Pros: An intriguing vehicle for investors wanting "inflation-fighting growth" followed by "retirement income forever."
Cons: Not federally insured. (Nonetheless, your state-mandated "insurance_guaranty_association" backs your guaranteed benefits—up to_at least_$100,000.)
UPDATE: Also see my more recent, "Edward Jones" review, whose "Annuities" section includes important informaton that you should thoroughly comprehend before investing in one of these types of annuities.
Prefatory note #1: Frankly, in past years I'd never met an annuity I really liked. But recently I changed my mind because of a relatively "new-and-improved" version of a MetLife deferred variable annuity that's only been available since 2007. It accumulates value at a relatively high, guaranteed rate (at least 6% annually, in my case) during an "accumulation phase" and then (during a "payout phase") it will pay you regular income for the rest of your life—no matter how long that turns out to be. The investor's state government (via the state's insurance guaranty association) essentially guarantees this annuity's value (up to at least $100,000). Moreover, the amount of one's guaranteed "6%-compounding" Annual Increase Amount Income Base can be further "stepped up" annually if your chosen subaccount investments (e.g., stock mutual funds) perform well. While I was familiarizing myself with this investment (and noticing a relative dearth of on-line reviews of it), I took the opportunity to write the below, two-part review, which I hope may be of some interest to others. What I like best about this investment is that, unlike most government bonds these days, it will not only accrue "interest" (6%, in my case) but also it will compound that "interest"—potentially to a fairly stunning degree—and thus increase in value over time. Thus, for the investor whose primary objective is passive income, this is a "safe" yet potentially "inflation-fighting" investment that, to my knowledge, no bonds (or CD's or bank accounts) can match.
Prefatory note #2: Although my below discussion generally assumes the inclusion of primarily stock mutual fund investments in this annuity's "subaccount," you could, at any time and in any degree, freely substitute less volatile bond income—and/or money market—investments. (Your financial advisor could help you with that decision.)
Prefatory note #3: I'm an "annuity newbie" myself (not a financial professional), and all readers/investors should do their own "homework" (perhaps consulting a highly experienced and reputable financial advisor) to decide if this type of investment is appropriate for them. That said, I believe that this particular type of annuity could be appropriate not only for many folks who are nearing (or have already attained or passed) their late fifties but also for certain "stock market-averse"—yet otherwise exceptionally far-sighted—younger investors possessing the requisite discipline to help assure their own future retirements (at about age 65 or later). Unlike most other investments, this type of annuity effectively allows you to invest—simultaneously—in both the (long-term) potential of the stock market and "guaranteed" lifetime income. [Note: If you're in your mid to late 60s or beyond, and if you don't seek "growth of principal" but instead want to invest a lump sum solely to "immediately" (i.e., within a year) begin receiving lifetime income payments, you might want to skip this type of "deferred" annuity product and instead explore the various competing "immediate" annuity products available.]
Prefatory note #4: Alas, interest rates have dropped. As an "update" (as of 02-09-2010), I should now add that—at least in some U.S. states—new buyers of this annuity will (during the "accumulation phase") earn "only" 5% (instead of 6%) "guaranteed interest" on this investment. This fact makes me glad I bought mine over a year ago (and thus locked in the "old," higher rate). In any case, while you're reading this review, just substitute "5%" for "6%" at all pertinent points. In any case, five percent, historically, is still a rather respectable rate for "guaranteed" interest. Also remain aware that rates could continue to change, and so please double-check the currently available rate with a financial professional.
MetLife's New-and-Improved "Lifetime Income Solution Plus" Deferred Variable Annuity
PART ONE: A Primer on the "New Breed" of MetLife Deferred Variable Annuity
Clearly the stock market periodically seems a precarious place to invest your hard earned. But inflation can seem an equally scary monster to the investor stashing "long-term" money in such low-interest-yielding investments as money market/savings accounts, bank CD's or high quality bonds. Indeed, it can be unnerving to contemplate the possible costs of fuel, food and shelter a decade or few hence.
Wouldn't it be nice if there were one "no-brainer," "can't lose" investment encompassing both of the following?
1. An ever-rising base of "income" that (during an initial "accumulation phase") will compound at a guaranteed annual rate (6%, in my case) and then (during a "payout phase") will ultimately provide you with lifelong retirement income (e.g., to supplement your Social Security and/or other sources of retirement income).
