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 MassMutual Premier Income Bonus Fixed Indexed Annuity. MassMutual Premier Income Bonus is a deferred, fixed-indexed annuity that may be a good option if you are looking for a fixed-indexed annuity that offers tax-deferred growth and downside protection with a core focus on income growth and lifetime income payments. This annuity offers some good indexing options, which have the ability to provide reasonably expected returns in the market. After extensive research and due diligence, I have provided an in-depth and unbiased analysis of this plan.
The review of the MassMutual Premier Income Bonus 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 MassMutual Premier Income Bonus 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 looking for a fixed-indexed annuity that offers tax-deferred growth and downside protection with a core focus on income growth and lifetime income payments.
Let’s have a look at the high-level fine print of the MassMutual Premier Income Bonus Fixed Indexed Annuity, and then we will discuss each point in detail.
| Product Name | Premier Income |
|---|---|
Issuing Company | |
AM Best Rating | A++ (1st of 13 ratings) |
Withdrawal Charge Period(s) | 7 years |
Maximum Issue Age | 85 Years |
Minimum Initial Purchase Amount | $10,000 |
Surrender Charge Schedule | 6%, 5%, 4%, 3%, 3%, 3%, 3%, 0% |
Crediting Period and Strategies |
|
Plan Types |
|
Indexes |
|
Free Withdrawals | 0% of the annuity’s Accumulated Value per year |
Death Benefit | Upon the annuitant’s death, the beneficiary will get greater of (i) Account Value or (ii) Surrender Value |
Free Benefits |
|
Riders | In-built and paid Income Rider |
Surrender Value | Account Value less any withdrawal charges/MVA |
RMD Friendly | Yes |
Product Policy
How does the Premier Income Bonus Fixed Indexed Annuity policy work?
Any annuitant (maximum age at the time of policy issue: 85) can purchase the Premier Income Bonus Fixed Indexed Annuity with a minimum initial purchase amount of $10,000, and 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, there are various events that 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.
Also, when you purchase the MassMutual Premier Income Bonus fixed indexed annuity, a Benefit Base is set up for your rider. Your rider’s Benefit Base is NOT the same as the annuity’s Accumulated Value (or Account Value). The Accumulated Value is available for withdrawal and is used to determine the Cash Surrender Value of your fixed-indexed annuity. On the other hand, think of the Benefit Base as a value that is used just to calculate your Lifetime Income Withdrawal amount. This value has no cash value or surrender value and cannot be withdrawn in a lump sum.
The MassMutual Premier Income Bonus Fixed Indexed Annuity offers the annuitant to choose from one or more of the five indexes (S&P 500 Index, S&P Risk Control Index, iShares U.S. Real Estate Index, and S&P U.S. Retiree Index) to determine his earnings crediting formula. Each index has one strategy to choose from. The plan also offers a fixed-rate guaranteed interest strategy to choose from, making a total of 7 strategy options. We will discuss each available index briefly:
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 MassMutual Premier Income Bonus Fixed Indexed Annuity offers the S&P 500 index with caps in place, meaning that your interest-earning capacity is capped. These rates change frequently; I will discuss the rates in detail shortly.
2. iShares U.S. Real Estate
The iShares U.S. Real Estate Index, often represented through an Exchange-Traded Fund (ETF) like the iShares U.S. Real Estate ETF (IYR), is designed to track the performance of the U.S. real estate sector. It predominantly includes stocks of companies involved in real estate, particularly Real Estate Investment Trusts (REITs) and real estate management and development firms. This index offers investors diversified exposure to the real estate market, reflecting broader sector trends influenced by factors such as interest rates, economic conditions, and property values.
3. S&P 500 Risk Control Index
The S&P 500 Risk Control Index is a strategic financial tool designed to measure the performance of the S&P 500 while maintaining a targeted level of risk. It does this by dynamically adjusting its exposure to the S&P 500 based on the volatility of the index. When volatility increases, the index reduces its exposure to the S&P 500 and increases its holdings in less volatile assets like cash or fixed income, and vice versa when volatility decreases. This approach aims to offer a more stable investment experience, especially appealing to risk-averse investors or those looking for a balance between growth and protection in volatile markets. While these volatility controls may result in less fluctuation in rates of return when compared with indexes that don’t use them, they also may reduce the overall rate of return compared with those other indexes.
