An Indexed Variable Annuity (sometimes referred to as a buffer annuity) is an annuity type that is similar to an indexed annuity, but does not entirely protect against market loss. In RightCapital, advisors can enter existing indexed variable annuities as assets in the Profile > Net Worth section. Annuity values and income can be tracked within the Retirement > Cash Flows.
Indexed variable annuities are entered similarly to other types of investment accounts. 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:
After choosing an annuity as your account type, you can specify the Annuity type from the drop-down box to illustrate an Indexed Variable annuity:
To add value to an indexed variable annuity, simply enter the total balance. 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 Variable Annuities is illustrative, and will not impact the future-looking retirement projections within the Retirement module.
For premium and platinum subscribers, the asset allocation will impact the Risk module, if you choose to include the indexed variable annuity in a client's risk analysis.
The indexed variable annuity type will also 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. |
After the fields above have been entered, you can use the Distributions drop-down box to illustrate how money will be withdrawn from the annuity.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 will treat the annuity similarly to other investments. Income distribution cards can be added in the Profile > Income section to withdraw a specific amount each year from the annuity.
- Annuitization will surrender the account value in exchange for a guaranteed fixed income stream. This option will populate new fields to enter the details of the annuitization.
- Lifetime income can be used for an annuity that has a guaranteed lifetime income rider or associated benefit. This option will populate new fields to enter the details of the lifetime income guarantee.
After adding an existing indexed variable annuity in the Profile > Net Worth section, you can track the value of the annuity as well as the income stream within the Retirement > Cash Flows tab.
The value of the Annuity can be tracked within the Cash Flows > Accounts tab, by viewing the Ending Balance by Accounts:
The income stream from the annuity can be tracked within the Cash Flows > Summary tab, by clicking into the underlined header for Income Inflows:
