P2BW179000-0-W01700-1------XA Composite 20 1 BARRON’S BARRON’S June 27, 2016 June 27, 2016 Date BARRON’S 17

person selling the annuity is huge, however. America’s 50 Best Annuities: Guaranteed Income for Life SPECIAL BREXIT REPORT: American companies generate about 70% of revenues at home. That could Commissions can be as high as 14%, and partially insulate them from Europe’s woes. U.S. banks, airline shares look invitingly cheap. C incentives such as island getaways, tickets to Whether you want the payouts to start immediately or some time in the future, these annuities offer income guaranteed to last as long as you do. M

Y

sporting events, and other gifts are the norm. “Some agents pick the one that if they IMMEDIATE-INCOME ANNUITIES K sell enough of it, they’re going to go to Bora These contracts turn a lump sum into a lifelong guaranteed income that begins right away. Figures assume a $200,000 investment by a 60-year-old male. Brexit Selloff Highlights Strength of U.S. Stocks Bora to drink for free,” says Stan Haithcock, Monthly Income Percentage Paid Total Income an annuity sales agent based in Ponte Vedra IMMEDIATE “LIFE ONLY” ANNUITIES Company Rating for Life on Investment by Age 85 Beach, Fla., who analyzes annuities for finan- by Andrew Bary Pays income for life; if investor dies before American National A $966.03 5.80% $289,809 cial-advisory firms. “It’s tragic. This is a good principal is paid out, the insurer keeps the Guardian A++ 964.20 5.79 289,260 product that’s being sold improperly.” remaining principal. THE 3%-PLUS DROP FRIDAY IN MAJOR U.S. STOCK trade. “Brexit’s approval marks the likely end A new Labor Department rule aims to fix Integrity A+ 959.48 5.76 287,844 indexes in response to the surprise British of European cohesion and is symptomatic of a YELLOW CYAN BLACK MAGENTA that. The rule requires anyone selling fixed- Penn Mutual A+ 958.76 5.75 287,628 vote to exit the European Union doesn’t mean rejection of the status quo and the global BG,BM,BP,CC,CH,CK,CP,CT,DN,DR,FW,HL,LA,LD,LG,LK,MI,ML,PI,PV,TD,WO CL,CN,CX,DL,DM,DX,EE,EU,FL,HO,KC,MW,NC,NE,NY,PH,PN,RM,SA,SC,SL,SW,TU,WB,WE indexed and variable annuities in a retire- MetLife A+ 954.37 5.73 286,311 the end of the long bull market dating back to elite’s consensus,” wrote Doug Kass of Sea- ment account to assume a fiduciary role—in 2009. breeze Partners on Friday. “Economic popu- other words, they need to act in a client’s U.S. stocks remain more insulated from lism is gaining ground in Britain, America, and Monthly Income Percentage Paid Total Income best interest. (For more on this, see “New IMMEDIATE “10 YEAR CERTAIN” ANNUITIES Company Rating for Life on Investment by Age 85 global developments than any other major eq- elsewhere.” Rule Could Improve Annuities,” page 24.) uity market, as American companies generate The Brexit situation will linger, as the pro- Right now, “if you want to sell a fixed-in- If investor dies within the first 10 years of American National A $959.60 5.76% $287,880 70% of revenues domestically. That compares cess of exiting the EU could take two years. dexed annuity, you can take a crash course on establishing the contract, heirs get paid until Integrity A+ 955.25 5.73 286,575 with 58% for Japanese companies, and 49% for That could result in a “prolonged period of po- the end of the 10-year period. Thursday, pass it on Friday, have a chicken- Guardian A++ 949.36 5.70 284,808 Europe, based on a recent Morgan Stanley re- litical and economic uncertainty” in the U.K. dinner seminar on Saturday, and make your Penn Mutual A+ 945.64 5.67 283,692 port. U.S. corporate balance sheets are strong, and Europe, Morgan Stanley analysts wrote first sale on Monday,” says Haithcock. interest rates are low, and the U.S. economy is Friday. MetLife A+ 938.60 5.63 281,580 on pace for a 2.5% expansion in the current With such hazards in mind, Barron’s quarter. Helped by rock-bottom rates, traditionally compiled a list of 50 of the most competitive, IMMEDIATE “CASH INSTALLMENT REFUND” Monthly Income Percentage Paid Total Income “It’s not like the U.K. is going to remove it- defensive U.S. stocks have shined this year, ANNUITIES Company Rating for Life on Investment by Age 85 top-rated annuities as of the start of this self from the world economy and not