2. Professionally managed, prudently diversified, regularly rebalanced, stock market investments (to periodically grow your principal and outpace inflation during the "accumulation phase").
Arguably, there is just such an investment. I'm speaking of one of the latest, innovative, and increasingly popular kinds of deferred variable annuities available since 2007 with a special rider providing significantly increased benefits and guarantees. The particular "new-and-improved" annuity product that I have in mind is from the MetLife family of companies and is variously marketed as the Predictor Plus or GMIB Plus (the acronym "GMIB" stands for "Guaranteed Minimum Income Benefit") or as the LIS Plus (the acronym "LIS" stands for "Lifetime Income Solution"), the latter being available via Edward Jones branch offices.
One scenario (for purposes of illustration):
For the sake of mathematical simplicity, let's pretend you've amassed exactly $10,000—or, better yet, $100,000—to invest. And let's say you'd like that $100,000 to start increasing in value at the rate of 6% annually. Well, at the start of "Year Two," the insurance company would add $6,000 (0.06 times $100,000 = $6000) to your annuity account's then current "income base" value.
[Very important note: Throughout this discussion I may use the terms "Annual Increase Amount Income Base" and "income base" virtually synonymously. But bear in mind that that Annual Increase Amount Income Base isn't equivalent to the current value of the actual investments (i.e., mutual funds) in the annuity's subaccount. Indeed, the Annual Increase Amount Income Base isn't real money at all! It's merely the number on which your eventual lifelong income stream can be based at the start of the "Payout Phase," i.e., after annuitization. Now, if you were never someday to opt to annuitize this Metlife investment product (i.e., convert it into a lifetime, fixed-rate stream of monthly income), the Annual Increase Amount Income Base amount would remain, well, merely an intangible number. Also note: Once the annuitant (presumably you yourself) reaches age 90, MetLife may proceed to annuitize the account. But prior to 90, you must notify MetLife that you want to annuitize your account, i.e., to begin the Payout Phase.]
So far, so good. But it gets better. For, in addition to "immediately" increasing in value (at the fixed rate of 6%), this "new" breed of annuity allows you—at any time—to invest some or most of your principal in various stock market (and/or bond or money market) mutual funds of your choice. (That is, you can select from a sizable list of highly reputable funds from MetLife, American, Lord Abbett, MFS, Franklin, Templeton, Oppenheimer, Davis Venture, and others.) You can choose to be relatively conservative, moderate, or aggressive with your fund selections; and you can adjust those fund investments at least 12 times annually (not that "market timing" is generally advised!).
Perhaps a still better option would be to forget about picking funds yourself; instead, you could opt for one of MetLife Adviser's "Asset Allocation Funding Options," which range from quite conservative to extremely aggressive. Besides the comforting simplicity of letting MetLife's expert analysts do all your "fund picking" for you, these "Asset Allocation" portfolios (a.k.a. "funds of funds") would have the virtue of being automatically "rebalanced" quarterly (or at least annually). Typically, this would mean you'd always own a prudently balanced mix of stocks versus bonds; the precise ratio of stocks to bonds would depend on whether you're a conservative, moderate, or aggressive investor. Such automatic diversification historically has maximized profits and minimized losses during various market cycles.
But it gets even better. Suppose that by the start of "Year Two" your annuity's stock market mutual funds have performed so well that now your original $100,000 "income base" has grown (by 12%) to $112,000. In that scenario your new "step-up" increase would not be $6,000 but rather $12,000. You could lock in "$112,000" as the new "Annual Increase Amount Income Base" which will continue to compound at rate of (at least) 6% annually. Thus, during Year Two your annuity's "income base" value would increase at the rate of 0.06 times $112,000, which means that not $6,000 but $6,720 will be added to the value of your "Annual Increase Amount Income Base" at the start of Year Three. Moreover, that "income base" will continue to increase at the rate of (at least) 6% annually even if your annuity's underlying mutual funds (i.e., the annuity's subaccount's value) have drastically declined in value by the start of Year Three. [In fact, the value of the subaccount's mutual funds could (theoretically) fall to zero and never again recover, yet your annuity's "Annual Increase Amount Income Base" would be unaffected and would continue to compound at the annual rate of 6% throughout the remainder of the "accumulation phase."
