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.
In this article, we will discuss the Nationwide New Heights Select Fixed Indexed Annuity in depth. It is the new and revamped version of the very popular Nationwide New Heights Fixed Indexed Annuity and offers tenures of 8,9,10 and 12 years. I have provided an in-depth and unbiased analysis of this plan after extensive research and due diligence.
The review of the Nationwide New Heights Select 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 Nationwide New Heights Select 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. It is a suitable plan for retirees or people who are approaching retirement and aim to grow and protect their retirement savings. This plan is also suitable for people who are looking for guaranteed lifetime income or plan to leave a legacy for their loved ones, in addition to protecting and growing their retirement savings.
Let’s have a look at the high-level fine print of Nationwide New Heights Select Fixed Income Annuity, and then we will discuss each point in detail.
| Product Name | New Heights Select |
|---|---|
Issuing Company | |
AM Best Rating | A+ (2nd of 13 ratings) |
Tenure | 8,9,10,12 years |
Maximum Issue Age | 80 Years (75 Years for the 12-year policy) |
Minimum Initial Purchase Amount | $25,000 ($10,000 for the 8-year policy) |
Surrender Charge Schedule | Varies for different tenure policies |
Strategy Terms |
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Plan Types |
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Indexes |
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Free Withdrawals | 7% after the first completed contract year through the end of the Surrender Charge period; 10% after that |
Death Benefit | The death benefit will be equal to the greater of the Daily Accumulation Value (DAV) or the surrender value |
Optional Riders | The annuitant can choose any one of:
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The Nationwide New Heights Select policy is almost identical for all policy tenures, except the crediting period and surrender charge schedule. For ease of discussion and better clarity, we will discuss the New Heights Select 9 policy for the rest of the article.
Product Policy
How does it work?
Any annuitant (maximum age at the time of policy issue: 80) can purchase the New Heights Select 9 policy 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), normally, credited once every one or three years (depending upon the option you chose). Apart from the one-year or three-year 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.
The New Heights Select 9 offers the annuitant the option to choose from one or more of the six indexes to determine his earnings crediting formula. Each of these indexes has two strategies to choose from (making a total of 12 strategy options), and at any point in time, the contract may be allocated to a maximum of ten 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 the New Heights Select plan offers a participation rate for the S&P 500 index, meaning that you will be credited only a small part of the S&P 500 return to your annuity. These rates change frequently; I will discuss the rates in detail shortly.
2. Goldman Sachs New Horizons Index
The Goldman Sachs New Horizons Index offers a dual-pronged approach to asset allocation aimed at enhancing returns and diversification. The Global Core Strategy encompasses a wide array of asset classes, including global equities, fixed income, commodities, credit, and real estate, and employs dynamic optimization for asset allocation. The Index employs a daily rebalancing mechanism to maintain a 5% volatility control level. This frequent reallocation is designed to mitigate risk during periods of market volatility. While this strategy can cushion the impact of market declines, it also constrains the potential for upside gains.
3. SG Macro Compass Index
The SG Macro Compass Index is designed to identify changes in the economic cycle and rotate asset class allocations, seeking to provide stable and consistent long-term appreciation in up, down, and sideways markets. Based on the economic outlook for expanding, contracting, or neutral markets, the Index may shift allocations of up to 13 underlying global assets in equities, bonds, and commodities with the aim of generating returns. The index is updated once every quarter.
The index was launched in August 2020, and it would be early to know about the long-term empirical performance of the index. This index also employs a daily rebalancing mechanism to maintain a 5% volatility control level, which limits both the downside and upside of the return potential.
4. NYSE Zebra Edge II Index
The NYSE® Zebra Edge® II Index evaluates the 500 largest publicly traded companies in the United States each quarter and removes the riskiest and most volatile companies, leaving fewer irrational equities. The index aims to eliminate the volatility and risk associated with popular and largely traded stocks. Again, this is a relatively new index, launched in October 2020, and we have limited actual empirical data to assess its performance. This index also employs a daily rebalancing mechanism to maintain a 5% volatility control level, which limits both the downside and upside of the return potential.
