TruStage Zone Income Annuity Review

Product Policy

How Does the TruStage Zone Income Annuity Work?

The TruStage Zone Income Annuity is a unique retirement solution that combines guaranteed lifetime income with market-linked growth potential, providing flexibility, security, and control over risk exposure. Here's a detailed breakdown of how it works:

Initial Purchase Payment
You start by making a minimum purchase payment of $10,000, with a maximum limit of $999,999 without prior approval.
The purchase payment determines your contract value and benefit base, which is the value used to calculate your lifetime income.
Investment Allocation Options

The Zone Income Annuity offers a mix of market-linked and fixed allocation options to determine your benefit base, allowing you to customize your investment strategy:

Declared Rate Account Option: A fixed-rate option that provides guaranteed growth without market exposure.
Market-Linked Options: : Investments are linked to indices such as the S&P 500, MSCI EAFE, Barclays Risk Balanced Index, and Dimensional US Small Cap Value Systematic Index:
The Standard & Poor's 500 (S&P 500) is a stock market index that tracks the performance of 500 large-cap U.S. companies across various industries. It serves as a key indicator of the overall health of the U.S. equity market and is widely used as a benchmark for investment performance.
The MSCI EAFE Index captures large and mid-cap representation across 21 developed markets in Europe, Australasia, and the Far East, excluding the U.S. and Canada. It covers approximately 85% of the free float-adjusted market capitalization in each country, providing a comprehensive view of international equity markets.
The Barclays Risk Balanced Index is part of a diverse family of systematic, non-discretionary trading strategy indices available across multiple asset classes, including equities, fixed income, FX, commodities, derivatives, and alternative investments.
The Dimensional US Small Cap Value Systematic Index focuses on small-cap U.S. companies that exhibit value characteristics, such as lower price-to-book ratios. It aims to capture the value premium by systematically targeting smaller, undervalued firms, offering exposure to a segment of the market with potential for higher returns.

You can allocate funds to two types of risk control accounts:

Secure Account: Provides a 0% floor to protect against losses but offers a lower growth cap.
Growth Account: Offers higher growth caps but includes a downside floor of -10%, limiting potential losses.

3. Risk Control Customization

You define your comfort zone by blending allocations between Secure and Growth accounts. This allows you to balance risk and reward:

Secure Account: Protects against any market loss (0% floor) but caps returns at a lower rate.
Growth Account: Offers higher growth potential but limits losses to no more than -10%. The allocation balance determines the upside potential and downside protection for your annuity.

We will explore Risk Control Customization in greater detail when we discuss an example scenario later in this annuity review.

4. Guaranteed Lifetime Withdrawal Benefit (GLWB)

This annuity provides lifetime income through the GLWB rider, ensuring payments continue regardless of market conditions. Key aspects include:

Benefit Base Growth: The benefit base starts equal to the purchase payment and may increase annually in line with the contract value. However, if your contract value goes down, the benefit base never decreases.
The lifetime income payments are determined by a pre-set percentage, which is communicated at the time of purchasing the policy. This percentage is influenced by various factors, including the policyholder's gender, age at the start of lifetime payments, and whether the policy is for single or joint coverage.
Deferral Bonus: For each year income is deferred, the withdrawal percentage increases by 0.4%, up to a maximum of 10 years. For example:

At age 60, the base withdrawal percentage starts at 5.50%.
If income is deferred for 10 years, it increases to 9.50%, a 73% improvement in the lifetime income payment.



The annuity also offers a joint life option, providing lifetime income for two individuals, such as spouses. This option ensures that payments continue for the life of the surviving individual, making it a good choice for couples prioritizing financial security for both partners. However, the withdrawal percentage for the joint-life option is 0.50% lower than the single-life option to account for the extended payout period. For example, if the single-life withdrawal percentage at age 65 is 6.25%, the joint life withdrawal percentage would be 5.75%. This trade-off balances the guarantee of lifetime income for two individuals with a slightly lower annual payout.

5. Death Benefit: The Return of Premium (ROP) feature ensures beneficiaries receive at least the original purchase payment (adjusted for withdrawals), even if market losses have reduced the account value.