Of course, history suggests that your annuity's subaccount's mutual funds would eventually recover after periodic market declines and climb to still higher highs. On each "anniversary" date (e.g., the first day of Year Two, Year Three, Year Four, etc.), if the value of your account has risen to a new high, you'll have the opportunity to permanently "lock in" ("step up") that amount of money on which your annual, lifelong income payments are based. [Note: You can optionally set up your account so that such annual "step ups" will automatically occur (without your involvement) and permanently lock in higher annual income-base increases whenever your subaccount account value has risen to a new high on any anniversary date.] This means that over the course of one, two, or more decades (during the "accumulation phase"), the value of your annuity account should continue climbing ever higher, which should continually help you to fight your budgetary nemesis, inflation. Or, at very least, you'd be assured of receiving your guaranteed "6%" annual income-base increases.
Note that at any time ten years later than your most recent optional "step up," if the total value of your account has fallen (to whatever degree) below the $100,000 that you originally invested, you can exercise a one-time option to have your account value reset to $100,000 (minus any withdrawals you've already received). Thus, even if your account value fell to zero after ten years of unprecedentedly catastrophic stock market performance, you could still get your original $100,000 handed back to you (again, minus any withdrawals you've already received).
Moreover, you could always entirely "bail out" of this annuity—at any time prior to age 90—without incurring any "surrender fees," provided you choose the "A-shares" version, which I strongly recommend because it has a significantly lower "total expense ratio" that should effectively put much more money in your pockets in the long run. (See Part Two below.)]
The "Payout Phase" (Annuitization)
Under the "LIS (GMIB) Plus," at any point beyond a "ten-year waiting period" after your most recent optional "step-up," you can elect to begin the "lifetime payout phase" by annuitizing the higher of the following two "income bases": the "Highest Anniversary Value Income Base;" or the "Annual Increase Amount Income Base." [Note: Such annuitization is irrevocable; therefore, be totally sure before you elect it. Also note that if you opt to annuitize the actual current value of the subaccount (instead of the Annual Increase Amount Income Base), you won't be compelled to wait ten years after the most recent step-up.] Once this "lifetime payout (annuitization) phase" begins, you'll be receiving continual payments at a fixed rate based on your age, gender, etc. The longer you wait before beginning the payout phase, the higher the income rate. To cite several examples (pertaining to my particular version of this annuity), if I were to annuitize the actual ("contract") value of my subaccount, I'd receive "5.37%" annual income if I opted to begin the lifetime payout phase at age 70; or 6.24% at age 75; or 7.43% at age 80; or 9.08% at age 85. By contrast, if I were to annuitize the "Annual Increase Amount Income Base" (GMIB) value, I'd receive 4.95% annual income if I begin the lifetime payout phase at age 70; or 5.65% at age 75; or 6.59% at age 80; or 8.38% at age 85. Obviously, it's impossible to know which of those two annuitization approaches will prove to be the more lucrative many years hence; but at least I can pretty well plan on what should be a minimum amount of lifetime, monthly income starting at, say, age 75.
Note that women (who, actuarially, live longer than men) would receive somewhat lower rates than these; and "joint annuitants" (e.g., spouses) would receive still lower rates.
In any case, such fixed-rate income payments would continue for the rest of your life—no matter how long that turns out to be. Hence this annuity could prove a vital supplement to your Social Security (and/or other) retirement income.
How safe is this annuity?
Understandably, you might be concerned about the fact that this investment (unlike most bank accounts) is not US-government/FDIC guaranteed. However, there are several facts that I find quite comforting. First, MetLife (like other such insurance companies) is, by law, obligated to set aside dollar-for-dollar "reserves" (held in stable, "cash" investments) to cover the value of all such annuity contracts. Moreover, even supposing that the mighty MetLife utterly collapsed after having so thoroughly mismanaged its business that it couldn't now pay you your promised lifelong income, that income (as well as the associated promised benefits)—up to at least $100,000—would still be guaranteed by your state's government-mandated "insurance guaranty association." [Additionally, your annuity subaccount's underlying mutual funds' current value would remain fully yours.] Therefore, even in a worst-case scenario, you'd still be substantially covered. According to M.P. McQueen of The Wall Street Journal (in a November 2, 2008 article posted at the signonsandiego.com web site),
"With variable annuities, as with fixed contracts, the associations protect the death benefits, guaranteed minimums and other contract guarantees. But investment account losses because of market declines generally aren't covered." [Note: The boldfacing is mine.]