4. S&P U.S. Retiree Spending Index
The S&P U.S. Retiree Spending Index is a specialized financial index designed to cater to the investment needs of retirees. This index aims to reflect the spending patterns of retirees in the United States, thereby providing a more targeted investment strategy for this demographic. It is composed of sectors and companies that are likely to benefit from the spending habits of retirees, such as healthcare, consumer goods, and utilities. This focus on retiree spending patterns allows the index to potentially align more closely with the financial goals and risk profiles of retired individuals.
5. First Trust Barclays Edge Index
The First Trust Barclays Edge Index is a multi-asset index designed to provide balanced exposure to both equity and fixed income markets while maintaining a target volatility of 7%. It combines the Capital Strength Index™ and Value Line Dividend Index™ for its equity component and the Barclays US Treasury Futures Indexes (2Y, 5Y, and 10Y) for its fixed income component. The Index dynamically adjusts the allocation between these components to achieve the highest expected return at the 7% volatility target. When market volatility is low, the equity exposure can exceed 100%, but it is capped at 225%. Conversely, during periods of high volatility, the equity exposure may be reduced to below 100%. The Index operates on an excess return basis, meaning it returns performance above the risk-free rate, and it rebalances monthly, with additional daily rebalancing if component weight deviations exceed 10%.
Note: 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 change from time to time. The Fixed Value Rate for the 7-year withdrawal charge period at the time of writing this article was 5.25%. It is noteworthy that the fixed rates offered by MassMutual are better when compared with other annuities. You can view the latest rates of this annuity.
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 rates, caps, spreads, and triggers 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.
Let’s have a look at the MassMutual Premier Income Bonus Fixed Index Annuity rate sheet (as of March 2024) to understand how the earnings are determined.
From the above rate chart, you will notice that there are 7 interest crediting options (1 fixed and 6 indexed). Let’s have a look at different terms that are used by the company in the MassMutual Premier Income chart rate:
- 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 90%, and the index returned 6% over the agreed time. In that case, the annuitant will be eligible for 90% of the return, i.e., 5.4%.
- 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.
- Declared Strategy Interest Rate: If you opt for a declared strategy / fixed account rate, you simply earn the fixed rates for a particular period specified by the company before your policy begins. These rates are usually low/at par as 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 4.90%.
Your accumulated value (or account value) grows according to the indexing strategies you select. You can allocate a part of your premium to multiple strategies at the same time. For example, if you plan to invest $100,000 in a fixed-indexed annuity, you can even allocate $25,000 to four different strategies.
Amongst these indices, I prefer the strategies with the S&P 500 and the iShares U.S. Real Estate Index because of the proven historical performance and higher caps offered on these strategies.
Surrender/Early Withdrawal 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 the MassMutual Premier Income Bonus Fixed Indexed Annuity.
| Completed Contract Years | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8+ |
|---|---|---|---|---|---|---|---|---|
Surrender Charge % | 6% | 5% | 4% | 3% | 3% | 3% | 3% | 0% |
Market Value Adjustments - 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. The surrender charge schedule is different for the different tenures of annuities and also changes for some states.
The surrender charge of the MassMutual Premier Income Bonus Fixed Indexed Annuity is relatively better (low) than other fixed-indexed annuity issuers.
Contract/Administrative Charge
The MassMutual Premier Income Bonus Fixed Indexed Annuity levies no annual contract or administrative fees.
Riders
The MassMutual Premier Income Bonus Fixed Indexed Annuity comes with a built-in Income Rider that allows the annuitant to withdraw fixed and predictable lifetime income payments that the annuitant can’t outlive.
