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 Safe Return Fixed Indexed Annuity. MassMutual Safe Return 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 lifetime income payments and enhanced death benefits. 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 Safe Return 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 Safe Return 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 lifetime income payments and enhanced death benefits. The annuity also offers a return of premium guarantee in case of surrender, which will be discussed later in this review.
Let’s have a look at the high-level fine print of the MassMutual Safe Return Fixed Indexed Annuity, and then we will discuss each point in detail.
| Product Name | Safe Return |
|---|---|
Issuing Company | Massachusetts Mutual Life Insurance Company (MassMutual) |
AM Best Rating | A++ (1st of 13 ratings) |
Withdrawal Charge Period(s) | 10 years |
Maximum Issue Age | 85 Years |
Minimum Initial Purchase Amount | $25,000 |
Surrender Charge Schedule | 10%, 9%, 8%, 7%, 6%, 5%, 4%, 3%, 2%, 1% |
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 |
Death Benefit | Upon the annuitant’s death, the beneficiary will get greater of (i) Surrender Value or (ii) Return of Premium Value |
Free Benefits |
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Optional Riders | The annuitant can choose the following paid optional rider:
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Guaranteed Minimum Surrender Value | 100% of purchase payments plus interest credited at a minimum guaranteed rate less withdrawals and early withdrawals charges |
RMD Friendly | Yes |
Product Policy
How does the MassMutual Safe Return Fixed Indexed Annuity policy work?
Any annuitant (maximum age at the time of policy issue: 85) can purchase the MassMutual Safe Return Fixed Indexed Annuity with a minimum initial purchase amount of $25,000, 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. Additionally, the annuitant has the option to select from two paid riders (lifetime income benefit and death benefit riders), which will be discussed in detail later in this article.
The MassMutual Safe Return Fixed Indexed Annuity offers the annuitant to choose from one or more of the three indexes (S&P 500 Index, S&P Risk Control Index, iShares U.S. Real Estate Index, First Trust Barclays Edge 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 5 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 Safe Return Fixed Indexed Annuity offers the S&P 500 index with caps 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. 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. 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 tend to change from time to time. The Fixed Value Rate for the 10-year withdrawal charge period at the time of writing this article was 4.25%. 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 Safe Return Fixed Index Annuity rate sheet (as of July 2024) to understand how the earnings are determined.
From the above rate chart, you will notice that there are 5 interest crediting options (1 fixed and 4 indexed). Let’s have a look at different terms that are used by the company in the MassMutual Safe Return 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 4.25%.
- Bailout Provision: If the company lowers any rate below the Bailout Cap rate, you’ll have full access to withdraw your annuity’s accumulated value - free of any charges.
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.
Among these indices, my preference leans towards strategies involving the S&P 500 and the iShares U.S. Real Estate Index, due to their historically proven performance and the relatively higher caps associated with these strategies. However, for those focused on accumulation, other MassMutual annuities, such as the American Landmark, offer even higher caps and participation rates, facilitating faster asset accumulation. The unique selling proposition (USP) of this annuity product is not its accumulation potential but rather its optional riders, which include lifetime income payments and enhanced death benefits. This will be discussed in detail in the next section of this review.
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 Safe Return Fixed Indexed Annuity.
| Completed Contract Years | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11+ |
|---|---|---|---|---|---|---|---|---|---|---|---|
Surrender Charge % | 10% | 9% | 8% | 7% | 6% | 5% | 4% | 3% | 2% | 1% | 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 Safe Return Fixed Indexed Annuity is in line with other fixed-indexed annuity issuers.
Contract/Administrative Charge
The MassMutual Safe Return Fixed Indexed Annuity levies no annual contract or administrative fees.
Riders
The most critical aspect of this annuity to discuss involves the riders. The MassMutual Safe Return Fixed Indexed Annuity offers an optional paid rider:
Inheritance Enhancer Rider
The Inheritance Enhancer Rider, an enhanced death benefit option, allows you to potentially leave your beneficiaries with an amount greater than the contract's value.
This optional rider is separate and distinct from your contract value and, if selected, provides steady and predictable growth toward your death benefit. Initially, your rider benefit base is equal to your Account value. Each year, your benefit base is increased by 9% of all purchase payments received in the first contract year for issue ages 50-75 and 6% for issue ages 76-85, including any applicable purchase payment bonuses. If you invest more money after the first year, the rollup credits for that additional amount will be adjusted accordingly. 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. Remember, you need to ask for this reset; it won't happen by itself.
Death Benefit Options
After the fifth contract anniversary, the rider's death benefit supersedes the annuity contract's original death benefit. In simple terms, it means that the rider death benefit waiting period is five years. Beneficiaries can choose from one of the following two death benefit options:
- Lump Sum: This option allows beneficiaries to receive the basic death benefit, comprising the account value plus 50% of the difference between the account value and the benefit base amount.
- Annuitization: Beneficiaries choosing this option will receive the rider death benefit for life or a fixed period of at least five years. The benefit amount includes the account value plus the full difference between the account value and the benefit base amount.
So, the proportion used in death benefit calculation is as follows:
| Lump Sum | Annuitization |
|---|---|
50% | 100% |
Effect of Withdrawal
Withdrawals can be made at any time from the contract, but they might affect the account value, rollup credits, and benefit base. Specifically, the benefit base decreases in proportion to any withdrawal made, except those for paying rider charges. Withdrawals within the free allowance reduce rollup credits for that year, but credits will accumulate again until the rollup period ends. However, withdrawals exceeding the free amount stop the accumulation of rollup credits.
Death Benefit Rider Fees - An annual rider charge of 1.15% is applied at the end of each contract year, calculated based on the benefit base and deducted from the account value. If the contract is surrendered or the rider is terminated, the charge will be prorated. A full refund of rider charges is provided if a death benefit is paid under the base contract due to the death of the 'Insured' within the first five years or the death of a 'Non-Insured' joint owner at any time. The rider can be canceled at any time upon written request by the client.
Terminal Illness, Nursing Home Waivers, and Guaranteed Minimum Surrender Value (GMSV)
As with most annuities, the MassMutual Safe Return 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.
Return of Premium Guarantee
As a benefit for the contract holder, this product includes a return of premium guarantee. The amount payable upon surrender, or when calculating annuity benefit payments or the death benefit, will be the highest of the surrender value, the guaranteed minimum surrender value, or the return of premium value. The return of premium value is calculated as the total of all purchase payments made, minus any previous net withdrawals and rider charges.
What makes this product stand out?
The MassMutual Safe Return Fixed Indexed Annuity offers a few features that make a favorable case for this annuity. The ones that I like the most are:
- Useful rider option for annuitants looking for enhanced death benefits
- Free GMSV and Return of Premium Guarantee
- The plan offers the S&P Index with high cap rates
- 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 decent for people looking for growth and safety; still, there are some features that 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 indexes that the company offers for the interest crediting strategy. The other 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 advancement in healthcare and technology, the average American today is living 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 Safe Return is an annuity designed to grow your savings with reduced risk. It offers optional riders, allowing annuitants to choose between lifetime income or enhanced death benefits according to their needs. The Return of Premium guarantee is particularly appealing to conservative annuitants or those who may anticipate that they might surrender the annuity mid-term. If you're in the market for a Fixed Indexed Annuity optimized for lifetime income payments or enhanced death benefits, the MassMutual Safe Return Fixed Indexed Annuity might be worth considering.
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.