My understanding is that this essentially means the annuity owner (in my aforementioned worst-case scenario) could continue to receive his annual income-base increases amounting to 6% of whatever sum (at least $100,000) that he'd most recently "locked in" for life. (Alternatively, his state's insurance guaranty association might offer him a lump sum payment that he could immediately reinvest at currently available rates so as to earn enough interest to generate equivalent annual income payments.) However, if the underlying value of the mutual funds in his annuity's subaccount declines purely because of poor stock market performance, the annuity owner would not necessarily be able to bail out of the contract and receive all of his original ($100,000) investment as a lump sum payment.
Thus I think that this investment is best suited for the individual whose primary concern is to receive a steady stream of lifelong income and who only secondarily hopes and expects to grow the amount of his principal (during the annuity's initial, "accumulation" phase).
While these facts might not make an annuity's "guarantee" seem quite as ironclad as the U.S. government's FDIC insurance, it arguably amounts to much the same thing for those investors who otherwise would be buying long-term CD's or long-term government bonds strictly in pursuit of passive income. Besides, in reality the state insurance guaranty association would be more likely to find one or more other (solvent) insurance companies to "take over" the failed insurance company's accounts such that the annuity owners (including you) would suffer no related losses and could continue receiving their scheduled annual payments "forever."
Furthermore (for whatever it's worth), when it comes to big insurance companies, MetLife, which began operations in 1868 (and—according to one of its brochures—"paid claims and cash surrenders throughout the Great Depression, while banks were closing their doors"), appears to be virtually as financially stable (safe) as it gets. Not only does it earn high marks from such rating agencies as A.M. Best, Moody's, Fitch, and Standard & Poor's, but also Forbes Magazine named MetLife the best managed insurance company of 2008.
There are still other facts you should know about this type of annuity. For example, as with traditional deferred variable annuities, this "new breed" of deferred variable annuity is tax deferred, which means you won't have to pay any income taxes on your accruing profits until you actually start withdrawing money (ideally not till about age 65 or later). Note, however, that such withdrawals will be taxed as ordinary income; hence, if you're in a tax bracket higher than 15%, expect to pay higher taxes on those withdrawals than you'd pay on a "low-turnover," indexed stock fund whose gains would be taxed at the relatively favorable long-term capital gains rate.
Moreover, you should pay close attention to the expenses of any annuity. Critics of such annuities routinely point out that the total expense ratio is significantly higher than what you'd typically pay for a conventional mutual fund. For example, while the average actively managed stock fund has an expense ratio of "only" about 1.5% or somewhat less, many annuities have expense ratios at least one percent higher than that—depending on which features (some being optional and extra-cost) you elect. But here's a case where we should consider anew the adage, "You (sometimes) get what you pay for." After all, a conventional stock fund could (conceivably) lose virtually all its value and never recover in your lifetime. By contrast, with this MetLife annuity (depending on which aforementioned version of it you purchase), the total expense ratio could be as low as about 2.30% (depending also on which mutual funds you select for its "subaccount"), of which 0.8% buys you the optional LIS-Plus rider assuring sleep-at-night knowledge that, regardless of how the stock market behaves, your "income base" will continue to increase annually at the rate of 6% during the Accumulation Phase; and—during the subsequent Payout Phase—the amount of your lifelong fixed payments won't ever decline. [However, unfortunately (unlike Social Security income payments), this annuity's Payout Phase payment amounts won't ever be increased to "keep up" (?!) with inflation. (That said, though some "inflation-indexed" immediate annuity products do exist, they've never become very numerous and popular in the USA—chiefly because their gradually increasing payment amounts are so relatively tiny during the early years of the payout.)]
