Introduction
Fixed Index Annuities are contracts between the annuitant and an insurance company in which the insurance company promises to credit interest based on the performance of a certain stock market index, such as the S&P 500. Fixed Index Annuities have an inbuilt capital protection feature, so your principal will remain safe even if the index goes down.
Annuities are complex products, and many advisors try to missell them without properly understanding the buyer’s needs. Thus, you must educate yourself on these products and not solely depend upon the annuity agent’s high-pressure sales pitch.
This article discusses an in-depth review of the Allianz Accumulation Advantage Fixed Indexed Annuity. The Allianz Accumulation Advantage is a deferred, fixed-indexed annuity that may be a good option if you are looking for an Allianz fixed-indexed annuity that offers tax-deferred growth and downside protection with a core focus on accumulation. This annuity offers fixed interest and index-based crediting options, which have the ability to replicate market returns (in a limited way). After extensive research and due diligence, I have provided an in-depth and unbiased analysis of this plan.
The review of the Allianz Accumulation Advantage Fixed Indexed Annuity will be broken into multiple subcategories:
- Product Description
- Product Policy
- Rates and Costs
- Riders
- What Makes This Product Stand Out?
- What I Don’t Like
- Company Details
- Conclusion
Product Description
The Allianz Accumulation Advantage is a Fixed Indexed Annuity (FIA) plan that offers the annuitant (annuity investor) an opportunity to earn a market index-linked return without having to incur the risk of market downside. This is a suitable plan for people who are approaching retirement and aim to grow and protect their retirement savings conservatively (with less risk). This plan is also suitable for people who are looking for a plain vanilla annuity plan without going into the hassle of understanding the loads of optional riders that some annuities come with.
Let’s have a look at the high-level fine print of Allianz Accumulation Advantage Fixed Indexed Annuity, and then we will discuss each point in detail.
| Product Name | Allianz Accumulation Advantage |
|---|---|
Issuing Company | Allianz Life Insurance Company |
AM Best Rating | A+ (1st of 13 ratings) |
Withdrawal Charge Period(s) | 10 years |
Maximum Issue Age | 80 Years |
Minimum Initial Purchase Amount | $20,000 |
Surrender Charge Schedule | 10-year: 9.30%, 8.85%, 7.90%, 6.95%, 5.95%, 5.00%, 4.00%, 3.00%, 2.00%, 1.00%, 0% |
Crediting Period and Strategies |
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Plan Types |
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Indexes |
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Free Withdrawals | 10% of the annuity’s Accumulated Value; per year. |
RMD Friendly | Yes |
Death Benefit | Greatest of the annuity’s accumulation value, guaranteed minimum value, or the premium minus any withdrawals and corresponding withdrawal charges, adjusted by any Market Value Adjustments (net premium) |
Riders |
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Product Policy
How does the Allianz Accumulation Advantage Fixed Indexed Annuity policy work?
Any annuitant (maximum age at the time of policy issue: 80) can purchase the Allianz Accumulation Advantage Fixed Indexed Annuity with a minimum initial purchase amount of $20,000, and in return, he will earn market index interest credits (calculated through a formula that we will discuss shortly), credited as per the chosen crediting period. Apart from the regular crediting period, various events may trigger earnings credit: On free withdrawals, for a long-term care event or terminal illness or injury event, or when a death benefit is payable.
As soon as the annuitant makes a premium payment, an “Accumulation Account” is created, equal to your total premium paid plus any interest earned from your chosen allocations, less withdrawals, charges for any optional riders you select, any applicable allocation charges and surrender charges, and adjusted by any Market Value Adjustments (MVAs).
Interest Indexing Options
The Allianz Accumulation Advantage Fixed Indexed Annuity offers the annuitant to choose from one or more of the four indexes (S&P 500 Index, BlackRock iBLD Claria Index, Bloomberg US Dynamic Balance Index II, PIMCO Tactical Balanced Index) to determine his earnings crediting formula. These indexes have multiple crediting strategies. The plan also offers a fixed-rate guaranteed interest strategy to choose from, making a total of 12 strategy options. We will discuss each available index briefly:
1. S&P 500 Index
The S&P 500 index is one of the most popular and oldest indexes in the world. It tracks 500 large-cap publicly traded stocks listed in the United States. It is a reliable index and has often succeeded in the test of time. It is very important to note that, similar to most other annuities, the Allianz Accumulation Advantage Fixed Indexed Annuity offers the S&P 500 index with cap rates in place, meaning that your interest-earning capacity is capped. These rates tend to change frequently; I will discuss more on the rates shortly.
