• 5 Year Index Annuity Returns  
  The annualized yield for indexed annuities reporting returns for the last five years ranged from around 2?% to 6?%. Not great returns if your benchmark was the average stock mutual fund (which averaged 8.36% a year), but at least some index annuities beat the average taxable bond fund return (5.00% a year), and all but a couple bested the average CD yield (2.30%). Although the annualized S&P 500 gain was only 5% for the five years, applying an annual reset structure to the index realized gross annualized gains of 7% (if averaged) to 10% (if annual pt-to-pt).

  There were 40 index annuity carriers active on 30 September 2001. Of these 40 thirteen ceased offering index annuities. None of these thirteen carriers were asked to provide return data. Of the remaining 27 carriers Farmers New World, IDS Life, Transamerica and Woodmen used term end point methods with terms longer than five years. Of the remaining 23 carriers data was received from 11 carriers. The carriers providing data are: Allainz, American Equity, American Investors/AmerUs, Fidelity & Guaranty (OMFN), ING, Jackson National, Lafayette Life, LSW, Midland National, National Western, and RBC.   

  Actual credited interest information was provided on polices from 11 different carriers and I deeply appreciate the effort and time it took to gather and send this data. Since return data was provided by fewer than half of the carriers I will not publish specific individual annuity returns.

  Term End Point
  For the first since 2001 a five-year S&P 500 period finished higher than where it started. At the close of September 2001 the index stood at 1040.94 and five years later it reached 1335.85 ? a 28% gain. The final point was also the highest point for the period. Total returns for term end point and term high point annuities ranged 9.91% to 15.93%.

  Annual Reset
  An annual reset structure recognized a total return of 64% if an annual point-to-point approach was used and 40% if daily or monthly averaging was the method. Annual point-to-point products did report higher total interest for the period with a median total return of 32%. By contrast the median total return for averaging annuities was 24%. The average 1-year CD credited 12% total interest for the 5 years. The average index annuity reported a total return roughly double that of the CD and was approximately 85% of the actual S&P 500 return for the period. As a percentage, actual reported index annuity returns ranged from 35% to 132% of the S&P 500 index gain of 28.3%.

  Ignores sales or surrender charges. Mutual fund returns include reinvested dividends; index annuity returns do not include reinvested dividends. Information believed accurate, but not warranted. Standard & Poors does not sponsor or endorse any index product. Sources: Advantage Compendium, Wall Street Journal 10/3/06, Federal Reserve Board.

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  As you can see from the yellow highlight it is possible to safely earn above
  average interest with the right fixed index annuity. Reprinted with permission
  from The Advantage Compendium.
  

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  Jeff McLeod
  HappyRetiree.com
  AnnuityBuyersGuide.com

  1-800-286-1812

  February 12th, 2007 at 12:20 pm

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