trade highlighted by a 16% gain in electric utilities. month. We looked for products with high When an investor dies, any remaining American National A $924.43 5.55% $277,329 with anyone,” says Jim Paulsen, chief invest- The sector was the only gainer Friday, and payouts or rates and reasonable fees, based principal is paid out to heirs monthly. Penn Mutual A+ 918.31 5.51 275,493 ment strategist at Wells Capital Management. Needed: Stiff Upper Lip many major companies, including Duke En- on assumptions about age, amount invested, “Once the emotion of this event fades, inves- ergy (DUK) and Consolidated Edison (ED), Integrity A+ 917.97 5.51 275,391 Friday’s washout in global markets cost investors dearly, but also created bargains. and time periods. It’s important to note that Pacific A+ 906.24 5.44 271,872 tors may get back to the fundamentals, which, now trade for about 20 times projected 2016 annuities are extremely fickle products, and at least in the U.S., are looking better.” earnings. That’s a full valuation for an industry Guardian A++ 895.91 5.38 268,773 Friday Friday Weekly YTD Market Dividend Domestic a change in assumptions can produce very Stocks are appealing relative to bonds, Country Close Change Change Change P/E 2016 Yield Exposure with mid-single-digit annual earnings gains different results. Insurers also change their particularly the Treasury market, where the U.S. (S&P 500) 2037.30 -3.6% -1.6% -0.3% 17.3 2.2% 70.0% and no growth in power demand. offerings frequently. DEFERRED-INCOME ANNUITIES 10-year note finished Friday with a 1.56% Euro Stoxx 50 2776.09 -8.6 -2.6 -15.0 12.9 4.4 49.0 Consumer stocks also look fully valued, Fees aside, the annuities landscape is These contracts turn a lump sum into an income stream later. yield, near the low for the year. More than U.K. (FTSE) 6138.69 -3.2 2.0 -1.7 16.7 4.5 35.5 with General Mills (GIS), Kellogg (K), and being driven by other factors—such as inter- 60% of stocks in the Standard & Poor’s 500 in- Coca-Cola (KO) likewise trading for 20 times Germany (DAX) 9557.16 -6.8 -0.8 -11.0 12.1 3.2 27.6 est rates and longevity projections. Annual Income Total Income dex carry a dividend yield higher than the 10- projected 2016 earnings. Real estate invest- PERSONAL PENSIONS Company Rating at Age 65 by Age 85 Japan (TOPIX) 1204.48 -7.3 -3.7 -22.2 12.2 2.4 58.0 Annuities have two basic functions: to year note, according to Bespoke Investment ment trusts have been strong performers, too, Turns a lump sum into an income stream Foresters A- $19,528.00 $390,560 Sources: Bloomberg; Morgan Stanley Composite accumulate assets on a tax-deferred basis (as Group. with the Vanguard REIT ETF (VNQ) return- with an individual retirement account, you later. Assumes a 55-year-old male puts in Mutual of Omaha A+ 19,461.00 389,220 Even more enticing values could lie in Eu- ing 8.6% this year, including dividends. $200,000; income begins at age 65. can’t tap the assets without penalty until age AIG A 19,304.40 386,088 rope. The Euro Stoxx 50 index fetches just 13 times esti- budged, with the Dow down 0.14% and the S&P down Value may lie in hard-hit financial stocks and airlines. 59½), or to turn a lump sum into a guaran- mated 2016 earnings, against a price/earnings ratio of 17 0.3%. U.S. indexes continue to outperform overseas mar- Industry leader JPMorgan Chase (JPM), at $60, trades teed lifelong income stream. They can have Annual Income Total Income for the S&P 500. Dividend yields average 4%, about dou- kets; the Euro Stoxx 50 is down 15% in local currency, for 11 times 2016 estimated earnings and 1.2 times tangi- variable or fixed rates of return, principal PERSONAL PENSIONS Company Rating at Age 65 by Age 85 ble the yield on the S&P 500. European stocks look par- and Japan’s Topix is off 22%. ble book, and yields more than 3%. JPMorgan and its protections, income guarantees, liquidity Assumes a 45-year-old male puts in Mutual of Omaha A+ $28,639.80 $572,796.00 ticularly appealing relative to government bonds, with the Citing U.K. betting markets, which put the odds of a brethren are expected to get the go-ahead from federal options, income for long-term care needs, and $200,000; income begins at age 65. Foresters A- 28,203.96 564,079.20 German 10-year bond carrying a slightly negative yield Remain