This article will discuss in-depth the American National Strategy Indexed Annuity Plus FIA (Fixed Indexed Annuity). It is the only Fixed Indexed Annuity product of American National. After extensive research and due diligence, I have tried my best to provide an in-depth and unbiased analysis of this plan.
The American National Strategy Indexed Annuity Plus FIA was launched as an "all-rounder" annuity product and offers 7 and 10 years of tenures.
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. Fixed Index Annuities has an inbuilt capital protection feature, so even if the index goes down, your principal will remain safe.
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.
The review of the American National Strategy Indexed Annuity Plus FIA will be broken into multiple subcategories:
Product Description - American National Strategy Indexed Annuity Plus FIA
The American National Strategy Indexed Annuity Plus is a Fixed Indexed Annuity (FIA) plan that offers the annuitant (annuity investor) an opportunity to earn a market index-linked return without incurring the risk of market downside. It is a suitable plan for retirees or people approaching retirement and aims to grow and protect their retirement savings. This plan is also suitable for people who are looking for guaranteed lifetime income, in addition to protecting and growing their retirement savings.
Let's look at the high-level fine print of American National Strategy Indexed Annuity Plus FIA, and then we will discuss each point in detail.
|Product Name||Strategy Indexed Annuity Plus|
|Issuing Company||American National|
|AM Best Rating||A (3rd of 13 ratings)|
|Tenure||7 and 10 years|
|Maximum Issue Age||80 Years|
|Minimum Initial Purchase Amount||$10,000 ($5,000 for qualified)|
|Surrender Charge Schedule||Varies for different tenure policies|
|Crediting Period||Specified Rate, 1-year point to point with participation rate or caps, monthly cap, or 1-year fixed with interest rate guaranteed|
|Plan Types||Nonqualified, IRA, Roth IRA, SEP IRA, SIMPLE IRA, 401(a), Charitable trust|
|Indexes||S&P 500 Index, Nasdaq-100 Index, and S&P MARC 5% Index|
|Free Withdrawals||10% after the first completed contract year through the end of the Surrender Charge period|
|Death Benefit||The death benefit will be equal to the greater of the Accumulated value or the surrender value|
|Optional Riders||The annuitant can choose any one of: Lifetime Income Rider (Fixed Rate), Lifetime Income Rider (Indexed Credit + Fixed Rate)|
|Surrender Value||Greater of Accumulated Value (less any withdrawal charges/MVA) and the Minimum Guaranteed Contract Value. Minimum Guaranteed Surrender Value is 87.5%|
The American National Strategy Indexed Annuity Plus FIA is almost identical for both policy tenures, except the crediting period and surrender charge schedule. For ease of discussion and better clarity, we will discuss the American National Strategy Indexed Annuity Plus 7 FIA for the rest of the article.
How does the American National Strategy Indexed Annuity Plus 7 policy work?
Any annuitant (maximum age at the time of policy issue: 80) can purchase the American National Strategy Indexed Annuity Plus FIA with a minimum initial purchase amount of $10,000. In return, he will earn market index returns (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.
The American National Strategy Indexed Annuity Plus FIA offers the annuitant to chose from one or more of the three indexes to determine his earnings crediting formula. Each of these indexes has different strategies and a fixed rate guaranteed interest strategy to choose from (making a total of 7 strategy options). We will discuss each available index briefly:
- S&P 500 Index: The S&P 500 index is one of the most popular and oldest indexes globally. 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. The S&P 500 Index was created in March 1957 and tracks 500 of the largest companies listed on the S&P across all sectors. The 10-year historical annual return as shown by the S&P stands at ~15.35%.
