Independent Review of the American Equity Bonus Gold Annuity with LIBR - Independent Annuity Reviews
In today’s review, I’ll be covering the following information on the
American Equity Bonus Gold Annuity with Lifetime Income Benefit Rider (LIBR):
- Product type
- Current rates
- Realistic long term investment expectations
- How it is best used
- How it is most poorly used
The Bonus Gold annuity from American Equity is a fixed index annuity with available riders that provide lifetime income guarantees. There are elements conservative retirees may find desirable, but there are also details some agents might say about its potential performance that are 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.
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If you’ve been Googling “annuities”, it’s very likely that you’ve visited annuity marketing websites that make the following bold claims in order to collect your contact information:
- Highest Payouts
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- Get 7-8% Returns With NO Market Risk
We’ve discovered that none of these “benefits” really even matter without understanding your primary reason behind buying an annuity in the first place. Furthermore, under further scrutiny, many of these annuities cannot actually provide 7-8% returns for most consumers.
Other websites 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.
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Let’s dig in!
American Equity Bonus Gold Fixed Index Annuity – The Basics
|Product Name||American Equity Bonus Gold Annuity|
|Type of Product||Indexed Annuity|
|Issuer||American Equity Investment Life Holding Company|
|A.M. Best Rating||"A-" (Excellent)|
Opening Thoughts on the Bonus Gold Annuity with Lifetime Income Benefit Rider (LIBR)
“So is this annuity good or bad?” – Read on to find out!
American Equity has been one of the largest issuers of fixed index annuities for quite a few years. In the past, people bought index annuities because they were pitched as a way to get market linked upside with no market downside. Now that interest rates are super low, however, the upside has become severely limited.
As a result, many insurance companies have pivoted to make their products more about lifetime income guarantees that account holders cannot outlive. In terms of index annuities, many have done this by adding “riders” that add an income benefit to the original chasis.
While most insurance companies aren’t fond of the term, there are quite a few agents that use the term “hybrid annuity” when describing this updated version of the original index annuity. Be careful though with this term. “Hybrid Annuity” is just a marketing term. It’s nothing special and in reality annuities (for the most part) have always been hybrid in nature (they do more than just one thing).
In the case of the American Equity Bonus Gold product, it comes with the option to choose from a few variations of their Lifetime Income Benefit Rider (LIBR). The LIBR 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 LIBR keeps on paying income. If the annuity owner defers this rider the future income is higher based on a “roll up rate.”
A roll up rate though, is not an actual return. This is supremely important – and if you watch the detailed video below that illustrates how the rider really works you’ll see why.
Income riders like the LIBR have 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 the actual returns of these riders is easily misinterpreted. The bonus rates, roll up rates, and distribution rates are NOT the real returns to the investor.
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 upside potential is with the market linked annuity component.
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. American Equity 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 property of their respective owners.
How American Equity Describes The Bonus Gold Annuity
Like most annuities, this is a long term investment. Above is the surrender schedule for the American Equity Bonus Gold.
Per the Bonus Gold brochure, here are some key points as to how it’s marketed:
- Safety of premium
- Avoidance of probate
- Income tax deferral
- Guaranteed income for life
- Flexible interest crediting options
There’s a few more bells and whistles, but those are the basics. If you’re looking for the full brochure, you can find it here.
How Financial Advisors Might Propose This Annuity
The Bonus Gold a lot like other annuities that brokers/agents call a hybrid annuity. In the past few years some 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 Bonus Gold Annuity, it combines a lifetime income guarantee with the possibility of higher returns linked various market linked crediting methods; hence some advisors may call it a hybrid annuity.
It you hear it described as a “hybrid annuity” – there are a few different ways it might be presented. My experience, however, is that most sales agents will focus on two main components:
- The safety combined with return potential of the bond market
- The guaranteed income for life (LIBR) 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 roll up rate on LIBR can be as high as 7% per year, and the payout rate can be over 5%; some people seem to think that is the actual return. Combined with a potential upfront bonus of 10%, it is easy for many to think their worst case return will be more than 5% per year.
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 6% (in today’s low interest environment). Based on our testing we feel the most realistic expectation is in the 2% to 5% range. It could produce a return of less than 1%, and if surrendered early you could actually lose money. If bigger returns than that are part of your agents sales pitch – run, don’t walk, to find a more honest financial advisor.