victory at 60%, Barron’s regulators to lift their dividends soon. Wells Fargo varying death benefits, along with other cogs and the British 10-year bond yielding just over 1%. The wrote in the June 20 issue that the (WFC), at $46, yields 3.3% and trades for 11 times esti- and levers that impact their function and cost. AIG A 27,756.00 555,120.00 Italian stock market, hurt by the performance of big odds of a Remain vote were better MORE on BREXIT: mated 2016 earnings. Wells, a longtime favorite of Berk- This year’s list reflects higher interest banks, is down 27% this year, putting it back at 2013 lev- than investors feared. We were • Dividend Plays in shire Hathaway (BRKA), is almost entirely focused on rates paid by fixed annuities, which invest Annual Income Total Income els. upbeat about European stocks, ar- Europe, p. 33 the U.S., alone among its big banking peers. Financial premiums in bonds and guarantee interest PERSONAL PENSIONS WITHIN IRA Company Rating at Age 84 by Age 90 The Dow Jones industrials fell 610 points, or 3.4%, Fri- guing that a selloff had left valua- • Our view on U.K. turmoil probably doesn’t help big banks’ trading opera- P2BW179000-0-W01700-1------XA rates for certain periods, much like certifi- New rules allow up to $125,000 of IRA assets Foresters A- $31,200.00 $187,200.00 day, to 17,400, while the S&P 500 index was off 76 points, tions at levels discounting a Br- trade, p. 35 tions, but relatively capital-rich American banks could cates of deposit. The five- and seven-year to be converted to a deferred income annuity Pacific Life A+ 28,551.72 171,310.32 or 3.6%, to 2,037. While steep, those losses were mild rel- exit, or British exit. • Sizing up British benefit at the expense of European peers. and be exempt from required minimum distri- stocks, p. M6 guaranteed rates are slightly ahead of last Principal Financial A+ 28,224.24 169,345.44 ative to losses overseas. The Stoxx Europe 600 fell 7% in We, and the betting markets, Airline and travel stocks got crunched Friday, with butions. Payout must begin by age 85. year’s. For example, Midland National its largest one-day decline since the 2008 financial crisis. got the vote wrong, although Eu- • Vote puts Fed on big airline stocks down 9%, on average, continuing a ter- Assumes a 70-year-old puts in $125,000, hold, p. M9 recently offered a 2.9% five-year rate on its income begins at age 84; any remaining For U.S. holders, the losses in European stocks were ropean markets haven’t fallen dra- rible year for the group. Airlines carry rock-bottom P/E • Hedge fund’s Guarantee Ultimate 5 fixed annuity, com- principal upon death is paid to heirs. magnified by the dollar’s strength. The Vanguard FTSE matically since. We favored gold, ratios, with American Airlines (AAL), at $27, trading for pared with the best five-year rate a year ago Europe exchange-traded fund (ticker: VGK) dropped 11% which rose $58.80 an ounce Friday Europe picks, p. S5 about five times estimated 2016 earnings. Delta Air of 2.6%. In contrast, the best rate on a five- Annual Income Total Income Friday to $44.48, while the iShares MSCI United King- on Brexit turmoil, to $1,320, the Lines (DAL), at $35, has a similar P/E. A strong dollar year CD is 2%, according to Bankrate.com. LONGEVITY Company Rating at Age 80 by Age 90 dom ETF (EWU) declined 12% to $14.57, as the British highest level in almost two years. could lead to a flood of American travelers in Europe. “When the Fed raised rates in December, Turns a lump sum into an income stream later Foresters A- $61,903.92 $619,039 pound fell 9%. The pound closed the session at $1.37 after The bear case for global markets is that the British It might take U.S. stocks some time to settle down af- most banks kept it for themselves, but some in life, after a period of deferment. Assumes a Mutual of Omaha A+ 59,435.76 594,358 hitting its lowest level in three decades. vote could lead to a disintegration of the EU, and signals ter Brexit, but the underpinnings of the U.S. market still $200,000 investment by a 60-year-old male; insurance carriers offered more-competitive Lincoln National A+ 58,974.72 589,747 Year to date, both the Dow and S&P 500 have barely a reversal of the decades-long trend of globalism and free look solid.  income starts at age 80.

