888) 440-2468. Thanks, we look forward to hearing from you. Best. – Annuity Gator Team

  8. rick anderson

    is there an annuity that provides income that keeps up with inflation. have an advisor that is pitching the Alliance 222 but after reading all that I was given and online reviews that product does not meet what I am looking for

    1. Hi Rick – Thank you for your message. There are some annuities that will allow an increase in income over time in order to help in keeping up with inflation. We would be happy to discuss which of these offer that option in order to narrow down which may work best for you and your particular goals. Please feel free to contact us directly, toll-free, at (888) 440-2468. We look forward to speaking with you. Best. – Annuity Gator Team

  9. Using your example, I get an initial annualized return of .246% instead of the .44% in your spreadsheet……. {(5422/100000)/22}. Can you explain please.

    1. Hi Rich – Thank you for your comment. We are actually in the process of updating many of the reviews that are posted on our AnnuityGator.com website. We would be happy to discuss this annuity in more detail with you, including how the returns were / are determined. Rather than sending sensitive personal information back and forth, though, it would likely be best to discuss via phone. Please feel free to contact us, toll-free, at your convenience, at (888) 440-2468. Thanks, we look forward to hearing from you. Best. – Annuity Gator Team

  10. dale johnson

    the salesmen do not mention the 3 per cent charge deducted from your account on each statement

    1. Hi Dale – Thank you for your comment. That is true. Oftentimes, insurance sales agents will state that you need to read all of the “fine print” before moving forward with an annuity (or any other product). Unfortunately, it is in this fine print where you will find the more in-depth details regarding fees. In some cases, the information can be pages and pages thick – and because of that, many consumers just simply don’t have the time (or the desire) to wade through it all. Then, once the commitment to purchase the product is complete, it usually too late to make a change (at least without facing some stiff penalties). This is why we work to provide as much information as possible about annuities here – including the charges and fees – so that people are not surprised down the road. We will also be adding more annuities to our site going forward, so be sure to check back again soon. Best. -Annuity Gator Team

    2. Hi Dale – Thank you for your comment. Yes, that is true. Oftentimes with annuities, there will be recurrent administrative and / or contract related charges (which are often not mentioned by the insurance / financial sales people who sell them, or if they are, they are glossed over quickly). This is why it is so important to read over the information prior to moving forward, as once you’re locked in, it can be difficult to get out of an annuity – at least without incurring a surrender charge. Best. – Annuity Gator Team

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