Introduction
Flexible Premium Deferred Annuities (FPDAs) are a type of annuity that allows policyholders to make multiple premium payments over time, as opposed to a single lump-sum contribution required by traditional fixed annuities. This flexibility makes them ideal for individuals who prefer to build their annuity balance gradually, such as through periodic contributions from income or savings.
Unlike traditional fixed annuities, which require a single upfront premium, flexible premium deferred annuities offer greater contribution flexibility and the ability to adjust payments based on financial circumstances. Additionally, while traditional fixed annuities typically lock in a fixed interest rate at the start, FPDAs often provide tiered interest rates that adjust based on the balance, contribution timing, and prevailing interest rate environment.
In this review, we will focus on the Royal Neighbors of America Steady Choice II Flexible Premium Deferred Annuity, exploring its key features, benefits, rates, and potential drawbacks. This analysis will help you understand how it works, who it’s best suited for, and whether it aligns with your long-term financial and retirement goals. After extensive research and due diligence, I have provided an in-depth and unbiased analysis of this plan.
The review of the Royal Neighbors Steady Choice II annuity will be broken into multiple subcategories:
- Product Description
- Product Policy
- Rates and Costs
- Riders
- Who Is This Annuity Suitable For?
- Who Might Find This Annuity Less Suitable?
- Company Details
- Conclusion
Product Description
The Royal Neighbors of America Steady Choice II Flexible Premium Deferred Annuity is a versatile savings tool that allows for multiple premium payments over time, offering both flexibility and growth. It is best suited for individuals seeking control over premium payments, tax-deferred growth, and a guaranteed minimum interest rate. This annuity is ideal for those planning for retirement who want to build their savings gradually while maintaining access to funds through withdrawal options for emergencies or changing life circumstances.
Let’s have a look at the high-level fine print of the Royal Neighbors of America Steady Choice II Annuity, and then we will discuss each point in detail.
| Product Name | Steady Choice II Annuity |
|---|---|
Issuing Company | Royal Neighbors of America |
AM Best Rating | A (3rd of 13 ratings) |
Annuity Withdrawal Charge Term | 10 years |
Maximum Issue Age | 75 Years |
Minimum Initial Purchase Amount | $1,200 (or $100 monthly with PAC) |
Plan Types |
|
Free Withdrawals | 10% of the annuity’s Accumulated Value per year |
Death Benefit | Account Value without any surrender charges or Market Value Adjustments (MVA) |
Free Features | Nursing home and terminal illness waivers |
Riders | No Optional Riders |
Surrender Value | Subject to surrender charges; also 10% federal tax penalty if taken before age 59.5 |
Premium Payment and Rate Options | Flexible premium payments, with a minimum term guaranteed yield, communicated at the time of annuity issue |
Product Policy
How Does the Royal Neighbors Steady Choice II Annuity Work?
The Royal Neighbors of America Steady Choice II Flexible Premium Deferred Annuity offers a structured approach to retirement savings with the flexibility to make ongoing contributions. It allows policyholders to grow their wealth through tax-deferred growth, guaranteed interest rates, and multiple withdrawal options. Here’s a detailed look at how this annuity works and how it fits into a broader retirement strategy.
A Flexible Premium Deferred Annuity (FPDA) is a type of annuity that allows policyholders to make multiple contributions over time instead of a single lump-sum payment. This feature provides flexibility for individuals who want to gradually build their retirement savings over time. Contributions can be made monthly, quarterly, annually, or on an irregular schedule, giving policyholders the ability to adapt their investment strategy based on changes in their financial circumstances.
Unlike single-premium deferred annuities (SPDAs), where only one initial payment is made, FPDAs offer more contribution flexibility. Additionally, while SPDAs typically offer a fixed rate at the time of purchase, the interest rates in FPDAs may change over time based on market conditions, though a minimum guaranteed interest rate is provided for security.
The Royal Neighbors of America Steady Choice II Annuity takes this concept further by allowing policyholders to enjoy a minimum guaranteed interest rate on their contributions while offering liquidity options, penalty-free withdrawals, and hardship waivers.
Here’s a detailed look at how this annuity works and how it fits into a broader retirement strategy.
1. Issue Age and Eligibility
The Steady Choice II Annuity is available with the following eligibility criteria:
- Owner Age: 16 to 75 years old for non-qualified and IRA plans, 21 to 75 for SEP IRAs.