Now, the foregoing discussion was intended as a mere primer for anyone having little or no knowledge of how some of today's "enhanced" deferred variable annuity products can work to provide long-term financial security for one's years after about age 65. You'll absolutely need to "do your homework" on this type of investment; and one way to begin your education could be to visit with a reputable financial professional having extensive knowledge of such annuities; and take home every glossy brochure, pamphlet, sheet and (not least) prospectus that they can obtain for you to study at your leisure before arranging yet another meeting to (perhaps) sign on the proverbial dotted line. Take your time. Get definitive answers to every possible question about every conceivable future scenario. It's your money. Regardless of how "nice" your financial advisor might seem, don't swallow any advice solely on trust. And never let yourself be pressured into making hasty decisions.
PART TWO: My Early Impressions as a Buyer of a MetLife "LIS Plus" Annuity
The Metropolitan Life Insurance Company ("MetLife" for short), founded in 1868, is (according to Wikipedia):
"... the largest life insurer in the United States, with more than $3.3 trillion of life insurance in force. A leader in savings and retirement products and services for individuals, small business, and large institutions. MetLife serves 90 of the largest Fortune 100 companies. It has a large global market in more than 12 countries."
The MetLife "Predictor Plus" (a.k.a. "GMIB Plus") is a deferred variable annuity rider available through MetLife and New England Financial sales forces, not to mention others. Moreover, MetLife Investors markets a comparable rider called the "LIS Plus" via the Edward Jones brokerage firm's ubiquitous offices. [Note: "MetLife Investors" is simply one major part of the entire MetLife company.] You should carefully weigh all the respective expenses of the available versions of these MetLife annuity products, keeping in mind not only the short-term but also (especially) the long-term impact of their differing expenses. (Do some careful "number-crunching" regarding how the respective expenses could impact the value of your annuity within one, two, or more decades.)
While there could, admittedly, be merit in a "no-front-load" version of one of the aforementioned annuity variants for certain other investors, I myself chose the front-load (a.k.a. "A-shares") version of this MetLife annuity via Edward Jones. My reasoning was that (even factoring the front-load fee) after one or two decades I will have incurred significantly less cost by having purchased the "A-shares" version with its significantly lower ongoing total expense ratio. [Moral: "Front-load vs. no-front-load" is generally not the most important issue for a long-term investor. "Ongoing total expense ratio" will be, by far, the bigger difference-maker to your bottom line years hence!]
Another (ostensible) advantage of choosing the front-load version of this annuity is that you won't have to pay any "surrender fee" if you decide to bail out of the annuity during the first seven or more years that you own it. (Not that I myself have any intention of bailing out that soon, if ever.)
Not only my Edward Jones financial advisor but also a MetLife Investors agent initially met with me in the former's office. The three of us discussed virtually every conceivable aspect of the annuity and its LIS Plus rider; additionally, we discussed the annuity's "subaccount," i.e., which individual mutual funds—or which "asset allocation portfolios" (ultra-diversified "funds of funds")—I could invest in. The available asset allocation portfolios included the following five (proceeding from relatively "conservative" through very "aggressive" mixes of stock and bond mutual funds):
MetLife Defensive Strategy Portfolio
MetLife Moderate Strategy Portfolio
MetLife Balanced Strategy Portfolio
MetLife Growth Strategy Portfolio
MetLife Aggressive Strategy Portfolio
Whereas the latter ("Aggressive") MetLife "Portfolio" comprises holdings amounting to about 95% stock funds and 5% "cash" investments (and no bond funds whatsoever), the other MetLife "Portfolios" comprise varying percentages of both stock funds and bond funds (as well as about 5% to 10% "cash" investments each). In the case of the relatively conservative MetLife Defensive Strategy Portfolio, the percentage of stocks is about 35%, and the percentage of bonds is about 55% (and the remaining 10% is "cash").
Note that you could always change your mind and switch from one to another MetLife "asset allocation portfolio" (or still other available investments) throughout the year. [The printed documentation mentions that you're limited to twelve such subaccount "switches" per year; however, I read somewhere in the small print that that limitation is currently being waived.]
With any of those MetLife asset allocation portfolios, you'll have the comforting knowledge that the essentially fixed proportion of "bonds to stocks" will be automatically rebalanced quarterly or (at least) annually. That continually readjusted diversification should translate into higher long-term rates of return on your investment (not to mention smaller losses during periods of underperformance by bonds or stocks).
