Nationwide Summit Fixed Indexed Annuity Review

How does the Nationwide Summit Fixed Indexed Annuity policy work?

Any annuitant (maximum age at the time of policy issue: 90) can purchase the Nationwide Summit 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.

The Nationwide Summit Fixed Indexed Annuity provides the annuitant with the option to select from one or more of two indices (the S&P 500 Index and the JP Morgan Mozaic II Index) for determining their earnings crediting formula. Each index offers a 1-year point-to-point strategy with a cap rate. Additionally, the plan includes a fixed-rate guaranteed interest strategy, culminating in a total of three strategy options. This annuity is among the more straightforward fixed indexed annuities available, as it presents only two index strategies, unlike other indexed annuities that provide a multitude of strategies, which can sometimes overwhelm the annuitant with choices. We will briefly discuss each available index:

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 Nationwide Summit Fixed Indexed Annuity offers the S&P 500 index with cap rates in place, meaning that your interest-earning capacity is capped. 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, in which it has posted consistent returns. However, it's important to note that the J.P. Morgan Mozaic II Index is a volatility control index. While these volatility controls may lead to less fluctuation in returns compared to indices without such mechanisms, they might also lower the potential overall rate of return in comparison to those other indices.

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 1-year Fixed Value Rate at the time of writing this article was 4.35%. It is noteworthy that the fixed rates offered by Nationwide are slightly better when we compare them with other annuities. You can view the latest rates of this annuity here.

Rates and Costs associated with the Nationwide Summit 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, 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 Nationwide Summit Fixed Index Annuity rate sheet (as of February 2024) to understand how the earnings are determined.

The first thing to notice is that the plan offers an annuitant the ability to choose from two indexes, which we have discussed briefly 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 Summit annuity offers a plain-vanilla 1-year point-to-point with cap rates as crediting options for both the indexes that it offers.

Cap Rates: It means the rate at which 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.

Each year, the higher the index rate and the cap rate get credited to your account value. Suppose your account value is $100,000 at the beginning of the contract and the cap rate is 6%, and after a year, if the index grows 8%, your contact value will increase by 6% of $100,000, i.e., by $6000. So, at the end of the first contract year, your contract value will become $106,000.

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 4.35%. It is very important to always check the latest rates before choosing your preferred index.

Among these indices, at this current juncture, I would opt to allocate 60% of my premium to the S&P 500 Index and the remainder to the J.P. Morgan Mozaic II Index. This strategy allows me to capitalize on both growth and diversification benefits.

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 Nationwide Summit Fixed Indexed Annuity.

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 Nationwide Summit Fixed Indexed Annuity is in line with all the other annuity issuers.

Contract/Administrative Charge

The Nationwide Summit Fixed Indexed Annuity levies no annual contract or administrative fees.

Riders

The Nationwide Summit is a plain-vanilla annuity that does not offer any optional paid riders. In my opinion, this actually appeals to many people who don’t understand or do not want to dive deep into the complex methodologies the riders often come up with. However, as with most annuities, the Nationwide Summit 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 (GMSV) provision. 

Guaranteed Minimum Surrender Value (GMSV) in a Decade-long Perspective: The GMSV feature in annuity products is a safeguard designed to protect your investment by ensuring that, regardless of how the markets perform, the value of your annuity will not drop below a certain level. This is especially crucial during times of market uncertainty and when you plan to make withdrawals from your annuity account.

Consider an example where you invest an initial premium of $100,000 at the start of 2010 in an annuity that includes the GMSV feature. Over the next decade, you adopt a withdrawal strategy that involves leaving your investment untouched for the first 4 years, allowing it to potentially grow with the market. Starting in 2015, you begin making annual withdrawals of $10,000 to supplement your income.

Visualizing Your Annuity's Performance

To help you visualize the impact of this strategy, we've created a graph that tracks the annuity account's value from 2010 to 2020. This graph reflects the account's growth, subject to a cap of 9.25% on returns, mirroring the S&P 500's performance. It clearly shows how your account value evolves over time, taking into account the annual withdrawals starting from the fifth year.

Note: The following table presents hypothetical data for illustrative purposes only, designed to demonstrate the potential impact of the Guaranteed Minimum Surrender Value (GMSV) feature in an annuity product. Actual market performance and annuity account values can vary.

Detailed Year-by-Year Breakdown

This comprehensive table provides a year-by-year overview of the annuity's performance. This includes:

The actual S&P 500 returns each year, to give you a sense of the market environment.
The credited rate to your annuity, capped at 9.25%, showing how your investment could grow in line with market gains while being protected from excessive volatility.
The withdrawal amounts, starting in 2015, and how they impact the account value.
Descriptive summaries for each year, explaining the key events and decisions affecting your annuity's value, such as the application of the growth cap and the execution of withdrawals.

The Value of the GMSV Feature

This decade-long perspective, focusing on a strategy of deferring withdrawals until the fifth year, highlights the GMSV feature's critical role. Not only does it offer a level of security by guaranteeing a minimum account value, but it also allows your investment to participate in market gains, within the set cap limits. This approach exemplifies a balanced retirement planning strategy, offering both growth potential and financial stability.

Key Insights

The detailed graph and table showcase the benefits of an annuity with a GMSV provision, particularly when coupled with a strategic approach to withdrawals. This blend of market participation and guaranteed value makes such annuities an attractive option for those seeking to secure their financial future while still taking advantage of potential market upswings.

What makes this product stand out?

The Nationwide Summit 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 decent cap rates.
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.

Things to Keep in Mind

This product is decent for people looking for a plain vanilla indexed annuity; still, there are some things that should be considered by an annuitant before making a purchase decision. 

High Initial Premium Requirement: $25,000 vs. $10,000 offered by most competitors
No additional riders to choose from

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. Some of the other financial highlights for Nationwide include its:

$24 billion of total adjusted capital
$123.6 billion of a total investment portfolio
$1.4 billion in net operating income
$270.2 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 have the ability to provide a 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 Summit is one such annuity that helps you grow your savings with much less risk. Through its decent cap rates, it offers faster growth with principal protection. The product’s plain vanilla nature (with no optional paid riders) might also appeal to people who don’t like to deep-dive into the complex methodologies often associated with the riders. If you are considering buying a Fixed Indexed Annuity that works best for accumulation, the Nationwide Summit FIA 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. To delve deeper into our extensive reviews, click here.