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. 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 provides an in-depth review of the Nassau Income Accelerator Fixed Indexed Annuity. The Nassau Income Accelerator 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 creating a stream of lifetime income that you can’t outlive. While this annuity is not optimized for accumulation, it does fairly well in delivering secure lifetime income features. After extensive research and due diligence, I have provided an in-depth and unbiased analysis of this plan.
The review of the Nassau Income Accelerator 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 Nassau Income Accelerator 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 generating a stream of lifetime income they can’t outlive.
Let’s have a look at the high-level fine print of the Nassau Income Accelerator Fixed Indexed Annuity, and then we will discuss each point in detail.
| Product Name | Income Accelerator |
|---|---|
Issuing Company | |
AM Best Rating | B++ (5th of 13 ratings) |
Withdrawal Charge Period(s) | 10 years |
Maximum Issue Age | 85 Years |
Minimum Initial Purchase Amount | $15,000 |
Crediting Period and Strategies |
|
Plan Types |
|
Indexes |
|
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) Account Value or (ii) Surrender Value |
Free Benefits |
|
Riders | The annuitant has to compulsorily choose one paid rider guaranteed lifetime income rider out of three:
|
Surrender Value | Account Value less any withdrawal charges/MVA |
Minimum Guaranteed Surrender Value | 87.5% of premium paid grown at Total Guaranteed Value (TGV) interest rate minus withdrawals and enhanced benefit fees |
RMD Friendly | Yes |
Product Policy
How does the Nassau Income Accelerator Fixed Indexed Annuity policy work?
Any annuitant (maximum age at the time of policy issue: 85) can purchase the Nassau Income Accelerator Fixed Indexed Annuity with a minimum initial purchase amount of $15,000, and in return, they 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. All these interest credits are credited to a bucket called “Account Value.” This bucket is your annuity account balance, and all your withdrawals take place from it. However, the principal selling proposition of the product is not its potential for interest growth, but the guaranteed lifetime income payments it offers, a feature that will be explored in greater detail in a subsequent section of this review.
The Nassau Income Accelerator Fixed Indexed Annuity offers the annuitant to choose from one or more of the three indexes (S&P 500 Index, Nasdaq-100 Index, and Smart Passage SG Index) to determine their earnings crediting formula. The Smart Passage SG Index has 4 crediting strategies, the S&P 500 index has 5 crediting strategies, and the Nasdaq-100 has 4 strategies. The plan also offers a fixed-rate guaranteed interest strategy to choose from, making a total of 14 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 Nassau Income Accelerator Fixed Indexed Annuity offers the S&P 500 index with cap rates and participation rates in place, meaning that your interest-earning capacity is capped. These rates change frequently; I will discuss the rates in detail shortly.
2. Smart Passage SG Index
The Smart Passage SG Index, developed by Société Générale, is a rules-based equity index designed to outperform the S&P 500 by focusing on low-volatility stocks. Each month, the index selects the 200 least volatile stocks from the S&P 500, assigning greater weight to those with lower volatility. To manage risk, it employs a volatility control mechanism targeting a 16.5% volatility level, adjusting exposure to the core portfolio accordingly. This systematic approach aims to leverage the "Low Volatility Anomaly," where lower volatility stocks have historically outperformed higher volatility ones on a risk-adjusted basis. However, while this mechanism helps in reducing volatility, it also reduces the potential for significant upside gains.
3. Nasdaq-100 Index
The Nasdaq-100 Index is a market capitalization-weighted index comprising 100 of the largest non-financial companies listed on the Nasdaq Stock Market. It includes a diverse range of sectors, such as technology, healthcare, consumer discretionary, and industrials, with a significant tilt toward tech-heavyweights like Apple, Microsoft, and Amazon. The index serves as a benchmark for growth-focused investments and is renowned for its emphasis on innovation-driven companies.
It is very important to note that the Nassau Income Accelerator Fixed Indexed Annuity comes with cap rates and participation rates for these indexes, meaning that you will be credited only a part of the index return to your annuity. These rates change frequently; I will discuss more on these rates more shortly.
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 1st year Fixed Value Rate for the 10-year withdrawal charge period at the time of writing this article was 1.50%.
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, and other rates that the company has in place that affect your 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 Nassau Income Accelerator Fixed Index Annuity rate sheet (as of November 2024) to understand how the earnings are determined.
From the above rate chart, you will notice that there are 14 interest crediting options (1 fixed and 13 indexed). Let’s have a look at different terms that are used by the company in the Nassau Income Accelerator FIA chart rate:
- Point-to-point with 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 150%, and the index returned 4% over the agreed time. In that case, the annuitant will be eligible for 150% of the return, i.e., 6%.
- Point-to-point with 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.
- Sunrise with Participation Rate: The Sunrise with participation rate strategy utilizes a unique approach to calculate index credits based on the Smart Passage SG Index. For the 1-year and 2-year indexed accounts, the percentage change in the index is measured after applying the “Sunrise Adjustment,” which excludes the best monthly return for each year in the segment. This adjusted growth rate is then multiplied by the participation rate declared at the start of the segment to determine the account credit. These accounts may offer higher participation rates compared to other indexed accounts, making them attractive for potential growth. However, the Sunrise Adjustment, by excluding the top-performing months, limits the overall index credit. Consequently, these accounts are likely to underperform if significant annual growth is concentrated in a single month for 1-year segments or one month per year for 2-year segments. This feature makes them better suited for scenarios where index growth is steady and evenly distributed.