Example Scenario

Let’s break down an example of a policyholder allocating their investment across the options listed in the rate sheet. This will illustrate how the TruStage Zone Income Annuity works in terms of risk, return, and protection. Please note that the rates used in this example are subject to change and may vary over time based on market conditions and the insurer’s policies. It’s always advisable to consult your financial advisor or check the latest rate sheet before making any decisions.

Scenario:

Total Investment: $100,000
Allocation Strategy
70% to the S&P 500 Index
60% in Secure Account (Cap: 6.95%)
40% in Growth Account (Cap: 12.25%)
30% to Declared Rate Account: Fixed Rate (3.40%)

Step 1: S&P 500 Index Allocation

Allocation: $70,000
Secure Account (60%): Cap = 6.95%
Growth Account (40%): Cap = 12.25%

Blended Cap: (60% * 6.95%) + (40% * 12.25%) = 9.07%

Blended Floor: (60% * 0%) + (40% * -10%) = 4.00%

If the market grows by 10%, the return is capped at 9.07%, yielding $6,349 (9.07% × $70,000).
If the market declines by 10%, the floor limits losses to 4%, meaning the investor bears only a 4% loss, which equals -$2,800 (-4% × $70,000).

Step 2: Declared Rate Account Allocation

● Allocation: $30,000

● Fixed Rate: 3.40%

● Regardless of market performance, this allocation yields a fixed return of 3.40%, adding $1,020.

Total Portfolio Impact

Growth Scenario (Positive Market Performance):
S&P 500: $6,349
Declared Rate: $1,020
Total Return = $7,369 (7.37% aggregate growth)
Decline Scenario (Negative Market Performance):
S&P 500: Protected loss of -4% = -$2,800
Declared Rate: $1,020
Total Loss = -$1,780 (-1.78% aggregate decline)

Now, let’s understand the lifetime withdrawals, assuming the benefit base grows to $200,000 during the accumulation phase.

The lifetime income withdrawal is calculated based on the percentage of the benefit base. For this example, let’s assume the policyholder age at issue was 60 and starts withdrawals at age 70 (see the withdrawal percentage chart in the GLWB section of the review), with a single-life withdrawal rate of 9.50%.

Annual Lifetime Income Withdrawal: 200,000 * 9.50% = $19,000

The policyholder will receive $19,000 per year as guaranteed lifetime income, regardless of market fluctuations or the remaining contract value.

Impact of Market Scenarios

1. Market Growth Scenario: If the market grows, the contract value may exceed the benefit base, providing flexibility for additional withdrawals beyond the guaranteed lifetime income.

2. Market Decline Scenario: Even if the market declines and the contract value drops to zero, the policyholder will continue to receive $19,000 annually for life due to the Guaranteed Lifetime Withdrawal Benefit (GLWB).

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 TruStage Zone Income 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 TruStage Zone Income Annuity is relatively low when compared to other annuity issuers.

Excess Withdrawals

If the policyholder withdraws more than the guaranteed lifetime income in a given year, it will count as an excess withdrawal and proportionally reduce both the benefit base and death benefit.

Contract/Administrative Charge

Contract Fee: 0.75% of the contract value, assessed as part of the daily value calculation.
GLWB Rider Fee: 1.00% of the average daily benefit base for the prior year.

Riders

Like most annuities, the TruStage Zone Income Annuity includes free nursing home and confinement waiver riders designed to provide flexibility and support during critical times. These features enhance the annuity's value by allowing access to funds without penalties in specific situations:

Policyholders can access their full contract value without surrender charges or Market Value Adjustments (MVA) under the following conditions:

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 Diagnosis: If diagnosed with a terminal illness and the policyholder has a life expectancy of less than one year.

Required Minimum Distributions (RMDs)

For tax-qualified contracts, the annuity allows RMDs to be withdrawn without surrender charges or MVA when taken through an automatic withdrawal program. This ensures compliance with tax regulations while preserving the annuity’s value.

Suitability of the TruStage Zone Income Annuity

The TruStage Zone Income Annuity is designed for individuals seeking a balance between guaranteed lifetime income and the potential for market-linked growth. Its unique blend of features makes it suitable for a variety of retirement planning scenarios. Below is a breakdown of who this annuity is best suited for and who may want to explore alternative options.

