Horace Mann Annuities Review

The Horace Mann Flexible Premium Deferred Annuity allows you to invest in different funds run by major financial institutions such as Fidelity Investments, Vanguard and Charles Schwab. These broadly diversified funds are composed of various stock, bond and money market securities. You may allocate your money toward one or several fund options. So your return would reflect the performance of these funds. 

This strategy may reap stronger returns than a fixed annuity that credits a guaranteed minimum interest rate that cannot drop below 1.5%. But if you want to protect some of your assets from the volatility of the market, you can allocate a portion of your premiums to a fixed account option. This rate would change over time, based on the overall interest rate environment.

You can open a Premium Deferred Variable Annuity with a minimum annual premium of $300. This option also comes with a death benefit. So should you die before you annuitize, your beneficiary would receive the greater of the following: 

• Full account value
• Net premium paid to Horace Mann, minus withdrawals and adjustments for any outstanding loan balance

When you’re ready to cash out, you have the following payout options:

• Lifetime payments
• Lifetime annuity with guaranteed period of 10, 15 or 20 years
• Payments throughout a set period from 10 to 30 years (your beneficiary receives payments if you die before the time period ends)
• Joint life annuity with survivor benefit and without guaranteed period

Fees 

Horace Mann charges a $25 annual maintenance fee for the Flexible Premium Deferred Variable Annuity. Annuitants with at least a $10,000 balance will have this fee waived, though. The company also charges a mortality and expense fee of 1.25% of the account value.

These fees are independent of charges imposed by other financial institutions involved in the management of your account. Their fees include fund expense ratios, which generally average below 1%. You can find expense ratios on fund prospectuses. These are available online, including on the Horace Mann website. 

With the Flexible Premium Deferred Variable Annuity, you can take withdrawals at any time without incurring surrender charges. However, the IRS will impose a 10% federal tax penalty on any withdrawals made before you reach the age of 59.5. This is in addition to ordinary income taxes. 

Realistic Return Expectations 

Your return depends on the performance of your investments, fees and riders. You can view performance data on fund prospectuses. You should consider a fund or funds with consistent performance. In order to pace ahead of inflation, most experts recommend you aim for investment options with returns greater than 3%. Some index funds track the S&P 500. Historically, it has returned on average about 10% a year since its inception.

Horace Mann offers fixed annuities through tax-advantaged retirement plans such as 403(b) plans, traditional IRAs and Roth IRAs. Ordinarily, an annuity outside of these plans grows tax-deferred. But when it’s in, say, a traditional IRA, you can deduct your premium from your taxable income. In a 403(b), your contributions are pre-tax. In both cases, you won’t pay income taxes until you retire and start making withdrawals.

The most straightforward of annuities, a fixed annuity pays a fixed interest rate that resets according to the terms of the contract. With Horace Mann’s fixed annuities, (the company offers several and we’ll cover the basics common to all of them here), the rate resets on every fifth contract anniversary. The company guarantees the rate will never dip below 1%. 

You can open an account with a minimum monthly premium of $25. You don’t have to pay every month, so presumably you could open an account with just $25. When it’s time to annuitize, you can choose either to receive a specific amount each month for a specified number of years or a lower set amount for life.

Fees 

There generally are no annual contract fees associated with the Horace Mann fixed annuity options. You also have penalty-free access to 10% of your account’s value each year for the first 10 years. But you may face a market value adjustment fee if you withdraw more money at a time when the interest rate has gone up. The IRS will also hit you with a 10% income surtax if you withdraw before age 59.5.

Realistic Return Expectations 

Horace Mann Fixed Annuities credit a minimum annual interest rate of 1%. The current interest rate the company is providing is about 2.25%, as of Jan. 1, 2021. At this rate, you likely won’t stay ahead of inflation. These types of accounts are generally designed for investors who are more interested in preserving their nest egg than growing it.