5. J.P. Morgan Mozaic II Index
The J.P. Morgan Mozaic II Index utilizes some of the same investment philosophies used by the largest institutional investors seeking positive returns in both good and bad market environments. It focuses on potentially generating consistent returns while managing volatility. It is a broadly diversified index that tracks multiple asset classes across equities, fixed income, and commodities.
The J.P. Morgan Mozaic II Index has a decent operating history of more than 5 years, in which it has posted consistent returns. The good news is that Nationwide offers a generous participation rate for this index. In my opinion, this is an ideal index to opt for the New Heights Select annuity, given its high participation rates and consistent performance. However, this index also employs a daily rebalancing mechanism to maintain a 5% volatility control level, which limits both the downside and upside of the return potential.
6. MSCI EAFE Index
MSCI EAFE is a widely recognized international equities index consisting of large companies across developed countries in Europe, Australasia, and the Far East, excluding the U.S. and Canada. MSCI EAFE includes equities across a range of industries and regions, providing broad opportunities for growth. Again, It is important to note that the New Heights Select plan offers a low participation rate for the MSCI EAFE index, meaning that you will be credited only a small part of the MSCI EAFE return to your annuity.
The Nationwide New Heights Select Fixed Indexed Annuity includes cap rates, participation rates, and performance triggers for these indices. This means you will only receive a portion of the index return credited to your annuity. These rates are subject to frequent changes, which I will discuss in greater detail shortly. Also, unlike most other fixed-indexed annuities, this index doesn’t offer a fixed rate strategy.
It is important to note that except for the S&P 500 and MSCI EAFE Index, all the other indexes have a volatility control mechanism in place, which limits the overall return earning capacity of the index.
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 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 on the company’s website.
Let’s have a look at the New Heights Select 9 rate sheet (as of August 2024) to understand how the earnings are determined.
The first thing to note is that we have an option to choose between 1-year and 3-year allocation options. Then, we have six indexes, and each index has two strategies. The company displays four types of rates across all six indexes. All in all, it gives us an option to allocate our contract to a maximum of 10 out of 24 strategies. The index allocation rate (participation rate) and the strategy spread are the most important.
- Index Allocation Rate or 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 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%.
- Index Allocation Rate with Strategy Spread: This indexing strategy applies BOTH participation rate and spread to determine the index interest credit. Let’s take an example where the participation rate is 60%, the spread is 2%, and in a given year, the index returned 10%. In this case, the interest credited to the annuity account would be 60% of 10% (PR), less 2% (SP), i.e., 4%.
You will note that in strategies where the index allocation rate is high, a strategy spread also exists. The S&P 500 3-year strategy A has an index allocation rate of 75%; still, a spread of 1.95% exists. It means if the index earns 20% over the 3-year period, the earnings that will be credited to the annuity account would be (20% * 0.75) - (1.95% * 3 years) = 9.15% over the three-year period or an annual return of just 3%. On the face of it, it seems that we are potentially earning the S&P 500 return, but in reality, we are nowhere close. Thus, it is very important to check rates before choosing your preferred index. Ideally, it is advisable not to choose a strategy with both index allocation rate and strategy spread.
Out of all these indexes, I prefer the J.P. Morgan Mozaic II index the most because of its decent historical data, a good performance over a relatively long period of time, and a high index allocation rate offered by the company.
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. For all excess withdrawals, you will only receive a prorated amount of interim strategy earnings-to-date. Below is the Surrender Charge schedule.
| Completed Contract Years | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9+ |
|---|---|---|---|---|---|---|---|---|---|---|
Surrender Charge % | 9% | 9% | 9% | 9% | 8% | 7% | 6% | 5% | 4% | 0% |
Note that this surrender charge schedule is only valid for the New Heights Select 9 product for select states. The surrender charge schedule is different for the different tenures of annuities. For a quick comparison of surrender charges across different Nationwide products, you may visit their fixed indexed annuities product page here.
The surrender charge of New Heights Select fixed indexed annuity is pretty much in line with all the other annuity issuers.
Contract/Administrative Charge
The New Heights Select levies no annual contract or administrative fees.
Optional Rider Charge
The New Heights Select plan gives you the option to select any one optional rider from four available riders (2 living benefits and 2 death benefits).
