Episode 30: The Truth About Nationwide New Heights Annuity

Today, I’m going to walk you through the Nationwide New Heights Annuity. This product has generated considerable interest in recent years, making a notable reappearance in the market. Whether you’re already familiar with it or hearing about it for the first time, my goal is to provide a comprehensive and detailed review.

We’ll explore the specifics of how it works and what you need to know if you’re ever presented with this particular annuity.

Preface: Nationwide’s Reputation

Let me start with the preface that Nationwide is a great company. They’ve been around for a long time, earning a well-deserved reputation for reliability and trustworthiness.

Everyone knows the Nationwide name and their memorable jingle, thanks to their significant investment in advertising. The Nationwide New Heights annuity is a solid product, and it’s important to remember that there are no inherently bad annuities. Instead, the key issue is making sure the right recommendation is made for your individual needs.

Every annuity is designed with a specific purpose in mind, and it’s crucial to match that purpose with your financial goals.

Detailed Review of New Heights

Okay, so let’s jump into this annuity.

The New Heights annuity is issued by Nationwide, an A-rated company renowned for its stability and reliability. This annuity is available in 9, 10, or 12-year terms, depending on your state of residence. The primary distinction between these terms, apart from the surrender period, is that the longer the term, the higher the index crediting, which can enhance the death benefit on a non-guaranteed basis.

As of the time of this recording, the New Heights annuity has a 1.1% expense for the income rider. It offers a 30% bonus and an 8% compounding roll-up towards the income benefit base.

Now, if you’re wondering what that means, the income benefit base is the actuarial calculation used to determine your income at any point in the future.

You might think that a 30% bonus and an 8% compounding roll-up make this the highest-paying income annuity available. However, there’s another crucial factor to consider: the payout rate. And the annuity payout rates on the Nationwide New Heights annuity are actually pretty low.

To break this down, the 30% annuity bonus means that when you purchase the income rider, your income benefit base is immediately increased by 30%.

The 8% compounding roll-up means that your income benefit base will grow by 8% annually, compounded, until you start taking income. This can significantly enhance the amount you receive when you start your withdrawals.

Hypothetical Illustrations Can Put You In A Bad Spot

When evaluating annuities, it’s essential to understand the difference between guaranteed and non-guaranteed illustrations. Many annuities, including the Nationwide New Heights annuity, come with hypothetical backcasting illustrations that show impressive returns.

Let’s break down what these illustrations often promise and the reality behind them:

    • High Indexing Rates: At the time of this recording, the Nationwide New Heights annuity showcases high indexing rates. These rates can sometimes reflect average returns of over 9.5%, and in some cases, participation rates of over 300%.
        • Reality Check: These high rates are influenced by the current high-interest rate environment and market volatility. These conditions make it cheaper for the insurance company to purchase options, allowing them to offer higher participation rates temporarily.

    • Assumption of Consistency: The illustrations assume these high rates will remain consistent throughout the annuity’s term.
        • Reality Check: Interest rates and market conditions fluctuate. The high rates you see today might not be sustained over the long term. Once interest rates drop, the cost of options will increase, and the participation rates will likely decrease.

    • Hypothetical Backcasting: The projections often use backcasting to show what returns could have been under past market conditions.
        • Reality Check: Past performance is not indicative of future results. Relying on backcasting can create unrealistic expectations.

So, my whole point with this is to take these non-guaranteed illustrations with a very, very small grain of salt. Focus on the guarantees, because that’s what you can count on.

Realistic Returns and Guarantees

Moving on to a more realistic outlook, you might see an almost 8% return in some illustrations. But let’s examine the practical implications of these returns:

    • Non-Guaranteed Returns: Even if an illustration shows an 8% return, the actual income might never increase beyond the guaranteed amount.
        • Main Selling Point: The annuity’s main selling point is the potential for increasing income benefits. However, if the non-guaranteed returns don’t materialize, you’re left with the guaranteed income, which might be lower than what you hoped for.

    • Achieving High Returns: Reaching an almost 10% return indefinitely is highly unlikely.
        • Focus on Guarantees: It’s essential to focus on the guaranteed aspects of the annuity. The guaranteed income is what you can rely on, and anything beyond that is a bonus.

A More Realistic Outlook

Let’s consider a more realistic return of about 5.5%. Here’s what this scenario might look like:

    • Realistic Returns: A 5.5% return is more attainable given current market conditions.
        • Income and Death Benefit: With this return, the death benefit runs out in year 22. However, by that time, you’ve received over $149,000 in income. This means you’ve effectively gotten all your money back in income and/or death benefits with a more realistic growth rate.

By focusing on realistic returns and guaranteed benefits, you ensure that your financial planning is grounded in reliable data rather than optimistic projections. This approach helps you make more informed decisions and avoid potential disappointments in the future.

In the podcast episode, I show you several case studies that completely destroy the hypothetical illustrations by simply using the guarantees instead of buying into the hype of what could happen.

If you like the Nationwide New Heights annuity because of its potential, I highly recommend you give this episode a watch or listen so you can understand that the more realistic scenarios are likely to occur. This way, you won’t be disappointed if the hypothetical, high-return illustrations don’t pan out.

And if you’d like me to look over any illustrations with you to help you see how reality might affect you, go ahead and schedule a time on my calendar.

Episode 30: The Truth About Nationwide New Heights Annuity

Download Episode 30: The Truth About Nationwide New Heights Annuity on Apple iTunes

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