Hybrid annuities, also referred to as hybrid income annuities, are essentially a type of annuity contract that allows the account owner to tie the growth of his or her assets into market benchmark (i.e. Dow Jones IA, S&P 500, NASDAQ 100), with an income rider or riders.
On the most basic level, a hybrid annuity is a fixed index annuity with an income rider attached to it.
Hybrid annuities can help to resolve the concerns of retirement income by offering **guaranteed annuity rates for growth on annuity income accounts. They also such as long-term care funding––while still providing one with a regular income. These annuities have the potential to solve several types of needs in retirement.
A hybrid annuity essentially works the same way that a regular annuity does, in that making an allocation begins by choosing the hybrid annuity that meets key retirement objectives and then funding the hybrid annuity contract with a licensed agent is the final step.
Dick and Eric look at the Hybrid Annuity in this short video explanation.
**Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.
Annuity Guys® Video Transcript:
Dick: And folks as you can see at this point, we’re going to go into one more type of annuity here, which is really no annuity at all. It’s a combination of all the above, but as you can see, every annuity has so many different aspects and there are good aspects to each annuity that you really want to think this through.
You want to put some real thought into it. You want to work with an expert that can help you think through all of the variables, and the possibilities and really zero in on, what really is going to work best for you, what’s going to be most suitable. And maybe, as Eric said earlier, it’s no annuity at all.
However, annuities do answer some important questions to secure retirement, securing retirement income and one of the things that we want to talk about here, to just kind of wind it up is something that you’ll find terms over the internet and different ones that are talking about it, and that is a hybrid annuity, and what is different about a hybrid annuity? Eric, I’ve been talking here again. I’m getting you starting on everything. Go ahead let’s start off on a hybrid.
Eric: The hybrid annuity and again, we’re building here so you’ve got your fixed index chassis. Now when you start adding income riders onto a fixed annuity. . .
Dick: Right. And I think that’s, I just want to kind of zero in on that point you made, and that is that it is a fixed annuity. So first of all, we’ve got safety. It’s a fixed annuity then it’s indexed, so we add the indexing option.
Eric: That’s one of the options. You can also take that **guaranteed number. . .
Dick: Just a fixed…
Eric: … is just a fixed return. So those are all pieces, it’s that fixed annuity chassis, and then you’re going to add on top of it, usually the key component is the income rider. So we’re adding an income rider which gives us some of that immediate annuity flavor.
Dick: An income rider **guarantees.
Eric: Right, so what’s the one thing we love about an immediate annuity? It’s that income **guaranteed for life. Now wouldn’t we like to get that for life, without having to give up the lump sum?
Eric: And that’s where the hybrid comes in. It’s that contractual income for life **guarantee, but without having to give up access to the whole.
Dick: Eric, and in our experience and I’m just going to throw the question to you. I could answer it, but in our experience how close can we come with the hybrid annuity, to matching the income of an immediate annuity, where we’re **guaranteeing it for life.
Eric: We come very close typically. There’s usually a couple percentage points difference. Where that fudge factor comes in per se is how long is it going to be in deferral? How long are you going to live?
Dick: What’s the age of the person?
Eric: Right, there are unknown variables that come into play, but the nice thing is we are able to **guarantee, typically a lifetime income higher than you would get, if you just left your money in liquid assets…
Dick: Oh, absolutely
Eric: … that you pulled out, because with a degree of certainty with an annuity you’re going to get that lifetime income. With the liquid assets you have to kind of take the ups and downs of the market and have that little bit more uncertainty. So this income rider…
Dick: You don’t have the contractual **guarantees that the annuity will give.
Eric: … will still give you access to the cash, the majority of your cash. I would say is probably the best way to think of it, with also using those life terms.
Dick: And that’s what I kind of say, is having your cake and eating it too, because with the hybrid style of annuity you can not only **guarantee income for life, but you can pass a lot of money on to the next generation to your heirs, if you haven’t used the money all for your income. And that depends on how long you live, and how much money that you actually take out of the annuity, where with an immediate annuity you’re going to leave very little, if any to the next generation. With the hybrid annuity you could leave the majority of it depending on life expectancy and that type of thing and you can still **guarantee your income for life. So if you happen to live a long life, now it is true if you use all of that money up, because you live a long time, then you really aren’t going to have—your income is going to continue as long as you live.
Eric: It’s an annuity, long time income.
Dick: But you won’t pass money on, because you’ve used it up.
Eric: If you spend all your money, if you drained all your savings accounts, in this case if you drained the annuity of the cash they will still pay you that income for life or whatever that contractual **guarantee amount was. Now you will not have anything to pass on to heirs, if you live long enough.
Dick: And you spend it, but they’re income will continue.
Eric: And that’s the best **guarantee you could have. You won’t out