Annuities - RightCapital Help Center

Annuities can be a powerful tool to enable clients to meet their retirement goals. RightCapital allows you to add existing annuities as assets to a client's profile, as well as propose annuity purchases within the future-looking retirement projections. This data entry article reviews how to add an annuity as an asset to a client plan.

To review how to add an annuity as an income stream, click here.

When to Model an Annuity as an Asset

Annuities in RightCapital can be modeled as either an asset, in the Profile > Net Worth, or as an income stream, in the Profile > Income section. Modeling an annuity as an asset will account for the current value of the annuity, future growth on the annuity value, and the annuity distributions / income stream. Modeling an annuity as an income card will only account for the income stream, and will not model the current annuity value or future growth.

If you know the details of the annuity and want the current value to be included in the client's Balance Sheet, you will want to model the annuity as an asset. If you do not have the details of the annuity, or if you only want to model the future income stream without accounting for the current value of the annuity, you can model the annuity as an income stream instead.

Be mindful not to model an annuity as both an asset in the Net Worth, and as an income card in the Income section, to avoid double-counting the annuity income.

To add an existing annuity as an asset to a client's plan, navigate to the Profile > Net Worth tab (or step 4 of the initial data entry) and click Add Account > Investment. Within the Account type dropdown, select Qualified, Non-qualified, or Roth annuity:

Annuity Types

After choosing an annuity as your account type, you can specify 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 typically invest in mutual funds or mutual fund sub-accounts. To add value to the annuity account, you can either:

Use 'Enter total balance' as the entry method to manually enter the annuity value and asset allocation.
Use 'Enter holdings / asset class' as the entry method to specify the annuity allocation by entering specific tickers or (more likely for annuities) values broken out by asset class.

For a more detailed walkthrough of modeling variable annuities, click here.

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 Total Balance. That value will then grow by the crediting rate each year:

The Asset allocation for Fixed Annuities is illustrative and will not impact the future-looking retirement projections within the Retirement module.

For a more detailed walkthrough of modeling fixed annuities, click here.

Indexed Annuities

Indexed annuities, also referred to as Fixed indexed annuities, earn a rate of return each year that is tied to an index. Selecting this option will populate additional fields for a cap, floor, spread, and participation rate:

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.

For modeling purposes, RightCapital utilizes the return for the Large Blend index when projecting future growth on the Total balance. This is the average between the Large Growth and Large Value asset classes, and will be based on your asset return assumptions for each.

The Asset allocation for Indexed Annuities is illustrative and will not impact the future-looking retirement projections within the Retirement module.

For a more detailed walkthrough of modeling indexed annuities, click here.

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. Selecting this option will populate additional fields for a cap, buffer, and participation rate:

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.

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.

The Asset allocation for Indexed Variable Annuities is illustrative and will not impact the future-looking retirement projections within the Retirement module.

For a more detailed walkthrough of modeling indexed variable annuities, click here.

Important Note on Asset Allocation

For premium and platinum subscribers, the asset allocation for fixed, indexed, and indexed variable annuities will be referenced by the risk analysis tool (if you choose to include those annuities in the client's current portfolio risk score). Please be mindful to allocate all annuity entries when using the risk tool.

Annuity Distributions

After selecting the annuity type and filling out the corresponding fields, you can use the Distributions drop-down box to illustrate how money will be withdrawn from the annuity. Distribution options include regular withdrawals, annuitization, and lifetime income:

Regular Withdrawals

If distributions are set to Regular withdrawals, the annuity will be treated similarly to other investments. Income distributions can be set up to withdraw a specific amount each year from the annuity, non-guaranteed. Income distributions are added in the Profile > Income section, by clicking Add Income > Distribution:

The annuity's value will also be used to fund cash flow deficits if necessary once taxable accounts are depleted. This option 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.

For a step-by-step walkthrough of the regular withdrawals distribution type, click here.

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. This will populate new fields to enter the details of the annuitization:

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.

Single/Joint - indicates whether the surviving client would continue receiving the lifetime income benefit from the annuity. Single annuitization will pay until the end of the card owner's plan, while joint annuitization will pay until the end of both plans. Only applicable for Life only or Certain/Life annuities (see below).

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.

Certain only - reflects payment for a specific duration. If selecting 'Certain only', input the year that income should end in the Guaranteed Period field that appears to the right.
Certain/Life - reflects payments for the longer of either the client's life or the period indicated.
Life only - reflects payment for the life of the owner(s) of the annuity.

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). Fees will reduce returns generated by the annuity.
Benefit based fee	Illustrate any annuity fee calculated based on the client's benefit base. Fees will reduce returns generated by the annuity.

Pro-Tip: Annuity Models

If you find yourself entering or proposing the same annuity products repeatedly across multiple clients, utilizing Annuity Models will save you a significant amount of time while building client plans in RightCapital.

For more information, click here.