- Annuitant Age: 0 to 75 years old for non-qualified annuities.
2. Premium Contributions
One of the primary features of this annuity is its flexibility in contributions. You don't have to deposit a large amount upfront. Instead, you can make smaller payments over time.
Minimum Contribution:
- $1,200 annually
- $100 per month (via automatic contributions)
Maximum Contribution:
- $25,000 per year
- Lifetime Maximum: $300,000
These flexible payment options allow you to build your retirement savings over time, making it a good option for people with fluctuating cash flows or those who want to spread out their contributions.
3. Interest Rate and Guaranteed Growth
The Steady Choice II Annuity provides both a guaranteed minimum interest rate and the potential for higher returns based on the current rate set by Royal Neighbors.
- Current Rate: 2.35% (as of December 2024)
- Guaranteed Minimum Interest Rate: 2.35%
The guaranteed rate ensures that your annuity balance will continue to grow, even if market interest rates decline. This predictability appeals to conservative investors who prioritize security and steady growth.
The interest is credited daily, allowing for daily compounding, which results in better long-term growth. As market rates fluctuate, Royal Neighbors may increase the credited rate, but it will never fall below the minimum guaranteed rate.
Important Note: While the guarantee of a 2.35% minimum rate offers reassurance, it is essential to assess how this rate compares to other annuities in the market. At the time of writing this article, this rate is fairly lower than what is offered by many other flexible premium deferred annuities. Similar products in the market often provide higher rates, which could lead to better long-term growth.
Although the Steady Choice II Annuity offers notable flexibility and other features, the most critical factor to consider in an annuity investment is the interest rate. If the rate is not competitive, the flexibility and added benefits may not be sufficient to justify the investment. After all, an annuity's primary purpose is to provide safe, steady growth. If the growth is subpar, the opportunity cost could be significant.
However, it’s important to note that rates are subject to change. While the rate is currently on the lower end, it could improve in the future as interest rate environments shift or if the insurer decides to offer more competitive rates. Prospective buyers should keep this in mind and consult with a financial advisor or directly with the insurer for updated rate information before making a final decision.
In most cases, selecting an annuity with a higher interest rate is a better strategy, as it directly impacts the accumulation of wealth over time. While the extra features are valuable, they should be viewed as secondary considerations. The rate of return is the most important metric to analyze before committing to a long-term annuity product. For prospective buyers, it’s essential to compare rates across other flexible premium annuities in the market before making a final decision.
4. Tax-Deferred Growth
The Steady Choice II Annuity offers tax-deferred growth, which means your contributions and earnings grow tax-free until you withdraw the money. This deferral allows your savings to compound more efficiently than they would in a taxable account.
- Why It Matters: Tax deferral can significantly boost long-term growth since you aren't paying taxes on interest earnings each year.
- When Taxes Apply: Taxes are only owed when you make a withdrawal, and you benefit from a lower tax rate after your retirement. However, if you withdraw before age 59½, you may be subject to a 10% federal tax penalty.
This feature makes the annuity an effective option for retirement savings, especially for those looking for ways to reduce their current taxable income.
5. Death Benefit
If the policyholder passes away before the annuity is fully distributed, the beneficiary will receive the greater of:
- The current contract value (including any applicable interest), or
- The total contributions made (less any prior withdrawals).
This death benefit ensures that beneficiaries receive at least the original investment, offering peace of mind to policyholders who want to leave a financial legacy for loved ones.
6. Additional Features
- Daily Interest Credit: Interest is credited daily, allowing for compounding returns.
- Member Benefits: As a member of the Royal Neighbors of America, policyholders gain access to fraternal benefits such as scholarships, grants, and discounts on health, legal, and retail services.
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 Royal Neighbors of America Steady Choice II Annuity:
| Contract Year | 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 Royal Neighbors of America Steady Choice II Annuity is in line with all the other annuity issuers.
Contract/Administrative Charge
The Royal Neighbors of America Steady Choice II Annuity has a transparent fee structure, but it does include an administrative fee, which is uncommon in the annuity market. A $15 annual fee applies if the account balance is below specific thresholds at the end of each contract year.
