Are Caps too Low?

Annuity rates | Compare AnnuitiesAt least a couple of times a day, I hear advisers talk about caps on indexed annuities being too low. The answer should always be relative to what? Of course they are low compared to where they were five and ten years ago but that does not negate the potentially powerful benefit of owning one.


This is especially true after conservative a conservative  American A+ carrier stepped out of the starting blocks by increasing their monthly caps to be the first carrier to follow Treasury note yields upward in 2013. The second question when concerns about caps arise is: What is more important, cost or price? Price is what I pay today for goods and services like an indexed annuity. Cost is what I pay over the life of a relationship with an adviser or the life of an annuity. On that basis, it’s kind of like comparing today’s lousy unemployment rate to what it was five years ago and being happy.  Most folks are finding about as much demand for their services outside of the  energy and housing sector as the Pope’s personal marriage counselor finds for brides.  The truth is that a monthly cap of 4.25% for a 6 year option index annuity option is powerful and compelling in today’s interest rate environment. The rate is more than double what a longer ten year note provides and is comparable to what the 4.14% since 1960 that the  stock market has returned BEFORE taxes. If I figured the taxes at the average annuity buyers rate of 33%, I would have earned a little over 3% with risk of losing 50-70% of my principal in another down market which seem to hit more frequently and with more devastation. Forget about climate change for a moment and recognize that investor sentiment is very negative and will catch up with this Fed induced rally at some point. One leading six year surrender options  also contains a significant bailout provision for additional liquidity and the company has been privately owned by one of the greatest investors in history, Carl Lindner.


Last, in terms of price, the market is not cheap relative to historical norms. Most of the comparisons about current value indicate that the market is cheap relative to bonds. Of course it is. Interest rates have been falling for 30 years and the Feds major goal has been to drive money out of bonds and into stocks where they presume, economic engines will ignite and growth will follow. The new normal will be Nirvanna.  They forget that investors and savers have more choices than ever to invest and save including options that provide a lifetime of retirement income from a retirement income specialist that concentrates on nothing but creating dreams of providing a legacy of income or wealth. They also can bury under the mattress, play the lottery or look for gold buried under the sand on the beach. When the market has been priced at a multiple of 15 times earnings as it it today, it has only produced a return for the subsequent 10 year period according to Leuthold Group, of 6% before taxes. In addition, market analysts seem to be discounting geopolitical risk which continues to grow day by day. This is exactly what FDR’s team did when they admitted failure in the New Deal and ignored Hitler marching through Europe in 1937-38 after a fierce stock rally.


At a cap of over 4% for 6 year money and  for an investment grade carrier, savers who want tax deferral, to avoid risk, avoid private equity companies embedded in the indexed annuity industry, trust in Great American owned insurance stories and earn income that they cant outlive, should look at this indexed annuity today.Alternative Pension Plan

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