Great American Annuity – American Legend III with IncomeSecure rider Review
This review is meant to show you the strengths and weaknesses of the Great American Annuity American Legend III. I’ll also go into the details you need to know in regards to the IncomeSecure rider. Also, how to find out if it’s worth it for you. As with all annuities, they work well in some aspects and poorly at other. I’ll walk through the details of how Great American Annuity works, so you can know what to expect. This Great American Annuity American Legend III is often positioned with an income Secure rider, so I’ll go into detail on how the income rider works.
- Product type
- Current rates
- Investment options that are available and their Realistic long term investment return expectations
- Understanding the Guaranteed 7% income Rider and its true value
- How it can best help you as part of your financial plan
- How it is most poorly used as part of your financial plan
Great American Fixed Indexed Annuity Quick Facts
|American Legend III
|Great American Life Insurance Company
|Type of Product
|Fixed Indexed Annuity
|Standard & Poor’s Rating
Is any of this True?
In a sense it is, however, the details are important because things arent’t always what they seem. While many of the statements above are true, they don’t tell the whole story. My goal is to help you understand more about the details and exactly what you can expect, so you can see deeper into an overly simplified sales pitch.
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If it happens that you’re on this website for the first time. We’re dedicated to helping you with a second opinion viewpoint so to help you see through some of sales pitches that aren’t what they seem. We hope with the information we provide you’ll be better educated to make an informed decision before you buy.
Before we go into the details, read this important legal disclosure.
This review is meant to be an independent review at the request of readers, so they could see my perspective as a when breaking down the positives and negatives of this particular model annuity. This is an independent product review, not a recommendation to buy or sell an annuity. Great American has not endorsed this review in any way, nor do I receive any compensation for this review. Before purchasing any investment product be sure to do your own due diligence and consult a properly licensed professional, should you have specific questions as they relate to your individual circumstances. This is not meant to be specific advice and your advisor may know more about your circumstances to make an appropriate recommendation. All names, marks, and materials used for this review are property of their respective owners
Before we get into how this product works and important facts you need to know, below’s some Company Information from their website.
Facts About Great American Insurance Group
- We trace our roots back to 1872 with the founding of the German American Insurance Company in New York.
- Headquartered in Cincinnati, Ohio.
- Great American Insurance Company’s A.M. Best A+ rating was affirmed on March 20, 2015. The company has maintained an “A” (Excellent) rating or higher from A.M. Best for over 100 years, and is one of only five property and casualty insurers to do so.
- Great American’s Property & Casualty Group was recognized as one of the 2014 “Ward’s 50” top performing insurance companies by the Ward Group.
- The subsidiaries of Great American’s Annuity Group have consistently been rated “A” or higher by A.M. Best for more than 30 years.
- Over 100 locations throughout North America and Western Europe.
- A subsidiary ofAmerican Financial Group, Inc. (AFG), also based in Cincinnati, Ohio.
- AFG’s common stock is listed and traded on the New York Stock Exchange under the symbol AFG
See more at www.Greatamericaninsurancegroup.com
How do agent’s typically Pitch this Product
- As a principal protected way to get upcapped market growth
- As a way to guarantee a future income stream
- A way to get 7% guaranteed Growth no matter what the market does
- A CD alternative with more upside but guaranteed principal protection
As a principal protected way to get upcapped market growth?
Great American Annuity – American Legend III can help you get growth with principal protection. Note, that it’s not the same as being in the market as far the upside. I’ll walk you through the expected return by taking a look at the rates, and historical performance. There are other index options that we’ll discuss, but let’s start with uncapped. The uncapped index is the S&P500 risk Controlled 10 index, which is a less volatile version of the S&P500. Current participation rates at 50%, these are subject to change, so see current participation rates before making a decision. This means you’ll receive 50% of whatever the S&P500 10% volatility index does for that year with zero downside. The S&P500 volatility index has less upside then the S&P500. On top of that, you’re getting a participation rate, which gives you a percentage of the upside of the risk controlled index.
S&P500 Index Risk Control index 10% Index
Assuming the 50% participation rate, this index has averaged 3.46% since 2006. This index, however, can have large up years when the market performs well especially when compared to the safety of no downside risk. In 2013, when the S&P500 Volatility index increased 21.91%, Great American Annuity would’ve credited 10.95%, so it can have large up years, however, even with that large year, it still has averaged 3.46%, which is less then average bond portfolio during the same period, yet still much more then cash or CD’s.
S&P500 Index Annual Point-t0-point with cap
Assuming the current 4.75% cap. ( caps and participation rate for all crediting options are subject to change, so caps may be higher or lower when you purchase) This has averaged anywhere from 3.13% compounded annual return for the best 10 year period. It has averaged 2.53% for worst 10 year period. The last 10 years it’s average 3.18% compounded annual return
S&P500 index monthly sum with Monthly cap
Assuming the current 2.0 monthly cap. The best 10 year for this annuity has averaged 2.59% compounded annual return. The worst 10 year return has been 2.76%. The last 10 year return has been 2.88% compounded annual return.
SPDR Gold shares annual point to point with Cap
Assuming the current 5% cap. The best 10 year period has averaged 3.97% compounded rate of return. The worst 10 year period has been 3.47% and the last 10 year period it’s averaged 3.47% annual compounded return.
S&P500 Index 18 month point-to-point with cap
The current cap is 7% but performance is based of an 18 month period. The best 10 year period has averaged 2.74%. The worst 10 year period it’s averaged 2.53% and the last 10 year period it’s averaged 3.44%
Current fixed rate is 1.9%. Great American Annuity – American Legend III also has the option to put your money in a fixed account which currently averaged 1.9%. This can be good if rates rise because the fixed account rate is floating and should increase.