- NASDAQ-100 Index: The NASDAQ-100 Index is another of the world's most popular indexes that track 100 of the largest domestic and international non-financial companies listed on the NASDAQ Stock Exchange, based on market capitalization. It has a total market cap of $3.5 trillion as of the end of 2020. The NASDAQ-100 Index has a proven history of growth, impact, and performance. The NASDAQ-100 Index was created in January 1985 and tracks 100 of the largest companies listed on the NASDAQ across sectors like Industrial, Technology, Retail, Telecommunication, etc., except Financial Services. The 10-year historical annual return, as shown by the NASDAQ-100, stands at a whopping ~20%.
- S&P MARC 5% Index: The S&P MARC 5 Index is a rules-based index that seeks to measure the performance of three asset classes, comprised of equities (S&P 500 ER Index), Commodities (S&P GSCI Gold Excess Return Index), and Fixed Income (S&P 10-year U.S. Treasury Note Futures Excess Return Index). The S&P MARC 5 Index was created in March 2017 and targets a 5% annualized realized volatility. The ten years hypothetical back-tested historical annual return, as shown by S&P, stands at 3.85%, and the actual return since the index inception stands at 5.54%.
It is very important to note that the American National Strategy Indexed Annuity Plus FIA comes with a participation/cap rate for these indexes, meaning that you will be credited only a part of the index return to your annuity. These rates tend to change frequently; I will discuss more on the rates shortly.
Note: In addition to allocating the funds in the following indexes, the annuitant also has an option to allocate funds at a fixed interest. These Fixed Rates tend to change from time to time. The Fixed Value Rate at the time of writing this article was 1.95%.
Rates and Costs associated with the American National Strategy Indexed Annuity Plus FIA
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 rates and caps 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 with the help of your trusted advisor.
The American National Strategy Indexed Annuity Plus FIA uses five crediting strategies:
- Point to point with Participation Rate: Participation rate describes the annuitant's participation percentage in a return of an index. For example, suppose the participation rate is 60%, and the index returned 10% over the agreed time. In that case, the annuitant will be eligible for only 60% of the return, i.e., 6%. The formula for the same is (Participation Rate % X Index Return).
- Point to point with Cap: Cap rate is the most important terminology in an FIA. It means at what rate your interest-earning capacity is capped. For example, if an index returned 13% but your contract's cap rate is 7%. In this situation, You will be eligible for an interest credit of 7% only. It doesn't matter how much the index goes above the cap rate; the maximum interest you can earn is the cap rate.
- Annual Total Sum with Monthly Cap: The monthly sum strategy credits interest on an annual basis by comparing the monthly changes in the Underlying Index. Each month, American National will calculate the changes in index value compared to the previous month. Increases each month are subject to a cap, while decreases each month have no bottom limit. The 12 values are summed to determine the annual interest credited with a floor rate of the minimum guaranteed interest rate for indexed strategies. There is no cap on the final interest rate credited.
- Annual Declared Rate Strategy: If you opt for a declared rate, you simply earn the fixed rates for a particular period specified by the company before your policy beginning. These rates usually tend to be very low compared to other fixed avenues such as CDs and MYGAs, so you should avoid fixed rates in a general scenario. The 1-year fixed rate on this policy at the time of writing this article was 1.95%.
- Annual Specified Rate on Index: If the change in the index value is negative, no indexed interest is added. Suppose the change in the value of the index during that one year is zero or positive. In that case, the declared index gain interest rate is multiplied by the option's account value to determine the index interest credits. The index interest credits pursuant to this option will never be less than zero.
These strategies can be mixed and matched with different indexes, tenures, and Performance Rate Rider. For example, you can select the S&P 500 Index with a 1-year annual point-to-point with Participation rate, or the same with a 1-year monthly point-to-point with Cap or 1-year declared rate on gain, and so on.
Let's look at the American National Strategy Indexed Annuity Plus FIA's rate chart to understand better the earnings crediting strategies. Note that these rates are updated as of August 2021. These rates tend to change. Contact your trusted investment advisor to know the latest American National Strategy Indexed Annuity Plus FIA rates.