Income Rider
Before understanding the Income Rider, let’s understand the Benefit Base Account (Income Base). When you purchase the MassMutual Premier Income Bonus fixed indexed annuity, a Benefit Base is set up for your rider. Your rider’s Benefit Base is NOT the same as the annuity’s Accumulated Value (or Account Value). The Accumulated Value is available for withdrawal and is used to determine the Cash Surrender Value of your fixed-indexed annuity. On the other hand, think of the Benefit Base as a value that is used just to calculate your Lifetime Income Withdrawal amount. This value has no cash value or surrender value and cannot be withdrawn in a lump sum.
Growing the Benefit Base
The benefit base of a fixed-indexed annuity starts with your initial investment and grows through added rollup credits and a 6% bonus on all your initial investments. Every year for ten years, this benefit base gets a 6% boost (using simple interest) based on your initial investments and any bonuses. If you invest more money after the first year, the rollup credits for that additional amount will be adjusted accordingly. However, these rollup credits have a limit, which is 250% of your initial investments plus any bonuses. Starting from the first anniversary of adding the rider, and on any subsequent anniversaries, you can choose to adjust the benefit base to match the current account value if it's higher. This adjustment, or reset, allows the rollup process and credits to start over. You can only make this reset before you start receiving income from the annuity, and it might lead to higher yearly charges for the rider. Remember, you need to ask for this reset; it won't happen by itself.
Rider Income Payments
If the client is 55 years old or older, they can start receiving payments from the annuity at any time they choose. The benefit base and the chosen payment option determine these payments.
There are two payment options: payments for the life of a single person (single lifetime income) or payments for the lives of both the owner and their spouse (joint lifetime income). For payments to cover both the owner and their spouse, both must be at least 55 years old when the payments start.
The amount you receive each year is calculated by applying an income percentage to the benefit base. This percentage depends on the client's age, when they start receiving payments and which payment option they've chosen. Every year, the income percentage slightly increases by 0.10% until it maxes out at 7.5% for single-life payments and 6.5% for joint-life payments. Once the payments start, the income percentage is fixed and won't change.
The following table shows the maximum income percentage at different ages.
| Age at Income Start Date | Single Lifetime Income | Joint Lifetime Income |
|---|---|---|
55 | 4.0% | 3.0% |
60 | 4.5% | 3.5% |
65 | 5.0% | 4.0% |
66 | 5.1% | 4.1% |
67 | 5.2% | 4.2% |
68 | 5.3% | 4.3% |
69 | 5.4% | 4.4% |
70 | 5.5% | 4.5% |
71 | 5.6% | 4.6% |
72 | 5.7% | 4.7% |
73 | 5.8% | 4.8% |
74 | 5.9% | 4.9% |
75 | 6.0% | 5.0% |
80 | 6.5% | 5.5% |
85 | 7.0% | 6.0% |
90+ | 7.5% | 6.5% |
Suppose you choose a single lifetime income option at the age of 70, and by that time, your benefit base has increased to $300,000. A 5.5% income percentage then applies to you, making you eligible for a lifetime annual income of (5.5% × $300,000) = $16,500, which you will receive for life, even if your account value decreases to zero. However, it's crucial to understand that the account value should not be depleted to zero due to making excess withdrawals.
Income Rider Fees - Every year, a charge of 1.15% of the benefit base is applied at the end of the contract year, and this fee is taken from the account balance. If you decide to end the contract early or stop the rider, a part of this annual charge, adjusted for the time the rider was active, will be deducted. You have the option to cancel the rider whenever you want by sending a written request.
Terminal Illness, Nursing Home Waivers, and Guaranteed Minimum Surrender Value (GMSV)
As with most annuities, the MassMutual Premier Income Bonus has free in-built nursing home and terminal illness waivers.
Extended Care Waiver: After the first contract year, an annuitant can withdraw up to 100% of the contract’s accumulated value if he is confined to a Qualified nursing home for at least 90 consecutive days. No withdrawal charge or MVA applies if the owner qualifies for this benefit. Diagnosis must occur after the contract is issued, and written proof with supporting documentation is required from a qualified physician.
Terminal Illness Waiver: After the first contract year, an annuitant can withdraw up to 100% of the contract’s accumulated value if he is diagnosed with a terminal illness with a prognosis of 12 months or less. No withdrawal charge or MVA applies if the owner qualifies for this benefit. Diagnosis must occur after the contract is issued, and written proof with supporting documentation is required from a qualified physician.