- Fixed Account Rate: 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 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 1.50%.
- Enhanced Index Options: Enhanced Index Options offer annuitants the opportunity to benefit from higher crediting rates, such as increased cap or participation rates, in exchange for an additional annual fee. This fee is calculated by applying an enhancement fee rate to the index account value at the start of the term and is deducted at the end of the term. The initial enhancement fee rate is fixed at the contract issue and guaranteed for the first index term, with a new rate declared at the beginning of each subsequent term. For example, by opting for an Enhanced Index Option with an annual fee of 1.00%, an annuitant can access an enhanced participation rate of 42% on the 2-year S&P 500 point-to-point strategy, compared to the standard participation rate of 25%. This allows for potentially higher returns, depending on the performance of the selected market index.
When allocating premiums in a fixed-indexed annuity, individuals can distribute their money across these different indexing strategies. This means you can decide how much of your premium goes into each strategy, allowing for a tailored approach to potential growth and risk based on your financial goals and comfort level.
Among these indexes, I prefer the 2-year S&P 500 Index point-to-point participation rate strategy with an enhanced participation option, the 1-year S&P 500 with a cap rate, or even the 2-year Sunrise Smart Passage SG with an enhanced participation option. I would avoid the Nasdaq-100 indexing option due to the low participation rates offered.
You will notice that the cap rates and participation rates in the Nassau Income Accelerator annuity are quite low. It is because this annuity’s core strength doesn’t lie in growth or accumulation but in its Guaranteed Lifetime Withdrawals Benefit (GLWB) riders, which provides relatively higher guaranteed lifetime income payments that you cannot outlive (unless you make excess withdrawals). So, it doesn’t make sense to opt for this annuity if your purpose is growth or accumulation. We will discuss the GLWB rider offered by this annuity shortly.
Free Withdrawal and Surrender/Early Withdrawal Charges
Each year, you are allowed a 10% free withdrawal of your contract value, excluding any non-vested premium bonuses, without incurring charges, fees, or penalties.
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 Nassau Income Accelerator Fixed Indexed Annuity:
| Contract Year | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 |
|---|---|---|---|---|---|---|---|---|---|---|---|
10-Year Plan | 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 Nassau Income Accelerator Fixed Indexed Annuity is in line with all the other annuity issuers.
Contract/Administrative Charge
The Nassau Income Accelerator Fixed Indexed Annuity does not impose any annual contract or administrative fees. However, it includes a mandatory rider fee of 0.95% annually, applicable to all three Guaranteed Withdrawal Benefit rider options. We will discuss these riders in the next section.
Riders
The riders are the central feature of the Nassau Income Accelerator Fixed Indexed Annuity, offering flexibility and guaranteed income tailored to individual needs. Each rider comes with its unique benefits and structures, ensuring clients can optimize their financial strategies effectively. The annuitant must compulsorily select one of the three paid riders:
- Flex-Forward Income Benefit
- Income Horizon: Early
- Income Horizon: Later
Below, we provide a detailed overview of the available rider options.
Flex-Forward Income Benefit
The Flex-Forward Income Benefit rider is designed to provide guaranteed income payments that can complement other income sources, such as Social Security or pension payouts. At the time of issue, an Income Benefit Base is established, equal to the single premium plus a 10% Income Benefit Base bonus. Additionally, the Income Benefit Base grows by 10% simple interest roll-ups annually for up to 10 years or until the rider is exercised, whichever comes first.
This rider delivers income in two distinct phases:
- Early Income Period: At rider exercise, the client selects the Early Income Amount (subject to minimum and maximum limits) and the duration of the Early Income Period (up to 8 years). The more income taken during this phase—either by choosing a higher amount or a longer period—the lower the subsequent lifetime income payments will be.
- Lifetime Income Period: After the Early Income Period ends, the rider provides guaranteed payments equal to the Lifetime Income Amount, which reflects the adjustments made for income received during the earlier phase.
The income calculation is based on the Annual Benefit Percentage and other factors. Clients must exercise the rider at age 70 or younger to access the Early Income Feature. For clients aged 71 or older, payments are automatically set at the Lifetime Income Amount.
Eligibility and Fees:
- Available to clients aged 50–70 (youngest covered person) at issue.
- Annual fee: 0.95% of the Income Benefit Base.
Income Horizon Riders
The Income Horizon rider is available in two options: Early and Later, catering to clients' varying needs for guaranteed income timing. Both options offer guaranteed income payments for life, with the flexibility to grow the guaranteed income amount by delaying the rider exercise.
- At Issue: Similar to the Flex-Forward Income Benefit, the Income Benefit Base is set equal to the single premium plus a 10% Income Benefit Base bonus. Additionally, the Income Benefit Base benefits from 10% simple interest roll-ups annually for up to 10 years or until the rider is exercised.