Pre-Retirees and Retirees Seeking Guaranteed Income: If you’re planning for retirement or already retired and want a secure income stream for life, this annuity provides predictable payouts with the flexibility of starting withdrawals as early as age 50.
Individuals Seeking Market-Linked Growth with Downside Protection: The Zone Income Annuity allows policyholders to allocate investments across indices, offering market participation with clear downside protection. This makes it ideal for those who want to benefit from market growth but limit their exposure to losses.
Investors Looking for Flexibility and Low Excess Withdrawal Charges: The annuity includes features like annual reallocation options, health hardship withdrawals, and free access to funds for RMDs. Additionally, its lower excess withdrawal charges compared to many other annuities make it a practical choice for those who might need occasional access to funds beyond the standard withdrawal limits.
Individuals Seeking Tax-Deferred Growth: For those looking to defer taxes on investment growth, this annuity’s tax advantages make it a strong option, particularly for high-income earners nearing retirement.

What I Don’t Like About This Annuity

While the TruStage Zone Income Annuity offers a range of attractive features, there are some drawbacks and limitations that prospective buyers should carefully consider before committing. Here are the key aspects that may not appeal to all investors:

Caps on Market Growth: Although the annuity provides market-linked growth opportunities, the returns are capped based on the allocation between the Secure and Growth accounts. This means that even in strong market conditions, your earnings are limited by a conservative cap rate.
Complexity in Investment Options: The variety of indices and risk control account combinations, along with annual reallocation choices, can be overwhelming for investors who prefer simpler financial products. Understanding and optimizing these options requires time, effort, and possibly the guidance of a financial advisor.
Contract Fee: Unlike many other annuities, the TruStage Zone Income Annuity charges an annual contract fee of 0.75% of the contract value. This additional fee can eat into returns over time, making it less cost-effective compared to other annuity products that do not impose such fees.
GLWB Rider Fees: The Guaranteed Lifetime Withdrawal Benefit (GLWB) rider fee of 1.00% of the average daily benefit base may reduce the net returns on the investment. For individuals seeking a cost-efficient solution, this fee may be a point of concern, especially if the market performs poorly.

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.

CMFG Life Insurance Company

CMFG Life Insurance Company, operating under the brand name TruStage Financial Group (formerly known as CUNA Mutual Group), is a mutual insurance company that provides financial services to cooperatives, credit unions, their members, and other customers worldwide. Founded in 1935 as the CUNA Mutual Insurance Society, the company has grown to serve over 30 million consumers through its lending, retirement, and wealth management products. TruStage Financial Group offers a broad range of insurance and investment products, including commercial and personal insurance, lending services, wealth management, and retirement solutions. Its insurance arm, TruStage, provides various products such as whole and term life insurance, accidental death and dismemberment insurance, auto insurance, property insurance, and annuities. Headquartered in Madison, Wisconsin, the company employs nearly 3,700 people across multiple locations in the United States and internationally.

It is rated as follows by the rating agencies:

Going by the ratings, it is considered to be strong and stable financially. As of December 2023, some of the financial highlights for CMFG Life Insurance Company include its:

$45 billion in Assets
$2.9 billion in policyholder surplus
$42.1 billion in liabilities
$5.43 billion in total sales
$140 million in net income

Going by the operating history, financial numbers, and ratings, we can safely gauge that you can trust your savings with the CMFG Life Insurance 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 TruStage Zone Income Annuity offers a unique blend of guaranteed lifetime income and market-linked growth potential, making it an appealing option for retirees or near-retirees seeking a balance between stability and flexibility. Its ability to provide downside protection while participating in market gains allows policyholders to align their financial strategies with their risk tolerance and retirement goals. Features like health hardship withdrawals and relatively low excess withdrawal charges further enhance its appeal.

However, the annuity’s additional fees, such as the contract and GLWB rider fees, may not suit all investors. These factors, along with its complexity, make it less attractive for individuals looking for simpler, low-risk investments.

Overall, the TruStage Zone Income Annuity is suited for individuals who prioritize secure, predictable income and are comfortable with the trade-offs of capped growth and associated fees. As with any financial product, it’s important to consult a trusted financial advisor to ensure that this annuity aligns with your specific retirement needs and long-term financial plan.

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.