As is the case with many of today’s annuity products, the American Equity Bonus Gold fixed index annuity comes with some additional options (aka, riders) which can be added to the primary product in order to help you in better “customizing” the benefits to fit your needs…depending on your specific goals.
In the case of the American Equity Bonus Gold annuity, the biggie in terms of options is the Lifetime Income Benefit Rider, (or LIBR), that, according to the company’s literature provides the following key advantages:
- Lifetime income
- Control of the money that remains in the annuity contract – without having to annuitize (convert the contract to an income stream)
- Choice of the rate/benefit option that best suits your needs
- Spousal income (if applicable and needed)
- Either a level or an increasing income payment option
American Equity goes on to state that the Lifetime Income Benefit Rider allows you to take a lifetime income from the annuity, without losing control of your retirement assets. The way that this is possible is because the lifetime income is in the form of regular withdrawals from your contract, rather than via annuitized payments.
There are actually several different ways that you can configure the Lifetime Income Benefit, including:
- Lifetime Income Benefit Rider with an Income Account Value (IAV) rate of 3.0%
- Lifetime Income Benefit Rider with an IAV rate of 5.5%
- Lifetime Income Benefit Rider with a compounding IAV rate of 6.0%
- Two Different Options for the Lifetime Income Benefit and Wellbeing Rider
Totally confused yet?
So were we!
Taking a Closer Look at the American Equity’s LIBR Benefit “Small Print”
If you only read the information stated above, it is likely that you may feel that the American Equity Bonus Gold annuity with the Lifetime Income Benefit Rider is the ideal solution for you and your retirement income needs in the future.
Because before going any further, it is important to know the whole story. (Yes, there is always another side to the story!)
While the “small print” for this options rider is readily available, both online and from your current insurance or financial advisor (or at least, they should be providing you with it), reading over any type of financial related disclosure can be about as exciting as having a root canal.
This is where the Annuity Gator comes in.
We know how important it is to understand just exactly what you’re getting for your money, so we specialize in simplifying this information in order to provide you with all of the key angles you need to know about.
So here goes:
First off, with regard to the Income Account Value (IAV), it is important to understand that this is simply an accounting value that is used for calculating your Lifetime Income Benefit. This means that the IAV is not actually a part of your annuity’s contract value – nor is it available for partial withdrawal or in a lump sum. In other words, you don’t get access to the IAV unless or until you select the Lifetime Income Benefit.
Also, while it can be easy to get caught up in the hypothetical figures that are stated in the case studies and other product information, keep in mind that numbers are just exactly that – hypothetical. How this annuity and its accompanying riders will actually perform will be based on the various options that you choose, as well as the performance of the underlying index(es).
So, how much income can you really get if you opt for adding the Lifetime Income Benefit Rider (LIBR) to the American Equity Bonus Gold Annuity?
That will actually depend on several factors. These include:
- The amount of premium that is paid in, and
- Any applicable premium bonuses that are credited, and
- The IAV rate that you choose, and
- The amount of time that the IAV grows, and
- Your age at the time the payments begin, and
- The income option that you choose.
In addition, even though you may take withdrawals at any time – either before or after starting the Lifetime Income Benefit payments – if you do end up taking any before your LIB payments begin, then the income account value (IAV) payments will, in turn, be reduced on a pro rate basis.
Likewise, withdrawals that take place after the Lifetime Income Benefit payments begin – which are considered to be “excess withdrawals” – will also reduce your future Lifetime Income Benefit payments by the same percentage that the withdrawal reduces your annuity’s contract value.
Whew! There are a lot of variables here.
Given that, the only way to really know how this annuity may perform is to use our American Equity Bonus Gold calculator <link to calculator>, which can offer you figures that are designed for plugging in numbers that relate to your specific situation.
In addition, if you do end up getting payments based on the Lifetime Income Benefit, all of these payments are considered to be a withdrawals from the contract value – and in turn, any part of the withdrawal that is considered to be deferred interest will be taxable to you as ordinary income at your then-current income tax rate.
This means that if you rolled the money over into this annuity from a qualified plan such as a 401k, and all of your deposits into that plan were pre-tax, then 100% of these income payments will be taxable as income to you. (Also, as with most other tax-advantaged plans, if you start to take withdrawals before you turn age 59 1/2, you also run the risk of being hit with an additional 10% “early withdrawal” penalty from the IRS).
Also, depending on which of the Lifetime Income Benefit options you choose, you could be hit with additional fees – which in turn, can essentially reduce the amount of return, and thus the amount of income that you can ultimately receive in the future.
For example, while the lifetime income option with an IAV rate of 6.0% sounds pretty hunky dory, this choice also comes complete with a rider fee of .90% of your contract value. And, this fee is “conveniently” deducted from your contract value every year, as long as the Lifetime Income Benefit Rider is in force. (Sounds a bit counter-productive, doesn’t it?) The Lifetime Income Benefit with the IAV rate of 5.5% will also come with an annual rider fee of 0.75%.
There are also fees involved if you choose the Lifetime Income Benefit and Wellbeing Rider options. In this case, the option with the compounding IAV rate of 6% will cost you an annual rider fee of 1%, while the Lifetime Income Benefit and Wellbeing Rider that offers a compounding IAV rate of 5.5% will essentially cost you an annual rider fee of 0.85%.
Want an Unbiased Opinion That Can Actually Help You Determine Whether This Benefit is Really Right for You?
Even though looking closely at the fine print for an annuity – and its related riders – is a necessary evil, it doesn’t have to be difficult for you to determine whether or not various options are right for you…just as long as you are getting that advice from an unbiased third party. That’s where we come in.
Our team of annuity experts are here to help you wade through the myriad of information and hypothetical figures, so that you can ultimately determine whether or not going with this annuity rider will be in your best interest…or if it will just end up costing you additional annuity fees. Just simply reach out to us via our secure contact form here and we will be happy to help.