The Secure Income Annuity (SIA) was introduced in March of 2011, by Security Benefit Life Insurance Company. The product was designed in conjunction with another Topeka based company, Advisors Excel, one of the largest annuity wholesalers in the country. Designed to be one of the most competitive annuities in the Guaranteed Income space, The SIA has turned out to be one of the top selling annuities of all time among index annuity products. Let’s see how this product works and find out why it has ranked so high.
Type: Fixed Index
Best Use: Income, Long Term Care
Company: Security Benefit Life Ins Company
Rating: AM Best, B+, S&P A-
Surrender Period: 10 years
Bonus: 8% (This varies depending on state approvals and state variations)
Premiums: Premiums within One Year, $25,000 Minimum
Issue Ages: 55-80,
Liquidity: 10% of Accumulation Value After First Year, After 3rd Year, 100% Account Value available for Nursing Home and Terminal Illness
Death Benefit: Full Account Value (Including Bonus)
The SIA has a 10 year surrender period with different surrender charge penalty schedules depending upon the state of issue. It allows a 10% free withdrawal of the accumulation value each year after the first year. It also credits an 8% bonus on all deposits during the first year, and after that no deposits are allowed.
The SIA allows an optional income rider, The Guaranteed Lifetime Withdrawal Benefit Rider, to be added to the annuity for a rider fee of .95% of the GLWB value, not the account value. This is very important to be aware of this, as over time the rider cost will add up, more on this later. The GLWB account has a guaranteed crediting rate of 6.5%, which was just recently reduced from 7%, due to the low interest rate environment, increasing for a 10 year period only. Another very interesting feature is the income received under the GLWB rider can be doubled for any type of Long Term Care.
Now that we have described the product details, let’s take a look at the crediting options to determine how this annuity performs as an accumulation annuity.
There are four choices within the SIA:
Fixed Account, 1.25%
2 Yr Point to Point Morgan Stanley Dynamic Allocation Index, No Cap, 100% of Gains, 2.6% Annual Spread
1 Yr, Annual Point to Point, S&P 500, 2.5% Cap
1 Yr, Monthly Point to Point, S&P 500, 1.25% Cap
Certainly not a lot of good choices here for crediting options, a low fixed rate, some very low caps on the S&P 500 options, leaving only one real choice, the Morgan Stanley Dynamic Index. Let’s see how the return history has been for each of the indexes.
The 1 YR Annual Point to Point best 10 year return over the last 20 years was 2%, the lowest was .71%, and the last 10 years 1.75%.
The 1 Year MP2P best 10 year return over the last 20 years, was 2.5%, the lowest was 0.00%, and the most recent 10 years was a paltry .98%.
2 Yr Point to Point Morgan Stanley Dynamic Allocation Index, No Cap, 100 of Gains, 2.6% Annual Spread. The best 10 year return history over the last 20 years through 2015, was 4.125%, the least was 1.83% and the last 10 years was 3.26%.
So the winner here is the Morgan Stanley Dynamic Allocation Index returning 4.125% over the best 10 years. As you can see, this is not exactly what we would consider an accumulation product. This is an income product all the way.
The GLWB rider that is an option on the Secure Income Annuity, compounds at a 6.5% rate for only a 10 year period. Although not what it once was when the product was first introduced, it still is one of the most competitive income riders in the industry.
Of course when you consider an income rider, it isn’t just the roll up rate that is important, it is also the payout rate that the annuity offers at the time that income is selected. The combination of the two will determine the overall competiveness of the income rider. The SIA also increases the payout rate each year by .10 instead of using age bands like other carriers. This is an important feature in a rider, which we will see can be useful in maximizing the income from the annuity.
Income Rider At Work
Let’s take a look at an actual case and see how the SIA can be used for guaranteeing a lifetime income for a couple aged 60, taking income at age 66.
Let’s assume they invest $200,000 into the SIA and plan on taking a joint income. If the GLWB rider was exercised it would provide a lifetime income of $13,533.
How does this compare to just investing $200,000 into an investment, letting it grow for 6 years, and then taking income from it? If we use the 4% rule, the investment account would need to be worth $338,325. It would have to grow at a rate of 9.16% over the 6 year period, and then hope that the portfolio would continue to be able to support the 4% withdrawal rate.
The SIA in contrast, totally guarantees the income for both of their lives and takes the worry out of hoping the portfolio grows to that level, and of course the opposite could happen if the market declines unexpectedly. You can see why people are using annuities to guarantee lifetime pensions.
It Gets Better
There is a little known strategy to get even more money out of annuity when an income rider is being used. The SIA allows 10% free withdrawals to be taken. If instead of turning on the income rider at age 66, they instead could just take a free withdrawal, and allow the income rider to continue to grow. So if a free withdrawal was deducted instead, the income rider would grow by 6.5%, and then be reduced by the percentage of the withdrawal from the account value. It takes some in-depth math to calculate this to determine when to take withdrawals and when to turn on the rider, but it usually can increase income by another 10 to 15%!
The Best Long Term Care Doubler in the Industry
- The contract has to be in force for two years
- Two out of six activities of daily living cannot be performed
Covers all types of care:
Home Care, Assisted Living and Nursing Home are all covered after 2 years from the effective date of the annuity. There are only a few products that will double the payment for home care, most will just double the payments for nursing home with a few including assisted living facility.
Doubles the Income Account for 5 years. Once the GLWB is exercised, the income payout will double for 5 years.
The SIA has led the way for income in the indexed annuity space. Although not what it once was, the SIA still is among the most competitive income annuities available today. For LTC protection it can’t be beat. If your looking for the best income product, make sure you see how the SIA stacks up before you sign on the dotted line. We can provide you a quote and product materials. Better yet, we at WCFS Annuities can run quotes to see the absolute highest income annuity in your state, or in some cases, depending upon your age and circumstances, you might even find using an Income Rider may not be the best choice.