Over the past decade, the fixed-indexed annuity (FIA) space has been bombarded with tons of guaranteed lifetime withdrawal benefit (GLWB) riders. Some credit interest to the income-base with multipliers, some have fixed roll-up rates that can never change. Others credit large income-base bonuses. For this article, though, let’s look at a relatively new concept in the GLWB realm: The stacking roll-up.
Stacking roll-ups work like this … The insurance carrier guarantees a certain roll-up rate, say 4%. Then, the carrier agrees to add or “stack” all of the client’s interest/index credits on top of the guaranteed amount. This could potentially net a much higher roll-up than a fixed roll-up rate. Let’s take a closer look.
In our example of a stacking roll-up GLWB with a 4% base roll-up, let’s assume the client nets 3% on their indexing strategy. Most in our industry would agree that a 3% average return over a 10-year period is a very conservative and fair assumption. In this scenario, the client would end up with a “net” roll-up of 7%. That 7% roll-up rate is right up there amongst the highest guaranteed roll-up rates in the industry.
So, if a stacking roll-up returning 7% on average (using conservative assumptions of a 3% indexing return) is on par with a 7% guaranteed roll-up, wouldn’t it make sense to utilize a stacking roll-up for at least some of your clients’ retirement income dollars? I think so – let’s look at a slightly less conservative scenario.
For this scenario, we again will assume that the guaranteed portion of the stacking roll-up is 4%. This time, though, let’s assume we had a nice 10-year return on our index annuity that is annualized at 5%. This would mean that the client would have netted a 9% roll-up over that time period. With this totally feasible scenario, we could easily outpace the top guaranteed roll-ups in the industry.
The stacking roll-up is a great way to compete against fixed roll-up GLWBs, especially if you are being “spreadsheeted” by a competing agent who is showing your prospect the top fixed GLWB roll-ups. A quick illustration and explanation can illustrate the higher potential income with the stacking roll-up and at the same time show that there is still a nice 4% minimum guaranteed roll-up each year.
Stacking roll-ups work like this … The insurance carrier guarantees a certain roll-up rate, say 4%. Then, the carrier agrees to add or “stack” all of the client’s interest/index credits on top of the guaranteed amount. This could potentially net a much higher roll-up than a fixed roll-up rate. Let’s take a closer look.
In our example of a stacking roll-up GLWB with a 4% base roll-up, let’s assume the client nets 3% on their indexing strategy. Most in our industry would agree that a 3% average return over a 10-year period is a very conservative and fair assumption. In this scenario, the client would end up with a “net” roll-up of 7%. That 7% roll-up rate is right up there amongst the highest guaranteed roll-up rates in the industry.
So, if a stacking roll-up returning 7% on average (using conservative assumptions of a 3% indexing return) is on par with a 7% guaranteed roll-up, wouldn’t it make sense to utilize a stacking roll-up for at least some of your clients’ retirement income dollars? I think so – let’s look at a slightly less conservative scenario.
For this scenario, we again will assume that the guaranteed portion of the stacking roll-up is 4%. This time, though, let’s assume we had a nice 10-year return on our index annuity that is annualized at 5%. This would mean that the client would have netted a 9% roll-up over that time period. With this totally feasible scenario, we could easily outpace the top guaranteed roll-ups in the industry.
The stacking roll-up is a great way to compete against fixed roll-up GLWBs, especially if you are being “spreadsheeted” by a competing agent who is showing your prospect the top fixed GLWB roll-ups. A quick illustration and explanation can illustrate the higher potential income with the stacking roll-up and at the same time show that there is still a nice 4% minimum guaranteed roll-up each year.
 | Until next time... good selling! Joe Ohlson, LUTCF Managing Partner The Ohlson Group, Inc. |
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