I was entirely favorably impressed with the professionalism of not only the MetLife representative himself but also the Edward Jones advisor/agent with whom he worked in conjunction. All my (many) questions were patiently heard and carefully answered to my satisfaction. [Past experience had taught me that not every insurance agent (at competing, MetLife-affiliated businesses) was equally courteous, patient and thorough in explaining the many—sometimes initially confusing—aspects of this type of annuity. But I've experienced no regrets using an Edward Jones advisor/agent as a friendly, down-to-earth (yet impeccably "professional") intermediary between me and the mighty MetLife. Of course, it behooves the advisor to be exceedingly personable: he reaps an almost notoriously hefty commission whenever he sells an annuity!]
That said, I was pleased to discover that one could invest a relatively modest sum yet still be treated respectfully by both MetLife and Edward Jones. The minimum initial purchase payment for this annuity is $2,000 (for a qualified plan, such as an IRA) or $5,000 (non-qualified). However, since such an annuity is a "tax-deferred" investment, there would be no "tax-deferral" advantage to buying it specifically for inclusion in an IRA account. In other words, if you're purchasing this annuity for an (already "tax-deferred") IRA account, you should do so for this annuity's other admirable features, not for its "tax-deferral" attributes per se.
Regarding expenses, the "A" shares (i.e., front-load) version of this annuity has a total expense ratio that can vary depending on which particular investments (e.g., mutual funds) you choose for its subaccount. For example, if you were to choose the aforementioned MetLife Defensive Strategy Portfolio for your subaccount, its annual cost would be 0.97% (of your account's total value).
Additionally, there's a fixed "mortality and expenses" fee of "0.75%" that can never be increased.
Finally, the cost of the LIS Plus rider itself is "0.80%," which, in future years, could rise as high as 1.50% if you elect optional income base "step-ups" as previously explained. (Note: The latter potential rider-cost increase could only occur if you were to elect an optional step-up during a future year when the cost of the LIS Plus rider might be higher for all new buyers of that same rider. Otherwise, the LIS Plus rider's cost will not be increased when/if you elect an optional step-ups in future years.)
Thus the total expense ratio for this annuity [including the aforementioned MetLife Defensive Strategy Portfolio subaccount mutual funds' collective cost (0.97%); the "mortality and expenses" ("M & E") cost (0.75%); and the LIS Plus rider cost (0.80%)] would be 2.52%. Of course, that fee could be somewhat lower or (trivially) higher depending on which individual mutual funds—or MetLife "asset allocation portfolio"—you choose for your subaccount. (Your MetLife agent and/or Edward Jones financial advisor could help you decide, based on your investment objectives, risk tolerance, etc.)
For the sake of any heirs you might have, you may also want to discuss the available "death benefits" for this annuity with your MetLife agent and/or Edward Jones financial advisor. Some potential death benefits are already included with the LIS Plus rider; but still more substantial ones are available at extra cost (i.e., there would be no additional up-front fee, but your annuity's ongoing total expense ratio would be higher).
Regarding the amount of the aforementioned front-load ("A" shares) fee, it would vary depending on how much money you have to invest. Here's the "sales charge" schedule:
5.75% (if your investment is less than $50,000);
4.50% (if your investment is $50,000 - $99,999.99);
3.50% (if your investment is $100,000 - $249,999.99);
2.50% (if your investment is $250,000 - $499,999.99);
2.00% (if your investment is $500,000 - $999,999.99);
1.00% (if your investment is $1,000,000 or greater).
Also available is a "B" shares version of this annuity that charges no front-load fee; however, this version of the annuity is actually no bargain because its "0.55% higher" M & E ("mortality and expense") ratio continues "forever" and eventually could cost the long-term investor thousands of dollars more than would the front-load (A-shares) version of the annuity.
Additionally, unlike the front-load (A-shares) version of this annuity, the no-load (B-shares) version would charge a substantial "surrender fee" penalty if you were to change your mind and "bail out" of this investment before seven years had passed. Indeed, the "surrender fee schedule" would be as follows:
7 percent penalty if you withdraw funds in the first year,
6 percent in the second year,
6 percent in the third year,
5 percent in the fourth year,
4 percent in the fifth year,
3 percent in the sixth year,
2 percent in the seventh year,
and zero in the eighth year and beyond.
Hence, I don't warmly recommend the no-load (B-shares) version of this annuity.