Complete Video Review of the American Equity Bonus Gold Annuity
Warning: We tend to get pretty in-depth and a little geeky with video reviews. This particular video is very thorough and will show you exactly how to calculate the annuity performance. Enjoy, but consider yourself
Information in video as of 8/1/2013. Backtesting is not utilized by American Equity, all backtesting is done exclusively by AnnuityGator.com
Thanks to the folks at American Equity for noticing a couple of errors in this review. Please note the following corrections: Bonus Gold Product Chasis
- 10% Bonus is included from day one. In the video it is said to take multiple years to vest, that is not accurate.
- The brochure used in the video is out of date. Here is a link to the most up to date brochure.
- The surrender charge schedule in the video is not accurate (it was slightly off). Refer to above brochure link for current surrender schedule. Lifetime Income Benefit Rider (LIBR).
- Rider should only be referred to as LIBR (not LIBR-2010).
- Bonus Gold Lifetime Income Benefit Rider (LIBR) features and benefits are not available in all states and may be subject to certain limitations beyond those shown or discussed in this article and video.
- LIBR payments are not available in the first year, so the example assuming first year distributions are not applicable.
- Per American Equity, LIBR payments should be deferred at least 5 years. Only the second illustration of the LIBR does this.
- There are new rates for the LIBR effective August 2013. Those rates increase the effective return of the video illustrations modestly and are as follows: 7.0% roll up rate for 0.90% annual fee; 6.5% roll up rate for 0.75% annual fee; 4.0% roll up rate for no annual fee. Please note these are only the ROLL UP RATES and not the actual returns of the rider. Actual returns will largely depend on how long income is deferred and how long the annuity holder(s) live and therefore receive rider benefits.
As you can see from the video review there are some nice components of the Bonus Gold Annuity, but also some drawbacks. Here’s a quick table that shows the return data we tested in the video, that hopefully gives readers a realistic expectation of how this annuity might perform given today’s caps, fees, and income rider guarantees:
|Growth Account Returns Based on Crediting Method||Annualized Return based on 62 year backtest with S&P 500||Lifetime Income Benefit Rider Return Potential||Annualized Return based on minimum guarantee of income rider|
|Monthly Sum||2.17%||60 year old couple, taking income year 1, living to age 90||2.99%|
|Annual Point to Point||2.14%||60 year old couple, taking income after 10 years of deferral, live to age 90||3.88%|
The Annuity Gator’s End Take on the American Equity Bonus Gold:
Where it works best:
- For producing a reliable, “pension like” guaranteed income stream (although there are other annuities with higher guaranteed income at this time)
- 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
- For investors that want increasing income payments via an inflation adjustment to the LIBR
- For investors willing to defer income payments from the annuity for 5 years or longer in order to get maximum benefit from the LIBR rider
Where it works worst:
- For those that do not plan on using the Lifetime Income Benefit Rider (LIBR)
- For those seeking maximum long term growth
I should also note that I only tested a few of the many ways this annuity can be structured. It has other indexes the interest can be calculated against, different options on the income rider, and most importantly – the returns will vary based on each unique persons circumstances. In general though, this is a fairly comprehensive review that will hopefully help many people better understand how the Bonus Gold Annuity works.
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 some may use when trying to sell it (NOTE: there are regulatory requirements surrounding product training and disclosure of product information agents should be adhering to. If they do not, it is not at the fault or responsibility of the issuing insurance company).
As noted in the video review, a couple both age 60 with a 30 year life expectancy, realistically will earn somewhere between 1% and 5% over the next 30 years – depending on which options they select and how long they defer taking income.
For someone strictly looking for guaranteed income with no market risk the Bonus Gold can do the job, though there may be better options available. For someone looking for an investment that cannot go down, is content with low to mid single digit returns, and wants the transfer of risk annuities are really good at – this might be a good fit.
In the end, I’m still convinced some 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 it is illustrated 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. American Equity has actually done a very good job of producing easy to understand literature and in no way misrepresenting their product. They can’t, however, control every word that comes out of every agent’s mouth – so just always be careful out there!
As a recap to the video (for those that don’t have 40+ minutes to watch it), the Bonus Gold Annuity will not actually return 6%. Nor will it likely return 5%, and it’s possible the real returns will be less than 4%. When financial advisors use the bigger 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 American Equity Bonus Gold Annuity? See any Mistakes?
If you have questions please let me know. [You can reach me via the Free Annuity Help form here]
Annuities can be complex. That’s where having an Annuity Investigator who loves math comes in. We make the complex, simple.
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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