2. Bloomberg US Dynamic Balance Index II
The Bloomberg US Dynamic Balance Index II reflects the performance of an index strategy that uses the blend of the S&P 500 Index and the Bloomberg Barclays US Aggregate RBI Series 1 Index. The S&P 500 Index is a well-established benchmark for U.S. equity markets. The Bloomberg Barclays US Aggregate RBI Series 1 Index is designed to track the Bloomberg Barclays US Aggregate Bond Index —a well-established benchmark for the U.S. bond markets. The Bloomberg US Dynamic Balance Index II was created in August 2015 and targets a low annualized realized volatility, which limits the return potential of the index.
3. PIMCO Tactical Balanced Index
Incorporating a rules-based asset allocation strategy, PIMCO Tactical Balanced Index is designed to provide dynamic exposure to stocks and bonds within a quantitative framework. The bond component of the index is PIMCO Synthetic Bond ER Index (SBIER), which is comprised of 65% U.S. investment grade credit and 35% U.S. Treasury bond exposure It aims to provide a stable risk profile through constantly evolving equity and interest rate market environments. This type of allocation approach aims to provide a relatively consistent level of volatility without sacrificing the potential for growth. If market volatility rises, the allocation to equities typically decreases in favor of bonds, in an effort to stabilize risk. During times of severe market stress, after the equity allocation has gone to zero, the bond allocation may decrease such that a portion is uninvested. As market volatility normalizes, equities are reintroduced to add more growth potential.
4. BlackRock iBLD Claria Index
The BlackRock iBLD Claria® ER Index is a composite index that includes an equity component, a bond component, and a cash component. This index dynamically adjusts the weighting between these components on a daily basis, based on the historical realized volatility of each component. It aims to track returns that exceed a specified benchmark rate.
Annually, BlackRock determines the allocation to the Exchange-Traded Funds (ETFs) within each of the equity and bond components of the index. The equity component of the BlackRock iBLD Claria® ER Index is comprised of several ETFs, including the iShares Russell 2000 ETF, iShares Core S&P 500 ETF, iShares MSCI EAFE ETF, and iShares MSCI Emerging Markets ETF. Similarly, the bond component includes ETFs like the iShares 1-3 year Treasury Bond ETF and the iShares 3-7 year Treasury Bond ETF
Note: It must be kept in mind that except for the S&P 500, all these indexes are volatility control indexes, which limits the true return earning potential of the index.
In addition to allocating the funds in the following indexes, the annuitant also has the option to allocate funds at a fixed interest. These Fixed Rates tend to change from time to time. The base fixed value rate at the time of writing this article was 3.75%. This rate may change from time to time and can vary from state to state. You can check out the company's website for the latest rates.
Rates and Costs
The earnings crediting formula
The earnings crediting formula is the most important part of this annuity discussion. It is important to know that we don’t simply get the index return credited to our annuity. There are a few participation rates, caps, and spreads that the company has in place that affect our earnings. These rates tend to change over time, and the updated rates can always be checked on the company’s website.
The formula to calculate the earnings credited is:
- For Strategies with Participation: (Participation Rate % X Index Return)
- For Strategies with Caps: Index return over a given crediting period with a maximum potential of earning the cap rate
Let’s have a look at the Allianz Accumulation Advantage Fixed Index Annuity rate sheet (as of 08/06/2024) to understand how the earnings are determined.
The first thing to note is that we have an option to choose between four indexes, and each index has multiple strategies. All in all, it gives us an option to allocate our contract to a maximum of 12 strategies (11 index-based and one fixed). The company displays three types of rates across all strategies.
- Participation Rate (PR): The participation rate describes the annuitant’s participation percentage in a return of an index. For example, suppose the participation rate is 120%, and the index returned 5% over the agreed time (1 year, 2 years, 5 years in this annuity). In that case, the annuitant will be eligible for 120% of the return, i.e., 6%.
