American Legacy® Annuities Review

The American Legacy® Shareholder’s Advantage annuity presents an opportunity for annuitants to earn interest on a portfolio of investments without incurring income taxes. This tax-deferred status lasts until you begin taking payments from your account, at which point the IRS will begin charging you. The maximum issue ages for this annuity are 86 and 91 for qualified and non-qualified annuitants, respectively.

The portfolios and funds that you can invest in through Lincoln Financial Group include bonds, fixed-income securities, U.S. government securities and more. What your portfolio consists of will depend on your risk tolerance, investment goal time horizon and other financial factors, so be sure to talk to an advisor if you have any qualms about your choices.

In addition to three separate death benefits, you can also tack on the i4LIFE® Advantage Select Guaranteed Income Benefit if you want to protect your income for the long haul. The greatest perk of this rider is that should your account perform to the tune of 3% growth, your income payments will increase.

Fees

There is a fairly complicated fee structure that accompanies most American Legacy annuities, and this one is no exception. The determining factors for what your fees will look like is whether or not you want to annex the i4LIFE® Advantage benefit rider onto your contract and if your annuity is part of a larger financial plan with Lincoln.

For this particular annuity, a typical contract comes with a $20 annual fee and a 0.75% to 1.05% combined administrative and mortality and expense risk charge. But should the contract be a part of a financial plan, your fee will jump to $50 and the combined administrative and mortality and expense risk charge will drop to 0.2% to 0.55%.

There are no withdrawal charges with this annuity, but if you decide to make a withdrawal, it must be for at least $300. You may not escape all extraneous charges, though. If you decide to take distributions from your account before age 59.5, then the IRS may subject you to a 10% income tax surcharge.

Realistic Return Expectations

With some of the most favorable fees of the American Legacy suite, this annuity presents a good opportunity for strong investment returns over the long-term. Of course, with no knowledge of the exact circumstances of your contract, it’s virtually impossible to assess things fully.

The American Legacy® Fusion annuity is a tax-deferred variable annuity with a max issue age of 86 years old. This tax deferral allows you to continue to build your retirement assets without the interference of the IRS. Once the accumulation phase ends and the payout phase begins, you will start seeing income taxes on your checks. There are a number of investments you can use to fill out your investment portfolio. Most of them are offered through partner company Capital Research and Management Company, although some are from Lincoln Investment Advisors Corporation.

You can pick from a quartet of death benefits when you open this annuity. Payouts to your beneficiaries range from just the value of your account when you pass away all the way up to an enhanced benefit with a promised minimum.

The i4LIFE® Advantage Select Guaranteed Income Benefit rider is aimed at increasing your retirement income as often as possible. As a matter of fact, any investor who includes this in a contract will find himself or herself up for an increase in retirement income every year, so long as the account has grown by no less than 3%.

Fees

You could waive the $50 annual fee that American Legacy® Fusion annuitants must pay if your contract is worth more than $50,000. Aside from this base cost, you will be charged anywhere from a 0.8% to 1.3% combined administrative and mortality and expense risk fee depending on the benefits you select as part of your portfolio. Annual portfolio operating expenses range from 0.55% to 1.27%.

This annuity is paired with an extremely forgiving withdrawal charge schedule. In fact, the 1% fee is only active for the first year of your contract’s life, and after that, all payments are free.

Anyone who takes distributions from his or her account before 59.5 years old will be subject to a surtax of 10%. In other words, hold off taking money out until you really need it.

Realistic Return Expectations

As opposed to much more straightforward fixed indexed annuities, variable annuities take into account many things that are personal to you and your financial situation. This makes their investment return very difficult to pin down without knowing specifics.

As long as the money you invest in the American Legacy® Series C-Share annuity is from a tax-deferred account, you will be able to maintain that status until you begin accepting withdrawals. The long-term perks of a variable annuity, though, is the fact that you can invest your money in various portfolios, funds and asset allocations. With the American Legacy suite of annuities, there around 40 opportunities to choose from.

Along with the three standard death benefits that this account has to offer, annuitants should be ready to take advantage of its fee-free withdrawal policy. Unfortunately because of this, the charges associated with these death benefits are higher than the C-Share’s peers, the L-Share and B-Share variable annuities.

The i4LIFE® Advantage Select Guaranteed Income Benefit is an optional rider that’s open to all prospective variable annuity account holders. This is meant to help annuitants feel comfortable with the chances that their contract will last for the entire length of their retirement. In fact, for every year your account grows by at least 3%, you’ll be eligible for extra income.