The printed documentation for this annuity and rider—including an appealing, glossy, multicolor brochure and, of course, a predictably prosaic, if not off-putting, prospectus—was, generally, pretty well written and informative. Just don't trust that typically rosy sales brochure's own exemplary, generous annuitization rates; my actual contract's analogously indicated rates (some of which I cited above, in the "Payout Phase (Annuitization)" section of Part One of this review) are, puzzlingly—dare I say curiously?—lower.
Casual investors should be forewarned that (to borrow from an infamous Oldsmobile ad campaign) this is not "your father's" annuity. The multifaceted features, options and modes of this "supercharged vehicle" (i.e., the underlying annuity with its attached "LIS Plus"—not to mention still other optional riders available at varying costs) make it necessary for the annuity newbie (like yours truly) to endure a bit of a learning curve before feeling confident about how this investment works. This "machine's" parts and functions interrelate in sometimes mind-boggling yet fascinating ways. You, the driver, can influence certain "functions" or activate certain "modes" via a dashboard of switches, pushbuttons or levers. I'm not ashamed to say that I had an assortment of "double-check" (and later a few "follow-up") questions for my Edward Jones advisor before feeling fully comfortable behind the steering wheel. Thankfully, all my queries were fielded with courtesy, professionalism, tact and patience.
All the paperwork pertaining to my annuity has been promptly, neatly and correctly processed. I received my official, attractively bound, MetLife annuity "contract" (exactly one week after I'd signed the application forms) at my Edward Jones advisor's office. My advisor thoroughly summarized its salient passages before having me sign three more "dotted lines" to seal the deal. At that time he also handed me a gigantic, softcover book comprising all the separate prospectuses of my subaccount portfolio's varied mutual funds. [Regarding that imposing "document," my longtime Edward Jones advisor—a soft-spoken, tactful, analytical, middle-aged family man—aptly quipped that it could serve me henceforth as "late-night reading." I mischievously retorted that he himself, in his free time at home, had surely passed many a summertime hour in a backyard hammock sipping a Coors while blissfully perusing just such literature. But he promptly, politely corrected me with his own retort: "True, except it's not Coors, it's coffee."]
I anticipate enjoying, in future years, not only still more good-natured banter but also plenty of solid financial advice via my comfortable Edward Jones connection to the mighty MetLife company.
Frankly, I wish this "LIS Plus" annuity rider had existed years ago when I invested a separate chunk of money directly in a certain no-load mutual fund whose value grew to large proportions but then drastically declined during 2008. At least with this MetLife annuity, I'd be regularly receiving a locked-in, compounding, 6% annual "return" on the account's (past) peak income base value while waiting "who-knows-how-long" for the stock market to recover. I'd say that's worth a total expense ratio around one percent higher than that of today's average floundering—or foundering—stock fund! [Note: the foregoing remarks were penned in early 2009.]
Incidentally, I checked with the well-known "Vanguard" (client-owned investment management company), whose mutual fund expenses are famous in the industry for being rock-bottom low. Unfortunately, the only deferred variable annuity that Vanguard offers doesn't include any of the most noteworthy "living" (as opposed to "death") benefits that the MetLife "LIS-Plus" provides. (In other words, no "guaranteed 6% compounding" income base; no locked-in "income base step-ups," etc.). Hence, especially when you factor the MetLife company's managerial expertise and financial strength (and commensurately high marks from third-party rating agencies), this is indeed one instance where I can unabashedly echo that ad campaign begun in the mid-eighties: "Get Met. It Pays."
Obviously, only coming years will prove whether or not "now" is the "perfect" time to invest in such an annuity. And, considering present uncertainty, I availed myself of MetLife's free "dollar-cost-averaging" option so that my investment will be shifted from (interest-earning) "cash" into (predominantly) stock funds in monthly increments during the first six months. [Three-month and twelve-month "DCA" options are likewise freely available (and yes, you can change your mind—as I myself am presently poised to do—after electing any one of those DCA schedules).]
In any case, if there's a particular chunk of your net worth that you won't need to start tapping until about age 65 or later; and if "guaranteed income forever" is your primary objective (with "growth of principal" a significant, secondary objective), this essentially "state-government-insured" MetLife product just might be the ticket to both short-term and long-term peace of mind in an otherwise uncertain world.