The balance thresholds are:
- Year 1: $600
- Year 2: $1,200
- Year 3: $1,800
- Year 4: $2,400
- Year 5 and beyond: $3,000
While the $15 annual fee may seem small, it’s worth noting that most annuity providers do not charge an administrative fee at all. This sets the Steady Choice II Annuity apart in a less favorable way. However, it’s important to recognize that most annuity providers require a significantly higher minimum initial investment, typically ranging from $5,000 to $10,000. In contrast, the Steady Choice II offers a much more accessible entry point, allowing individuals to get started with as little as $1,200 annually.
Surrender Charges: As discussed earlier, withdrawals beyond the 10% free withdrawal limit are subject to surrender charges.
Riders
The Royal Neighbors of America Steady Choice II Annuity does not offer any optional riders that policyholders can add for an additional cost. However, like most other annuity providers, it includes Health Hardship Withdrawals as a standard feature.
This feature allows policyholders to access their funds without incurring surrender charges in specific health-related emergencies. The two qualifying conditions are:
- Nursing Home or Hospital Confinement: If the policyholder is confined to a nursing home or hospital for 180 consecutive days after the annuity is issued.
- Terminal Illness: If the policyholder is diagnosed with a terminal illness and has a life expectancy of less than 12 months.
Suitability of the Royal Neighbors of America Steady Choice II Flexible Premium Deferred Annuity
Who Is This Annuity Suitable For?
- Individuals With Limited Initial Capital: Ideal for those who want to start with small contributions, as it allows $100/month or $1,200 annually, compared to the $5,000-$10,000 minimums required by most annuities.
- Conservative Investors Seeking Guaranteed Returns: Suitable for those who prioritize safety over returns, as it offers a minimum 2.35% guaranteed rate, ensuring stable, predictable growth.
- Individuals Seeking Tax-Deferred Growth: Allows for tax-deferred growth, which means interest compounds faster since taxes are deferred until withdrawals.
- Investors Seeking a Low-Cost, Simple Annuity: No optional riders or complex features, making it a straightforward choice for those who prefer simplicity and transparency.
Who Might Find This Annuity Less Suitable?
- Investors Seeking Higher Returns: The 2.35% rate is lower than many competing annuities, CDs, or bonds, making it less attractive for those seeking higher returns.
- People Who Can Make Larger Initial Deposits: Investors with larger amounts to contribute may find better rates with annuities that offer higher returns for larger deposits.
- Individuals Seeking Optional Riders or Enhanced Features: This annuity does not offer add-on riders like lifetime income or long-term care benefits, limiting customization.
- Investors Concerned About Fees: Unlike most annuities, this product charges a $15 annual fee for balances below specified thresholds, which can affect small accounts.
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.
Royal Neighbors of America
Royal Neighbors of America (RNA) is a fraternal benefit society founded in 1895 by nine pioneering women in Illinois. Established to provide financial protection and social support to women who were largely excluded from insurance markets at the time, RNA was among the first insurers to offer life insurance to women at the same rates as men and to cover women in hazardous occupations such as nursing and teaching.
Headquartered in Rock Island, Illinois, RNA operates as a not-for-profit organization, offering a range of life insurance products, annuities, and individual retirement accounts to over 250,000 members across the United States. The society also provides various member benefits, including scholarships, grants, discounts, and community programs. In 2023, RNA reported a record $31.2 million in social good impact, reflecting its dedication to community engagement and support.
It is rated as follows by the rating agencies:
| Rating Agency | Rating |
|---|---|
AM Best | A |
BBB | A+ |
As of December 2023, some of the financial highlights for Royal Neighbors of America include the following:
- $1.18 trillion in Total Assets
- $178.65 million in policyholder surplus
- $122.65 million in premium income
- $900.5 million in insurance reserves and claims
- $1 million in net income
Going by the operating history, financial numbers, and ratings, we can safely gauge that you can trust your savings with Royal Neighbors of America.
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 Royal Neighbors of America Steady Choice II Flexible Premium Deferred Annuity offers a simple, accessible, and predictable approach to retirement savings. Its low minimum premium requirement of just $1,200 annually or $100 per month makes it one of the most accessible annuities on the market, appealing to individuals who prefer to make smaller, gradual contributions. While the annuity offers benefits like 10% free withdrawals, health hardship access, and tax-deferred growth, its major drawbacks include a low interest rate compared to other similar annuities. For those seeking higher returns or optional riders, such as lifetime income or long-term care benefits, other annuity products may offer more compelling alternatives.
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. Dive deeper into our extensive reviews.