From the above rate sheet, we know that there are 7 interest crediting strategies; four S&P 500 strategies, one NASDAQ-100 strategy, one S&P Marc 5 strategy, and one fixed rate strategy. You will notice that Caps/Participation Rates/Both are in place, limiting your maximum interest-earning potential. Out of all these strategies,
Based on the index constituents, past performance, and volatility; some of the good strategies that I believe will give the highest returns are:
- S&P 500 1-year point-to-point 100% Participation with Cap.
- Nasdaq-100 100% Participation with Cap.
- S&P MARC 5% Uncapped Index.
Should your needs change unexpectedly and you need to take an excess withdrawal (a withdrawal above the free withdrawal amount available in a given contract year), you may be entitled to access additional monies. However, certain charges and penalties may apply. Any amount withdrawn over the remaining free withdrawal amount is subject to a Surrender Charge. Below is the Surrender Charge schedule for American National Strategy Indexed Annuity Plus FIA
|Completed Contract Years||1||2||3||4||5||6||7||8+|
|Surrender Charge %||7%||6%||5%||4%||3%||2%||1%||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.
This surrender charge schedule is only valid for select states for the American National Strategy Indexed Annuity Plus 7 FIA product. For complete details about each state, you may contact your trusted financial advisor.
The surrender charge of American National Strategy Indexed Annuity Plus FIA is relatively low compared to other annuity products, which is a good thing.
The American National Strategy Indexed Annuity Plus FIA levies no annual contract or administrative fees.
In an insurance policy, riders are an additional provision that can be added to enhance the benefits of the base policy. The American National Strategy Indexed Annuity Plus FIA comes with a Lifetime Income Rider, enabling annuitants to have a lifetime income stream that they can't outlive.
Before understanding the Lifetime Income Rider, let's first understand the Income Base. The Income Base is an account maintained separately and solely used to determine the lifetime income payments. Unlike your original annuity account, the income base is not available for you to withdraw any funds/or as a surrender value.
The Lifetime Income rider of American National Strategy Indexed Plus has two options, in which the income base grows in two different ways.
- Lifetime Income Rider (Fixed Rate): In the fixed-rate method, the income base grows at a fixed rate, set at issue, and is guaranteed for the contract's life.
For example, if your fixed rate is 7.2% for 10 years, your initial premium income base will be credited 7.2% each contract year for 10 years or until the LIR is turned on. All renewal premiums paid will add to the total income base but not be credited with any interest.
2. The fixed rate and the rider premium are set before the beginning of the contract. The rider rates at the time of writing this article were:
- Fixed Rate: 7.20%
- Accumulation Period: 10 years
- Rider Premium Charge: 1.00%
3. Lifetime Income Rider (Fixed Rate + Index Credit): In the fixed rate method, the income base grows at a fixed rate, set at issue.
The portion of your premium allocated to indexed crediting strategies will earn interest based on the Index's increase, if any. Index credits are earned for premium allocated to index strategies for a set number of years.
For example, If your fixed rate is 4.2% for 10 years, your initial premium income base will be credited 4.2% each contract year for 10 years or until the LIR is turned on.
Index credits are added to the initial premium income base any time interest is credited to indexed strategies until the earlier of a set number of years or once income withdrawals begin.
The fixed rate and the rider premium are set before the beginning of the contract. The rider rates at the time of writing this article were:
- Fixed Rate: 4.20%
- Accumulation Period: 10 years
- Rider Premium Charge: 0.70%
The calculated Income base is then multiplied by the income percentage to determine your lifetime guaranteed income:
Lifetime Guaranteed Income = Income Base X Income Percentage
The income percentage is defined when you purchase the policy; the more you wait before withdrawing lifetime income, the higher the income percentage.
You should talk to your trusted financial advisor to understand what rider strategy would be best for you.
What makes this product stand out?