- Cap Rates: This refers to the rate at which your interest-earning capacity is capped. For example, if an index returns 12% but the contract’s cap rate is 6%, the annuitant will be eligible for an interest credit of 6% only. It doesn’t matter how much the index goes above the cap rate; the maximum interest that can be earned is the cap rate.
- Monthly Sum: The indexed interest rate for a term year is based on monthly index changes. A monthly index change is determined by comparing the closing index value at the end of that month to the closing value at the beginning of that month. A positive monthly change in a term year is adjusted by applying the monthly cap for that term year. The indexed interest rate for a term year is the sum of the 12 adjusted monthly index changes for that term year. The credited rate will never be less than 0%.
4. Fixed Account Rates: If you opt for a fixed account rate, you simply earn the fixed rates for a particular period specified by the company before your policy begins. These rates usually tend to be low as compared to other fixed avenues, such as CDs and MYGAs, so you should avoid fixed rates in a general scenario. The year 1 fixed rate on this policy at the time of writing this article was 7.25% (base rate 3.75% + 3.5% enhancement), which is a decent fixed rate compared to other FIA’s fixed-rate offerings. However, from year two onwards, your account will only be credited with the base rate.
Amongst these indexes, I would prefer to invest in the following strategy options because of the higher participation and/or cap rates:
- S&P 500 monthly sum with Cap Rate
- BlackRock iBLD Claria ER Index - Annual point to point
- Bloomberg US Dynamic Balance II ER Index - 5-year MY point-to-point
For the first year, you may also allocate a portion of your account value to the fixed rate option to take advantage of the enhanced interest rate.
Index Lock Feature
With both annual point-to-point and 2-year MY point-to-point with participation rate crediting methods, you have the ability to manually lock in an index value on any of your individual indexed interest allocation(s) one time at any point during the crediting period.
You may have a high chance of missing out on some of the one-off index gains between the two earnings crediting points. This is where the Optional Free Lock-in features come in handy.
Generally, Index gains are automatically locked in at the end of the strategy term, but this feature gives you an option to manually lock in index gains once per strategy term. It means you can lock in index gains when you feel that index is peaked. The following explains the feature graphically.
In this hypothetical example, the index value rose to 111 in month 18, at which time the decision was made to lock in the index value. The beginning index value (100) is compared to the locked index value (111), resulting in a change of 11%. If the participation rate were 80%, the indexed interest for this crediting period would be 8.8% (80% of 11%). By using Index Lock, you are able to lock in the day’s ending index value and be assured a positive index credit for the crediting period - no matter what happens during the remaining months.
This free built-in feature is one of the most liked features of Allianz Fixed Indexed Annuities.
Auto Lock
As another option alongside the manual Index Lock capability, Auto Lock lets you set upper and lower index interest rate percentage targets during each crediting period. The index interest rate percentage target set will be equal to the amount of indexed interest earned after the participation rate is applied.
Surrender Charge
Should your needs change unexpectedly, and you need to take an excess withdrawal (a withdrawal that is above the free withdrawal amount available in a given contract year), you may be entitled to access additional monies; although certain charges and penalties may apply. Any amount withdrawn in excess of the remaining free withdrawal amount is subject to a Surrender Charge. Below is the Surrender Charge schedule for Allianz Accumulation Advantage Fixed Index Annuity.
| Completed Years | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10+ |
|---|---|---|---|---|---|---|---|---|---|---|---|
Surrender Charge % | 9.30% | 8.85% | 7.90% | 6.95% | 5.95% | 5.00% | 4.00% | 3.00% | 2.00% | 1.00% | 0% |
In case you need to surrender your policy, a Market Value Adjustment (MVA) will be applied to the portion of the withdrawal or surrender that exceeds the free withdrawal amount during the withdrawal charge period.
Note that this surrender charge schedule is only valid for the Allianz Accumulation Advantage Fixed Index Annuity product for select states. For complete details about each state, you may visit the product’s brochure.
The surrender charge of Allianz Accumulation Advantage Fixed Index Annuity is pretty much in line with all the other annuity issuers.
Contract/Administrative Charge
The Allianz Accumulation Advantage Fixed Index Annuity levies no annual contract or administrative fees.