- Income Horizon: Early: This option is suitable for clients planning to begin guaranteed income payments within the first three years of the contract.
- Income Horizon: Later: This option is better suited for clients who intend to wait at least four years or more before starting income payments.
Annual Benefit Amount (ABA): Once the rider is exercised, the client receives an Annual Benefit Amount (ABA), calculated as a percentage of the Income Benefit Base. The ABA percentage depends on several factors, including:
- Age at issue and rider exercise
- Selection of single or spousal option
- The specific rider chosen
Eligibility and Fees:
Both Income Horizon: Early and Income Horizon: Later options come with an annual fee of 0.95% of the Income Benefit Base.
Choosing the right rider is crucial and should align with your financial goals, income needs, and retirement timeline. If you need income sooner, the Income Horizon: Early option may be suitable, whereas those planning to defer income and maximize growth might prefer Income Horizon: Later or the Flex-Forward Income Benefit. The Flex-Forward Income Benefit offers additional flexibility with its Early Income Period, allowing customization of income amounts and durations, but keep in mind that higher or prolonged early withdrawals will reduce lifetime payments. Age also plays a role, as certain features, like the Early Income Period, are only available if the rider is exercised at or before age 70. Given the long-term implications of these choices, consulting a financial advisor is strongly recommended to ensure the selected rider supports your retirement strategy effectively.
Also, as with most annuities, the Nassau Income Accelerator has free in-built nursing home and terminal illness waivers.
Nursing Home 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 6 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.
What Makes This Product Stand Out?
The Nassau Income Accelerator Fixed Indexed Annuity offers a few features that make a favorable case for this annuity. The ones that I like the most are:
- Customizable Guaranteed Income Options: The product offers three distinct rider options, Flex-Forward Income Benefit, Income Horizon: Early, and Income Horizon: Later, allowing annuitants to tailor their income strategies based on immediate or deferred needs. The flexibility to adjust income amounts and durations within the Flex-Forward Income Benefit further enhances its appeal.
- Growth-Oriented Income Benefit Base: A 10% bonus on the Income Benefit Base at issue, coupled with annual 10% simple interest roll-ups for up to 10 years, provides strong growth potential for future income, incentivizing clients to delay withdrawals for higher payouts.
- The plan offers the S&P Index with multiple crediting methodologies.
- Free Confinement and Terminal Illness Waiver Benefit
- Multiple Payout Options: Lupsum 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 individuals seeking growth and safety; however, there are a few aspects that could add more value for the annuitant. The features I find less appealing include:
- Lower Indexing Rates: The annuity's participation rates and caps on index-linked growth are relatively lower compared to some competitors. This limitation could hinder the growth potential of the account value, especially in strong market conditions.
- Mandatory Rider Fee: The product charges a compulsory rider fee of 0.95% annually, regardless of the rider selected. While the riders provide valuable benefits, the mandatory fee reduces the overall return on investment, particularly for those who might not fully utilize the rider features.
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.
Nassau Life and Annuity Company
Nassau Life and Annuity Company is an insurance provider that specializes in offering retirement products, particularly annuities. The company is headquartered in Hartford, Connecticut, and has a long history dating back 170 years. Nassau Financial Group, which includes Nassau Life and Annuity Company, serves 374,000 policyholders and contract holders.
Nassau Life offers a variety of annuity products, including indexed annuities and multi-year guaranteed annuities (MYGAs). Their product lineup is designed to cater to different retirement needs, such as protecting savings, delivering guaranteed income, or covering health care costs. The company is known for providing low minimum premiums, highly customizable contracts, and strong customer service
It is rated as follows by the rating agencies:
| Rating Agency | Rating |
|---|---|
AM Best | B++ |
KBRA | BBB+ |
Although the rating is not the best, it is not even that bad. It is considered to be strong and stable financially. As of June 2024, some of the financial highlights for Nassau Life and Annuity Company include its:
- $24.3 billion Assets Under Management
- $1.5 billion of total adjusted capital
- 106% solvency ratio
Going by the operating history, financial numbers, and ratings, we can safely gauge that you can trust your savings with Nassau Life and Annuity 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 retirement corpus that can grow safely and steadily and have the ability to provide a fixed stream of 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 Nassau Income Accelerator Fixed Indexed Annuity combines guaranteed income flexibility with moderate growth potential, making it a viable choice for individuals prioritizing lifetime income while retaining some control over their retirement strategy. Key features such as customizable riders, a 10% Income Benefit Base bonus, and 10% annual roll-ups offer valuable income planning opportunities. The dual-phase income structure of the Flex-Forward Income Benefit adds an extra layer of versatility, catering to both immediate and long-term income needs.
However, this product may not be ideal for those prioritizing accumulation due to its limited growth potential from lower indexing rates. Additionally, the annuity’s credit ratings are not among the highest in the industry, which may concern those seeking maximum financial security. Prospective buyers should carefully compare this annuity with other options offering stronger financial ratings and potentially greater growth and stability. Consulting a financial advisor is recommended to ensure alignment with your retirement goals.
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.