The American National Strategy Indexed Annuity Plus FIA offers some features that not many fixed indexed annuities offer. The ones that I like the most are:
- Free Enhanced Benefit Rider: This no-fee rider is automatically included for owners under age 65 and includes both a Qualified Nursing Care and Terminal Illness Benefit.
- Qualified Nursing Care Benefit: After the first contract year, free withdrawal of up to 100% of the contract value is allowed if the owner is confined in a qualified care facility for a minimum of 30 days. Confinement must begin after the contract issue date, and written proof is required from both the qualified care facility and recommending physician.
- Terminal Illness Benefit: After the first contract year, free withdrawal of up to 100% of the contract value is allowed if the owner is diagnosed with a terminal illness. Diagnosis must occur after the contract is issued, and written proof with supporting documentation is required from a qualified physician.
- Low Withdrawal/Surrender Charges: The American National Strategy Indexed Annuity Plus FIA levies lower withdrawal/surrender charges compared to similar annuities in the market.
- Higher Free Withdrawal Rate: The American National Strategy Indexed Annuity Plus FIA has a free withdrawal rate of 10% of the annuity's Accumulated Value; each year. This rate of 10% is higher than what we see in typical accumulation annuities that generally offer only 7% of the contract's value as free withdrawals. The higher free withdrawal rate offers more liquidity and flexibility to the annuitant.
- Low minimum purchase amount: The minimum purchase amount for this annuity is low at just $5,000. Many of the popular annuities available in the market require a high minimum purchase amount of anywhere between $10,000 to $100,000. The low minimum purchase requirement enables even small investors to purchase annuity products.
What I don't like:
This product is generally good on all fronts for people looking for both growth and lifetime income; 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:
- Low Participation Rate on the S&P 500 Index: The rate sheet mentions that the participation rate on all the strategies of the S&P 500 Index is very low. Even with the low participation rate, the S&P 500 is the most popular index globally, and I believe that the annuitant should be given a decent opportunity to participate in the S&P 500 index.
- A limited number of riders to choose from: The American National Strategy Indexed Annuity Plus FIA doesn't offer any enhanced death benefit riders, so it may not be useful for people looking to leave a legacy.
- Average Realistic return expectations: You might have known by now that this is an all-rounder policy that offers both growth and protection. As an all-rounder policy, the realistic return expectations are pretty average. It is not the best policy for someone who is looking only for growth and accumulation.
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.
American National Insurance Company:
American National Insurance Company has been in the business since 1973. It is one of the largest providers of annuities in the US for many years and has regularly been in the top ten Fixed Indexed Annuity Sales.
It is rated as follows by the rating agencies:
- AM Best: A (3rd of 16 ratings)
- S&P: A (6th of 21 ratings)
American National Insurance Company has managed to maintain decent ratings for many years. It is considered to be strong and stable financially. In 2020, the company paid out nearly $1.12 billion in claims. As of year-end 2020, some of the other financial highlights for American National Insurance Company include its:
- $3.8 billion in total sales / direct written premium
- $6.5 billion of total stockholders' equity
- $538 million in net operating income
- $29.5 billion in total assets
Thus, going by the operating history and financial numbers, we can safely gauge that you can trust your savings with American National.
With the advancement in healthcare and technology, an average American today is living longer than ever. So, it's very important to have a stream of income that can grow safely, steadily and have the ability to provide a fixed guaranteed income during the retirement years. This helps you mitigate the risk of outliving your income and ensures that you continue to live a decent life even in your retirement.
The American National Strategy Indexed Annuity Plus FIA is one such annuity that helps you grow your savings with much less risk. Through its indexed annuity, It offers principal protection, and the opportunity to participate risk-free in the market index, and providing a stream of guaranteed income.
If you are considering buying a Fixed Income Annuity that works on all fronts, the American National Strategy Indexed Annuity Plus FIA is an ideal product to look after. Although, you must keep in mind that this is an all-rounder annuity and may not be the best suited for people who are exclusively looking for growth and accumulation, and your realistic return expectations should be average!