There is a dual maximum issue age for this annuity depending on the type of contract you open. It's 86 years old for qualified accounts and 91 years old for non-qualified accounts.

Fees

Although the $35 annual fee could be a major nuisance to some, if you invest more than $100,000 or your account is older than 15 years, Lincoln Financial will waive it. The death benefit you select will also affect your fees, as the associated administrative and mortality and expense risk charges could total anywhere from 1.65% to 2.15%.

Regardless of when you opened your account, you can begin taking withdrawals at any time without the fear of extra fees.

The IRS has set up rules regarding distributions from retirement accounts like annuities. The agency states that anyone who makes a withdrawal prior to age 59.5 could face a 10% bonus tax, so try to avoid this at all costs.

Realistic Return Expectations

Being that this annuity has some of the highest fees at Lincoln Financial, you’ll need to choose some solid investments to make up the difference. Even with this assumption, the number of elements that make up how a variable annuity performs are too plentiful to get a truly accurate read on what you can expect.

The American Legacy® Signature 1 annuity is a variable annuity, meaning its growth is based on your returns from various funds, investment portfolios and other vehicles. A handful of these investments are offered through Lincoln Financial, but most are courtesy of Capital Research and Management Company. It’s also a tax-deferred account, so all financial gain made during the accumulation phase will not be accompanied by an income tax. There is a maximum issue age of 86 for this product.

Like many annuities, this annuity provides the i4LIFE® Advantage Select Guaranteed Income Benefit rider to make you feel safer about your future retirement income. If you add this onto your contract, you’ll be eligible for bumps in your retirement income if your annual account value grows by more than 3%. This is easily the best advantage it can offer.

Fees

You must pay $35 annually to remain an account holder of the American Legacy® Signature 1 annuity. But if you can manage to hold $100,000 or more or 15 years pass, you won’t have to pay it. Also, 1.25% to 1.75% combined administrative and mortality and expense risk charges are decided based on the type of death benefits you include in your contract.

Withdrawals that are made from your account are subject to a fee for the first seven years of its life. These start at 7% and drop as low as 3%, before they finally disappear on the eighth anniversary of your contract’s creation.

Annuitants who are 59.5 or younger and take money from their account will be subject to an extra 10% income tax. This should be enough to deter you from withdrawing early, especially considering this surtax is on top of your normal income tax rate.

Realistic Return Expectations

The riders you select, how long your annuity is intact for and, most of all, which investments you choose for your portfolio will all come together to decide the fate of your contract. It is therefore too subjective of a situation to give possible return calculations accurately.

One of the most integral parts of the American Legacy® Design 1 annuity is its ability to remain a tax-deferred contract. Simply fund it with money from another tax-less account, and all income taxes will be held off until you begin taking withdrawals. The maximum issue age is 86.

As a variable annuity, the return success of this account is anchored in the funds, portfolios and other securities that you make within Lincoln Financial’s set of investment options. While this undoubtedly leaves the chance for substantial returns, it’s much riskier than traditional fixed-rate or index-linked annuities.

Lincoln Financial Group created the i4LIFE® Advantage Select Guaranteed Income Benefit solely for its variable annuity offerings. This benefit rider offers the chance to boost your retirement income bi-annually if your investments can hold a 3% growth in returns. It also rewards annuitants who invest after-tax money with increased income.

Fees

There is a $35 annual account fee that you must pay in relation to this annuity. You may be able to get out of it, though, as any contracts that have been in the accumulation phase for 15 years or more or are worth at least $100,000 qualify for a waiver. Your administrative and mortality and expense risk charges are completely depending on the death benefits you elect. In total, these could end up being 1.1% to 1.6%.

Early withdrawal charges for this account open at 6% for year-one but will fall as low as 2% for year-seven. Following this time, though, Lincoln Financial will allow distributions in any amount. Even if you’ve made it past these proprietary fees, withdrawing any amount of money before you turn 59.5 years old could have federal tax implications in the form of a 10% surcharge. The IRS will also charge you your normal income tax rate.

Realistic Return Expectations

Just as their title indicates, variable annuities have many components that go into what makes them different for each annuitant, including your premium size, the investments you make and more. Therefore it’s impractical to gauge what any returns could look like without knowing the specifics of your situation. However, the fees and other costs related to this annuity help form a picture of just how return-positive it could be.