The cost of each of them is illustrated in the table below.
| Optional Riders | Cost (of accumulated value) |
|---|---|
Living Benefits | |
Nationwide High Point 365® Select Lifetime Income Rider | 0.95% |
Nationwide High Point 365® Select Lifetime Income Rider with Bonus | 1.10% |
Death Benefits | |
Nationwide High Point® Select Enhanced Death Benefit Rider | 0.50% |
Nationwide High Point® Select Enhanced Death Benefit Rider with Purchase Payment Bonus | 0.95% |
Note that these charges are calculated on the accumulated value of the contract, are assessed quarterly, and reduce the contract value and the minimum guaranteed contract value. All of these four riders are discussed briefly in the next section.
Riders
In an insurance policy, riders are an additional provision that can be added to enhance the benefits of the base policy. The New Heights Select Fixed Income Annuity allows the annuitant to choose any one additional rider from the four riders it offers. It offers two riders for living benefits and two riders for death benefits. We will briefly go through each of them.
Living Benefits Riders
The New Heights Select offers the annuitant two additional living benefit riders.
- Nationwide High Point 365 Select
- Nationwide High Point 365 Select with Bonus
The Nationwide High Point Select rider offers the annuitant an enhanced guaranteed lifetime income. Before diving into the fine print of the rider, it is important to first understand the Income Benefit Base. The Income benefit base is the amount on which the lifetime income amount is calculated. The income benefit base is NOT an income that is accrued to you. It is only used for calculating the lifetime income amount or the death benefits. In this case, the income benefit base at any point in time is the greater of:
- High Point Daily Accumulation Value (It is calculated daily based on the index strategy you chose. The high point of the index is automatically locked; even if the index falls after locking in a high point, the high point value will be considered for the DAV calculation). Refer to the figure after this section to get more clarity on the High Point Daily Accumulation Value
- The Minimum Income Benefit Value, which guarantees daily growth of your purchase payment at a 1% compound annual rate for 10 years or until the first lifetime income withdrawal, whichever comes first
Now, the guaranteed lifetime income is calculated by multiplying:
{High Point Income Benefit Base} X {Payout Percentage} = Guaranteed Lifetime Income Amount
The payout percentage is based on the age of the covered life at contract issue and the number of completed contract years when lifetime income payments begin. If the joint option is elected, the payout percentage is based on the age of the younger spouse, which will result in a lower payout percentage. When your contract is issued, the range of payout percentages applicable to your contract will not change; however, payout percentages will increase within that set range every year, and income is deferred until the maximum payout percentage is reached. When your lifetime income payments begin, the payout percentage will not change.
The Nationwide High Point 365 Select rider costs an annual charge of 0.95% of the accumulated value and reduces the contract value and the minimum guaranteed contract value quarterly.
The Nationwide High Point 365 Select with Bonus is similar to the High Point 365 Select, but it offers a more generous calculation of the Income Benefit Base.
First, it directly applies a bonus of 30% to your purchase payment to calculate the minimum income benefit value. Second, it guarantees the daily growth of your purchase payment at an 8% compound annual rate for 10 years or until the first-lifetime income withdrawal, whichever comes first. (As compared to 1% in the former)
To summarize, the income benefit base at any point in time in this rider is the greater of:
- High Point Daily Accumulation Value
- The Minimum Income Benefit Value guarantees the daily growth of your purchase payment at an 8% compound annual rate for 10 years or until the first lifetime income withdrawal, whichever comes first.
The Nationwide High Point 365 Select with bonus rider costs an annual charge of 1.10% of the accumulated value and reduces the contract value and the minimum guaranteed contract value quarterly. In my opinion, it is better to opt for the bonus (if you are thinking of opting for the income rider), because it provides for a high-income Benefit Base at a low incremental cost (1.10% vs 0.95%)
Death Benefits Rider
The New Heights Select offers the annuitant two additional death benefit riders.
- Nationwide High Point Select Enhanced Death Benefit Rider
- Nationwide High Point Select Enhanced Death Benefit Rider with Purchase Payment Bonus
If you believe that you don’t require a lifetime guaranteed income and want to leave the money for your loved ones, the Nationwide High Point Select Enhanced Death Benefit is the suitable rider for you.