rates,” says Jamie Cox, managing partner of Boyce/Reuters Russell 2 BARRON’S Date

America’s 50 Best Annuities: Indexed, Variable, and Tax-Deferred Investing These annuities come with a variety of features and complexity that could make them more appealing—but only if the price is right. Fixed-indexed annuities offer a guaranteed rate, plus additional income when the market is rising. Variable annuities offer tax-deferred investing, and can come with a guarantee. FIXED-INDEXED ANNUITIES WITH AN INCOME GUARANTEE Assumes a $200,000 investment at age 55, payout at 65.

LEVEL INCOME IN RETIREMENT 10-Year Fixed First-Year Payout Annual Income Total Income Total Income Company Rating Contract Name Interest Rate Bonus Rate Starting at Age 65 by Age 85 by Age 95 Athene A- Ascent 10 Bonus 2.0 10% 15% 5% $21,500 $430,000 $645,000 American General A Power Select Plus 7 5 5 21,000 420,000 630,000 Lincoln Financial A+ Lifetime Income Edge 5 0 6 20,361 407,220 610,835 Global Atlantic Financial A- ForeIncome Option 1 10 0 5 20,000 400,000 600,000

RISING INCOME IN RETIREMENT * 10-Year Fixed First-Year Payout Annual Income Total Income Total Income Company Rating Contract Name Interest Rate Bonus Rate Starting at Age 65 by Age 85 by Age 95 A+ Allianz 222 N.A. N.A 5% $16,127 $433,388 $767,249 *Annual income increases depend on stock market performance; investors participate partially in the market’s upside; this scanario assumes a 2% increase per year. VARIABLE ANNUITIES WITH INCOME GUARANTEE Assumes a $200,000 investment by a 55-year-old investor, payout at 65.

Annual Contract Minimum Contract and and Surrender Guaranteed Upside Company Rating Rider Names Rider Fee Charge Annual Income Potential Jackson A+ Perspective II Lifeguard Freedom 6 Net 2.80% 7 years $16,000 Adds to income 40% of gains up to $10,672 ANNUITIES FOR TAX-DEFERRED INVESTING

5-Year Annual Return for Top TRADITIONAL VARIABLE Annual Number of U.S. Growth ANNUITIES Company Contract Name Fee1 Inv. Options Fund2 Assets grow tax deferred Fidelity Investment Personal Retirement 0.25%3 57 11.35% in underlying mutual- Great-West Financial Smart Track Variable Annuity 0.25 101 12.38 fund-like investments. Transamerica Premier Life Vanguard Variable Annuity 0.29 17 12.08 Assumes a $200,000 investment. TIAA Intelligent Variable Annuity 0.354 66 19.32 Northwestern Mutual Fee Based Select 0.35 40 12.08 Pacific Life Pacific Odyssey 0.40 105 10.67 Nationwide Life Destination Architect 2.0 0.40 123 19.25 Ameritas No-Load Variable Annuity 0.45 65 13.01 Prudential Life Premier Advisor 0.55 78 14.34

Number of 5-Year Annual VARIABLE ANNUITIES Inv. Options Return for Top WITH ALTERNATIVE Annual Traditional vs. U.S. Growth INVESTMENTS Company Contract Name Fee1 Alternative Fund2 These contracts come Jefferson National Monument Advisor $240 361(288/73) 15.38% with both traditional and Lincoln National Investor Advantage Fee-based 0.30% 136(124/12) 12.04 alternative investment Nationwide Life marketFLEX Advisor 0.45 188(148/40) 25.47 choices. Symetra True Variable Annuity 0.60 117(102/15) 19.31 Guardian Life ProStrategies 0.60 33(23/10) 11.44

FIXED ANNUITIES Guaranteed Guaranteed WITH GUARANTEED RATE Company Rating Contract Name Period (years) Rate Assets accumulate at a fixed Midland National A+ Guarantee Ultimate 5 5 years 2.90% rate for a specified period, Royal Neighbors of America A- Royal Choice 7 7 years 3.10 then the rate fluctuates. Royal Neighbors of America A- Royal Choice 10 10 years 3.25

N.A.=not applicable. 1 Includes mortality and expense fees, and any administration fees; fees can vary slightly in certain states. 2 Through 5/31/16. 3 Drops to 0.10% on assets of $1 million or more. 4 Drops to 0.25% when assets reach $500,000; drops to 0.10% after 10 years. Sources: AnnuityAdvantage.com; Cannex; Annuity Rate Watch; ValMark Securities; company information