Annuities

Adding Annuities to a Financial Plan

Annuities can be a powerful tool to enable clients to meet their retirement goals. RightCapital allows annuities to be added as assets in a client's profile and also to use annuities as a modeled income strategy. If clients own existing annuity accounts, enter them on the Profile > Net Worth screen by adding an Investment account.

Annuity types

Select the Annuity Type from the drop-down box to illustrate four different types of annuities - variable, fixed, indexed, and indexed variable.

Variable Annuities

Variable annuities invest in mutual funds or mutual fund sub-accounts. To add value to the annuity account, specify the investment allocation like any other investment account by entering specific tickers or (more likely for annuities) values broken out by asset class using the Add asset class button.

Fixed Annuities

Fixed annuities earn a specific rate of return each year. If a Fixed annuity is selected, enter the Crediting rate and specify the current Account value. That value will then grow by the crediting rate each year.

Indexed Annuities

Indexed annuities, also referred to as Fixed indexed annuities, earn a rate of return each year that is tied to an index. For modeling purposes, RightCapital utilizes the return for the Large Blend index. This is the average between the Large Growth and Large Value asset classes. Most indexed annuity products will restrict the return applied to the account using various parameters, which can be inputted as part of the indexed annuity card:

Entry

Description

Cap

The maximum rate of return applied to the account in any year; if the Cap is set to 6%, the maximum increase in any year will be 6%.

Floor

The minimum rate of return applied to the account in any year; if the Floor is set to 0%, in any year where the return is less than 0%, the account value will not decrease but will return 0%.

Spread

The amount that is used to reduce the index rate each year. For example, if the spread is 2% and the index returns 7%, we will credit 5% (7% - 2%) for that year.

Participation

The percentage that is used to reduce the index rate each year. For example, if the participation rate is 80% and the index returns 7%, we will credit 5.6% (7% * 80%) for that year.

Indexed Variable Annuities

Indexed Variable annuities, sometimes referred to as buffer annuities, are similar to indexed annuities but do not entirely protect against market loss. An Indexed Variable annuity is also tied to the Large Blend Index. The insurance company will cover a set percentage of losses in a given year, known as the buffer. Any additional losses above the buffer will reduce the account value.

Entry

Description

Cap

The maximum rate applied to the account in any year; if the Cap is set to 6%, the maximum increase in any year will be 6%.

Buffer

The percentage of loss that the insurance company will absorb in a given year. If losses exceed the buffer percentage, the account value will be reduced.

For Example, if the buffer % is set to 10%, and the index loses 25% in a year, the account will drop by 15% (25% - 10%).

Participation

The percentage that is used to reduce the index rate each year. For example, if the participation rate is 80% and the index returns 7%, we will credit 5.6% (7% * 80%) for that year.

Annuity Distributions

Use the Distributions drop-down box to illustrate how money will be withdrawn from the annuity.
Regular Withdrawals
If distributions are set to Regular withdrawals, the annuity will be treated similarly to other investments. This is appropriate for an investment-only Variable Annuity or other annuities that don't have a built-in income guarantee and which the client doesn't intend to annuitize.

The annuity's value will be used to fund cash flow deficits if necessary once taxable accounts are depleted. Income distributions can be set up to withdraw a specific amount each year from the annuity, non-guaranteed.

Annuitization
If the client plans to annuitize the contract (surrender the account value in exchange for a guaranteed fixed income stream), select Annuitization as the distribution method.
Under Income starts, enter the year the client plans to annuitize. In that year RightCapital will annuitize the account, liquidate the annuity value and add annuity income based on the additional parameters set:
  • Income type can be either percentage or amount:
    • Percentage reflects that the income amount will be calculated as a percentage of the total accumulated annuity account value.
    • Amount reflects that the income will be the specific amount entered.
  • Annual increase indicates whether, and if so, by how much, the income amount increases each year after annuitization. This can reflect a cost of living adjustment (COLA) option or any guaranteed increase.
  • Type indicates the period for which the annuity income will last. Users who select Life only or Certain Life will see another input asking if it is based on Single/Joint life. Single annuitization will pay until the end of the card owner's plan, while joint annuitization will pay until the end of both plans.
    • Life only reflects payment for the life of the owner(s) of the annuity. '
    • Certain only reflects payment for a specific duration; if selecting 'Certain only', input the year that income should end in the Guaranteed Period field.
    • Life/Certain reflects payments for the longer of either the client's life or the period indicated.
Lifetime Income
If the client's annuity has a guaranteed lifetime income rider or associated benefit, use the Lifetime Income option to model the parameters of that lifetime income guarantee.

Entry

Description

Benefit Base

The value used to calculate the client's guaranteed lifetime income amount will be a percentage of the benefit base. The benefit base will generally increase by a fixed rollup rate or a step up to the client's account value. In projections, RightCapital will automatically step up the benefit base each year, if applicable, in addition to the rollup specified.

Rollup rate

The rate at the benefit base is guaranteed to increase yearly.

Rollup rate compounding

If checked, the benefit base will increase by a compounding rollup rate; if unchecked, it will increase by a simple interest rate.

Rollup stop year

The year the benefit base stops increasing automatically by the rollup rate. RightCapital will also stop the rollup rate in the Income starts year, if earlier.

Income starts

The year that guaranteed lifetime income withdrawals from the annuity begins.

Income type: Percentage

This reflects that the income amount will be calculated as a portion of the accumulated benefit base.

Income type: Amount

This reflects that the income amount will be the specific amount entered. The benefit base and associated parameters are ignored if the amount is applied.

Annual Increase

This field indicates whether, and if so, by how much, the income amount increases each year after lifetime income begins. This can be used to reflect a COLA option or any guaranteed increase.

AV based fee

Illustrate any annuity fee calculated based on the client's account value (AV).

Benefit base fee

Illustrate any annuity fee calculated based on the client's benefit base.

Contact Us

For additional assistance within RightCapital please contact our Support team.

Educational Webinars

RightCapital is committed to enabling your success. Each week, we cover essential planning modules and product updates.

RightCapital in Action

Check out our YouTube channel where we highlight Advisor Success Stories and share more Tips & Tricks!