These have been the historical returns. Past performance is no guarantee of future results. These returns are more similar to conservative bonds and much better than CD’s, but much under stock market return. There is no downside risk, so the risk/reward is favorable, but it’s important to see if these returns will help you keep pace with inflation and maintain your retirement in your retirement planning analysis.
Understanding the IncomeSecure Rider and the 7% rollup rate
7% Guaranteed return, sign me up! Not so fast.
Understand the rate of return this provides to your financial plan when analyzing whether the incomesecure rider is appropriate in helping you reach your financial goals. To do this, test this annuity versus others for the internal rate of return that it provides you.
The way Great American Annuity – American Legend III gives you 7% every year, you don’t take income is based on mortality tables. They know that every year you don’t take income is a year that their promise to pay you lifetime income is less, so they’re willing to give you 7% additional in years that you do take income because they know they’ll be required to give you income for less years. The insurance companies are smart, analyze your options and test the annuity for the internal rate of return. Make the smartest decision for you and your retirement and not the insurance companies.
You’re 62 and put $100,000 into Great American annuity with the incomesecure 7% rider and want to take income in the 5th year. By then, $100,000 has growth by 7% simple to $128,000 in the income base. Your lifetime withdrawals at age 67 are $6,528 annually. The $6,528 is a 5.1% withdrawal rate of $128,000. By the time you’re 80, after taking income for 15 years, you have received $97,920, so you haven’t received your investment back. Note that if you’re a male, the average life expectancy is 76 and if you’re female, it’s 81; many of you reading will have passed away before making a return.
This is what the insurance company is counting on and why they’re able to give you 7% income increase every year you don’t take income. You don’t start making a return on your investment until year 16 in which you’ve received $104,448 in total income, 4.48% total gain over 14 years, less then 0.3% annual interest.
Yes that’s less than 1/3 of 1% annually.
So did you really make 7% guaranteed in those years?
Of course not. The longer you live, the higher the return you can make, but are you confident that you can afford to make no return in retirement for the first 15 years? This annuity may still have a role, but if you’re counting on the 7% income rider to help you hit the 7% return goal that you need, you may want to look elsewhere.
It’s important to test this annuity, as part of your retirement income plan, to see if it can help you reach your goals. Often times an agent may not realize what I’ve just explained to you, so if he doesn’t make sure you get an analysis done so you can make the best decision.
Another aspect of this is if you pass away, your beneficiaries don’t get the income base value that increases by 7% annually. You want to look at the income riders Incomesecure plus/Inheritance enhancer which offer enhanced death benefit features. Great American has the best death benefit features I’ve seen. This can be valuable because that helps increase the potential guaranteed internal rate of return to your heirs. If that’s one of your priority’s with the money you are putting inside this annuity when compared to other safe alternatives.
This rider costs 0.95% annually. If you average 3.5% in your index credit, this rider will cost over 25% of your growth. See if the income rider is best for your goals. Income credits cannot increase the income base more than the income rollup cap of 250%. Remember every year you don’t take income, their promise to pay is less.
Where it works best:
- For Producing a pension like lifetime Guaranteed Income Stream with the Income Rider
- For those looking for a conservative growth and want to have a guarantee of their principal over a relatively short 7 year period.
- Those who want to make sure they never lose their principal and will to accept safety over return
- For those looking for guaranteed growth to pass money to their heirs with Inheritance Enhancer or Income Sustainer Plus
- For those looking for tax deferral and conservative growth
Where it works worst:
- Those looking for maximum growth
- Those who need a return on their investment in the first decade of retirement if using Income rider
- Those who need a return of over 5% annually in retirement to maintain their lifestyle
AnnuityEdu’s Summary of the Great American Annuity – American Legend III
Overall, this annuity has some good features and some bad ones. Relative to many annuities on the market, the 7 year surrender is relatively short. Great American is a strong company with a good track record. Great American Annuity – American Legend III is best for conservative growth and for guaranteeing lifetime income that you can’t outlive no matter how long you live. Furthermore, it should outperform cash and perform similar to conservative bonds in the current low rate environment, in my view.
Also, can help minimize volatility of your overall asset allocation. What concerns me is the low internal rate of return and I feel many agents and retiree’s may think that they’re really earning a 7% return when their not. Buying an Annuity is a long term commitment and the decisions you make will determine your success in retirement. Test this annuity versus various others to see which one fits your goals and objectives the most. This is something we do for free here at annuityedu.com.
Unfortunately, I believe many agents think that the 7% roll up rate is the rate of return and may not fully understand the real returns that they’ll deliver to you. The only way to know if this annuity is a good fit for you is to have it tested. We’ll use our proprietary calculator to illustrate for you how this annuity will likely perform in your specific situation.
Click here to Test my Annuity. If your agent was honest with you, the numbers will match up – if not, well at least you know all of the important information before you buy.
Have Questions on the Great American Annuity – American Legend III? Have any comments?
Do you have any questions that you can’t seem to find the answer here on our website? [You can send us your questions here via our Free Annuity Help contact form].
Finally, purchasing an annuity is often an irreversible decision. You’ll have high surrender fee’s if you change your mind after you buy it.
We hope you found it helpful as you’re conducting your own research on Great American Annuity. We wish you all the best in your retirement journey!
For any questions or if you need clarity about the Great American Annuity, reach out to us by email or by phone.
All the best,
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