The death benefit riders offer the annuitant an enhanced death benefit based on the following calculation. The rider guarantees that the death benefit will grow in value equal to the greater of:
- High Point Daily Accumulation Value
The Minimum Enhanced Death Benefit Value, a daily guaranteed increase of the purchase payment at a 4% compound annual rate until the earliest of:
- The date, if any, the enhanced death benefit reaches 200% of the purchase payment
- The contract anniversary after the older annuitant reaches age 80
The Nationwide High Point Select Enhanced Death Benefit rider costs an annual charge of 0.50% of the enhanced death benefit value and reduces the contract value and the minimum guaranteed contract value quarterly.
The Nationwide High Point Select EDB with Bonus is very similar to the former one, with just one difference that it offers a 4% bonus that is immediately credited to your purchase payment and provides a greater EDB growth.
The Nationwide High Point Select Enhanced Death Benefit rider costs an annual charge of 0.95% of the enhanced death benefit value and reduces the contract value and the minimum guaranteed contract value quarterly.
Note that rider costs are different for different tenure annuities. You can check rider costs for all tenures.
In my opinion, the quarterly costs almost offset the bonus, so you may consider giving this rider a pass.
What Makes this Product Stand Out?
The Nationwide New Heights Select offers some of the features that not many fixed-indexed annuities offer. The ones that I like the most are:
- It Allows Daily Tracking: With the New Heights Select FIA, you get access to an online portal where you can track your potential earnings in real-time. It is known as the Daily Accumulation Value (DAV). Now, the DAV doesn’t mean that you can cash out that value on any given day; it is just a tracking feature. Still, the daily tracking feature helps you to be informed about the value you are deriving from your annuity. In addition, the DAV helps to complement two other features that are discussed as follows:
- Optional Lock-in of Positive Performance: 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 the index is peaked. The below figure explains the feature graphically.
This is my favorite feature of the New Heights Select Annuity, and the even better news is that this option is available to annuitants free of cost!
3. Earnings Capture on Withdrawals: Another unique feature of New Heights Select is that you will receive earnings to date on withdrawals for retirement expenses or if you need to take Required Minimum Distributions (RMDs). In simple terms, it means that you will also earn the index gains on the amount of withdrawal you make. These earnings are calculated on the DAV.
What I Don’t Like
This product is generally good if one opts for the lifetime income rider; still, there are some features that I don’t like about this annuity.
- Low Participation Rate on the S&P 500 Index - The participation rate on both the strategies of the S&P 500 Index is relatively low. Even with the low participation rate, the company still applies a strategy spread. The S&P 500 is the most popular index in the world, and the annuitant should be given a decent opportunity to participate in the S&P 500 index.
- Higher Single Premium Minimum Investment - The New Heights Select requires a minimum purchase amount of $25,000 as opposed to $10,000 that other annuities offer.
- Above-average Optional Rider Cost - The cost of riders in the New Heights Select is slightly above average compared to peers offering similar benefits.
- Lower Free Withdrawals - The New Heights Select offers free withdrawal of 7% of the annuity amount annually, while other annuities offer 10%.
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.
Nationwide Life and Annuity Insurance Company
Nationwide Insurance Company is one of the oldest life insurance companies and has been in the business for over nine decades. It is a Fortune 100 and 500 company with a ranking of #75 as of 2024.
It is rated as follows by the rating agencies:
| Rating Agency | Rating |
|---|---|
AM Best | A+ (2nd of 13 ratings) |
Moody’s | A1 (5th of 21 ratings) |
S&P | A+ (5th of 21 ratings) |
Nationwide has managed to maintain strong ratings for many years. Nationwide is considered to be strong and stable financially. In 2023, the company paid out over $22.6 billion in benefits and claims. As of year-end 2023, some of the other financial highlights for Nationwide Life Insurance Company include its:
- $60.3 billion in gross sales
- $25 billion of total adjusted capital
- $139.3 billion of a total investment portfolio
- $1.3 billion in net operating income
- $298.6 billion in total assets
Thus, going by the operating history and financial numbers, we can safely gauge that you can trust your savings with Nationwide.
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 provide a fixed 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 Nationwide New Heights performs decently across various metrics, whether it's principal protection, offering a risk-free opportunity to participate in the market index, providing a guaranteed income stream, or facilitating legacy planning. If you're in the market for a Fixed Income Annuity, the Nationwide New Heights Select could be a good choice to consider.
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.