Besides the Extended Care Waiver and the Terminal Illness Waiver, the company also offers a Guaranteed Minimum Surrender Value (GMAV) provision.
Guaranteed Minimum Surrender Value (GMSV) - The Guaranteed Minimum Surrender Value (GMSV) provision ensures that the account value of your annuity will be no less than 87.5% of the initial premium, adjusted for any withdrawals, upon reaching the 5-year milestone.
Suppose you invest an initial premium of $100,000 in an annuity product that offers a GMSV feature. Over the course of 7 years, you make withdrawals totaling $20,000.
Initial Premium: $100,000
Total Withdrawals: $20,000
Net Account Value (Initial Premium - Withdrawals): $80,000
The GMSV feature guarantees that your account value will be at least 87.5% of the initial premium, less any withdrawals, at the 5th anniversary.
GMSV Calculation:
87.5% of Initial Premium = 0.875 * $100,000 = $87,500
Adjusted for Withdrawals: $87,500 - $20,000 = $67,500
Therefore, at the end of the 7-year period, the GMSV ensures that your account value will not be less than $67,500, regardless of market conditions or investment performance.
What makes this product stand out?
The MassMutual Premier Income Bonus 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 Index with high caps.
- Useful Income Rider for annuitants looking for lifetime income
- Free GMSV Provision
- No annual contract, mortality & expense, or administrative fees
- Free confinement and terminal illness waiver benefit: This no-fee rider is automatically included for owners under age 65 and includes both an Extended Care and Terminal Illness Benefit:
- Multiple Payout Options: Lumpsum or Annuitization option with Life Only, Life with Period Certain, Joint and Survivor Life, etc.
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 good strategies on the S&P 500 Index, I don’t like the other three indexes that the company offers for the interest crediting strategy. The other three indexes that the company offers either have a volatility control mechanism that limits the index's overall return, or simply don’t have a good earning potential.
- The annual rider charge of 1.15% could have been somewhat lower.
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.
MassMutual Life Insurance Company
MassMutual Ascend Life Insurance Company has been in the business since 1951. It has been one of the largest providers of fixed and fixed indexed annuities in the US for many years and has been regularly in the top ten Fixed Indexed Annuity Sales. MassMutual is a Fortune 500 company, with a 2024 ranking of #104.
It is rated as follows by the rating agencies:
| Rating Agency | Rating |
|---|---|
AM Best | A++ (1st of 13 ratings) |
S&P | AA+ (2nd of 21 ratings) |
Fitch Ratings | AA+ (2nd of 19 ratings) |
Moody's Investors Service | Aa3 (4th of 21 ratings) |
MassMutual Ascend Life Insurance Company has managed to maintain decent ratings for many years. It is considered to be strong and stable financially. In 2023, the company paid out over $9 billion in benefits and claims. As of year-end 2023, some of the other financial highlights for MassMutual Ascend Life Insurance Company include its:
- $39 billion in total sales / direct written premium
- $34.5 billion of adjusted capital
- $1008 billion of life protection in force
- $335 billion in total assets
Thus, going by the operating history and financial numbers, we can safely gauge that you can trust your savings with MassMutual Ascend Life Insurance Company.
Conclusion
With the advancements in healthcare and technology, the average American today lives longer than ever. So, it’s very important to have a stream of income that can grow safely and steadily and have the ability to provide a guaranteed income during the retirement years. This not only helps you mitigate the risk of outliving your income but also ensures that you continue to live a decent life even in your retirement.
The MassMutual Premier Income Bonus is one such annuity that helps you grow your savings with much less risk. Through its higher caps and performance-trigger rates, It offers faster growth with principal protection. The Income Rider appeals to annuitants who are looking for lifetime income payments that one can’t outlive. If you are considering buying a Fixed Indexed Annuity that works best for accumulation and lifetime income payments, the MassMutual Premier Income Bonus Fixed Indexed Annuity may be a decent product to look after.
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.