Annuity debate is still out on Prudential’s Highest Daily Lifetime 6 Plus
October 13, 2009, 7:30AM
Q. Prudential has an annuity called Highest Daily Lifetime 6 Plus. It is a variable annuity. Is it a good annuity product? Is the fee too high? Someone suggested the product to me
A. Youâ€™re right to question whether or not an annuity is the right investment product for you. The answer: maybe.
â€˜â€˜I know of a lot of â€˜one trick poniesâ€™ in the financial services industry who only sell annuities and no matter what your objection, they have a great answer why you need their product,â€™â€™ said Jerry Lynch, a certified financial planner with JFL Consulting in Fairfield.
In simplest terms, Lynch said an annuity is a promise from an insurance company to pay you an income stream for a specific period of time. It will grow your money in a variable annuity based on how the underlying investments that you select perform or based upon a formula guarantying a minimum rate of return. The minimum guaranteed amount (which is like a phantom account) can only be taken out based upon the contract provisions (usually four to six percent annually for life) and can not be taken out as a lump sum, he said.
Annuity fees are higher than mutual fund fees because you are putting an insurance wrapper on your money, guaranteeing you a certain rate of return.
Does this product make sense for you? Only if it fits with the rest of the things that you are doing, he said.
â€˜â€˜All your money should not be in an annuity as you have limited liquidity,â€™â€™ he said, noting that no more than 30 to 50 percent of your liquid assets should be in an annuity, if you decide to go there.
The Prudential HD Lifetime 6 Plus program offers to provide guaranteed lifetime income based on six percent compounded growth of the variable annuityâ€™s highest daily value, said Jim Marchesi, a certified financial planner with Mill Ridge Wealth Management in Chester. This guaranteed growth rate is offered by Prudential, for a period of time(s) identified in the contract, or until the first lifetime withdrawal is taken.
Without knowing the rest of your financials, itâ€™s impossible to say if this product, or any product, is right for you.
â€˜â€˜Variable annuities can add a combination of growth and predictability to a portfolio, for an increased operational cost,â€™â€™ Marchesi said. â€˜â€˜Investors need to go through a discovery process to determine if the added costs are validated by the offer.â€™â€™