Nationwide Peak Fixed Indexed Annuity Review

The Nationwide Peak Fixed Indexed Annuity is almost identical for all three policy tenures, except the crediting strategies and surrender charge schedule. For ease of discussion and better clarity, we will discuss the Nationwide Peak 5 Fixed Indexed Annuity for the rest of the article.How does the Nationwide Peak 5 Fixed Indexed Annuity policy work?

Any annuitant (maximum age at the time of policy issue: 90) can purchase the Nationwide Peak 5 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) without having to incur the risk of the market downside, 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.

The Nationwide Peak 5 Fixed Indexed Annuity offers the annuitant to choose from one or more of the four indexes to determine his earnings crediting formula. Each index offers a plain-vanilla 1-year point-to-point indexing strategy. 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:

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 the Nationwide Peak plan consists of a participation rate for the S&P 500 index, meaning that you will be credited only a part of the S&P 500 return to your annuity. These rates tend to change frequently; I will discuss more on the rates shortly.
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 which it has posted consistent returns.
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 Nationwide Peak plan has caps in place for the MSCI EAFE index, meaning that you will be credited only a small part of the MSCI EAFE return to your annuity. These rates tend to change frequently; I will discuss more on the rates shortly.
Morgan Stanley 3D Index: The Morgan Stanley 3D Index is a momentum-based index that rebalances every month among three widely known investments (domestic bonds, global developed equities, and domestic equities), with the aim of capturing the continued performance of asset classes that have exhibited recent strong returns. The rebalancing process provides the flexibility to adapt to a variety of market environments and reduce performance swings experienced by pure equity-only indexes. Nationwide is the only FIA to offer Morgan Stanley 3D as an index option.

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 at the time of writing this article was 4.45%. This rate may change from time to time and can vary from state to state. Consult your financial advisor for the latest rates.

Rates and Costs associated with the Nationwide Peak Fixed Indexed Annuity

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.

The formula to calculate the earnings credited is:

For Strategies with Participation: (Participation Rate % X Index Return)

Let’s have a look at the Nationwide Peak 5 rate sheet (as of 01 January 2023, for CA and DE) to understand how the earnings are determined.

The first thing to notice is that the plan offers an annuitant to choose from four indexes which we have discussed in brief in the earlier part of this article. Unlike many other plans that offer myriad indexing options to choose from (which sometimes becomes confusing), the Nationwide Peak annuity offers a plain-vanilla 1-year point-to-point with cap rates as crediting options for all the four indexes that it offers.

Cap Rates: It means at what rate your interest-earning capacity is capped. For example, if an index returned 12% but the contract’s cap rate is 6%. In this situation, 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.

Besides the indexing options, the plan also offers a fixed account rate option. 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 usually tend to be equal to or even low when 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 4.45%. It is very important to always check the latest rates before choosing your preferred index.

Out of all these indexes, at this point in time, I would prefer the MSCI EAFE index and the S&P 500 index the most because of their decent back-tested returns, good real performance, and relatively higher cap rates 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.

Note that this surrender charge schedule is only valid for the Nationwide Peak 5 product for select states. For complete details about each state, you may visit the product’s rate card here.

The surrender charge schedule is different for the different tenures of annuities. For a quick comparison of surrender charges across different products of Nationwide, you may visit their fixed indexed annuities product page here.

The surrender charge of Nationwide Peak fixed indexed annuity is pretty much in line with all the other annuity issuers.

Contract/Administrative Charge

The Nationwide Peak levies no annual contract or administrative fees

Riders

The Free Joint Income Rider is one of the main highlights of the Nationwide Peak Fixed Indexed Annuity. The Joint Income rider allows the annuity contract owner to name a spouse as a co-annuitant. It allows the death benefit to be paid to either surviving spouse, no matter who passes away first or who owns the contract.

The surviving spouse also has the option to continue the annuity contract at the death benefit value. Any remaining surrender charge/CDSC or MVA would no longer apply to the contract.

The Nationwide Peak annuity also comes with complementary Confinement and Terminal Illness Waivers

Confinement 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 a continuous 90-day period. No withdrawal charge or MVA apply 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. No withdrawal charge or MVA apply 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 Nationwide Peak Fixed Indexed Annuity offers some of the features that not many fixed-indexed annuities offer. The ones that I like the most are

Higher Free Withdrawal Rate

The Nationwide Peak Fixed Indexed Annuity has a free withdrawal rate of 10% of the initial premium or 10% of the annuity’s Accumulated Value; each year. This is slightly higher than 7% free withdrawal that many other 5-year charge period annuities offer.

Straightforward Indexing Options with Decent Caps

Caps on the equity indexing strategies is a bummer! Strategies with Caps should not be considered true indexing strategies because these Caps limit the earning potential of an index big time. If I choose a good index, but it has a Cap of, say, 4%, then essentially, I am settling for 4% right from the beginning; so why should it be called an “indexing” strategy in the first place. But, the good thing with the Nationwide Peak Fixed Indexed Annuity is that it provides higher cap rates on the most popular indexes like the S&P 500, MSCI EAFE, Morgan Stanley 3D Index, and JP Morgan Mozaic II Index. Now unlike many other plans, these indexes are very straightforward and do not have risk control mechanisms that limit the return potential.

High Issue Age

The Nationwide Peak offers annuity up to an age (during issue) of 90. Most other plans have the maximum age at issue at 80-85 years.

Free Confinement and Terminal Illness Waiver
No annual contract, mortality & expense, or administrative fees

What I don’t like

I don’t like the following limitations of this annuity.

A limited number of riders to choose from: Only one free rider
High Initial Premium Requirement: $25,000 vs. $10,000 offered by most competitors

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

Nationwide Mutual 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 #80 as of 2022.

It is rated as follows by the rating agencies:

Nationwide has managed to maintain strong ratings for many years. Nationwide is considered to be strong and stable financially. In 2021, the company paid out nearly $18.4 billion in claims. As of year-end 2021, some of the other financial highlights for Nationwide include its:

$53 billion in total sales / direct written premium
$21.9 billion of total adjusted capital
$130.8 billion of a total investment portfolio
$2.8 billion in net operating income
$295.7 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 to mitigate the risk of outliving your income but also ensures that you continue to live a decent life even in your retirement.

The Nationwide Peak is one such annuity that almost delivers on all fronts; be it principal protection with growth, or the opportunity to participate risk-free in the market index. It is a no-nonsense annuity that offers the most popular indexing options to choose from, and even offers a free joint-income rider that allows the annuity contract owner to name a spouse as a co-annuitant. While we have a very limited number of riders, it can actually be a good thing for annuitants who don’t want to get into understanding the complex clauses and terms that those riders come with.

If you are considering buying a no-nonsense Fixed Indexed Annuity that works for growth and offers a free joint income rider, the Nationwide Peak Fixed Indexed Annuity is a decent product to look after.