Death Benefit
Upon the annuitant’s death, the beneficiary(s) will receive - the greatest of the annuity’s accumulation value, guaranteed minimum value, or the premium minus any withdrawals and corresponding withdrawal charges, adjusted by any Market Value Adjustments (net premium)
Riders
The Allianz Accumulation Advantage is a plain-vanilla annuity that does not offer any optional paid riders. In my opinion, this actually appeals to many people who don’t understand or do not want to dive deep into the complex methodologies the riders often come up with. However, one aspect that I believe could be improved is the inclusion of waivers for nursing home care and terminal illness. While most annuities typically offer these waivers for free, I was unable to find any mention of them in the annuity's marketing materials.
What makes this product stand out?
The Allianz Accumulation Advantage Fixed Indexed Annuity offers a few features that make a favorable case for this annuity. The ones that I like the most are:
- The plan offers the S&P 500 Index with decent caps, allowing you to grow your retirement account faster.
- Fixed Interest Rate enhancement for the first year.
- Free Manual and Auto Lock-in Feature: As this is a Fixed Income Annuity, you are naturally protected from market downturns. But you may have a high chance of missing out on some of the one-off index gains between the two earnings crediting points. This is where the Optional Lock-in features come in handy. Generally, Index gains are automatically locked in at the end of the strategy term, but this feature gives you an option to manually lock in index gains once per strategy term. It means you can lock in index gains when you feel that index is peaked.
- No annual contract, mortality & expense, or administrative fees
What I Don’t Like
This product is a decent product for people looking for growth and safety; still, there are some features that I believe could add more value for the annuitant. Some of the features that I don’t like about the policy are:
- Although the annuity offers a decent cap rate on the S&P 500 Index, I don’t like the other indexes that the company offers. These indexes have a volatility control mechanism that limits the overall return of the index. However, at the time of writing this article, the company is offering a good participation rate on those indexes to compensate for the low potential return.
- The company does not provide free withdrawals in cases of terminal illness or nursing home confinement, features that are commonly included in most other Fixed Indexed Annuities.
- I couldn’t find the Minimum Guaranteed Surrender Value (MGSV) rate on the marketing material of this annuity.
Company Details
You must always keep in mind that, unlike CDs, annuities are not guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other federal insurance agency. An annuity's "guarantee" is only as strong as the insurance company that issues the annuity, so it is always important to assess the issuing company before buying an annuity.
Allianz Life Company
Allianz Life Company has been in business since 1896. It is a subsidiary of Allianz SE, one of the oldest financial services and insurance companies, and has been in the business for over 13 decades. It has been one of the largest providers of fixed and fixed-indexed annuities in the US for many years and has regularly been in the top ten Fixed Indexed Annuity Sales. Allianz SE is a Fortune 500 company.
It is rated as follows by the rating agencies:
| Rating Agency | Rating Rating |
|---|---|
AM Best | A+ (2nd of 16 ratings) |
Moody’s | Aa3 (4th of 21 ratings) |
S&P | AA (3rd of 21 ratings) |
Allianz Life Company has managed to maintain decent ratings for many years. It is considered to be strong and stable financially. As of year-end 2023, some of the other financial highlights for Allianz SE include its:
- EUR 14.7 billion in total sales / direct written premium
- EUR 41.4 billion of total stockholders’ equity
- EUR 7.7 billion in net operating income
- EUR 129.1 billion in total assets
Thus, going by the operating history and financial numbers, we can safely gauge that you can trust your savings with Allianz Annuity Life Company.
Conclusion
With advancements in healthcare and technology, the average American today lives longer than ever. Consequently, it's crucial to have a source of income that grows safely and steadily, and can provide a guaranteed income during retirement years. This strategy not only mitigates the risk of outliving your income but also ensures a decent standard of living in retirement.
The Allianz Accumulation Advantage is an annuity designed to safely grow your savings. It offers faster growth with principal protection through its decent caps and participation rates. The product's straightforward nature, devoid of optional paid riders, might actually appeal to those who prefer simplicity over complex rider methodologies. If you're considering a Fixed Indexed Annuity focused on accumulation, the Allianz Accumulation Advantage FIA could be a worthy option.
We understand that choosing the right annuity can be a complex decision, influenced by a myriad of factors such as market conditions, individual financial goals, and evolving life circumstances. To better serve you in this critical decision-making process, we regularly conduct in-depth reviews of various annuity products, examining features, costs, and potential benefits. Delve deeper into our extensive reviews.