Principal Annuity Review

The Principal Preferred Series Annuity is a fixed annuity that requires an initial investment of at least $5,000. You, the annuitant, also have the option of making additional contributions during the first year of your contract, but these contributions must be at least $2,000 each. The maximum issue age for this contract is 90.

When you sign up, you’ll choose a fixed-rate guarantee period of three, four, five, six or seven years. This period refers to the length of time that your initial interest rate will last. Once you reach the end of your guarantee period, you have three options. You can either withdraw your funds penalty-free (unless you’re under 59.5 years old, in which case you'll incur a 10% penalty from the IRS); start a new guarantee period; or you do nothing and let your annuity automatically renew for the same guarantee period.

Principal also offers a guaranteed return of premium rider. This allows you to decide whether or not you want your premium payment guaranteed for the life of your contract. If you opt not to guarantee your premium, you’ll receive a higher interest rate in return.

If you pass away before annuitizing your contract, the accumulated value of your annuity will go to your chosen beneficiary. There is no added fee for this death benefit.

Fees

For every year that you’re an account holder, you’re free to withdraw up to 15% of your annuity’s value without paying a penalty. If you are over age 70.5 and need to take required minimum distributions (RMDs), your maximum withdrawal amount will be either your RMD or 15% of your annuity’s value - whichever is higher.

For any balances above that 15% limit, surrender fees will begin to apply. The exact rates for these fees are determined according to the following table:

If you withdraw from your annuity before age 59.5, you will likely have to pay a 10% penalty to the IRS. This is in addition to standard income taxes.

Realistic Return Expectations

Unfortunately, Principal does not release interest rates for its various fixed annuity products. However, the company does indicate that every annuity customer will receive a minimum interest rate within the terms of their contract. This minimum and your actual rate will depend on a number of factors, including the guarantee period you choose, whether or not you subscribe to the guaranteed return of premium rider, your age and state of residence, your initial premium and more.

If you want to start receiving income payments right away, an immediate annuity is the product for you. The Principal Income Annuity is the company's premier immediate contract, and it stipulates that new annuitants must be 95 years old or younger and have at least $10,000 to invest.

In terms of payouts, you have six options:

• Fixed Period: Your funds are distributed to you over a period of between five and 30 years.
• Life Income: You receive payments for your entire life. There is no death benefit with this option.
• Life with Guarantee Period: You receive payments for life, and your beneficiary receives a benefit if you die before the end of the guarantee period.
• Joint and Survivor: Payments continue until the death of the surviving annuitant. You have the option of adding a guarantee period to this.
• Life with Cash Refund: You receive payments for life, and if you die before you’ve received the amount you paid in, the remainder passes to a beneficiary as a lump sum.
• Life with Installment Refund: Same as the previous option, but the remainder passes to a beneficiary in the form of regular payments.

The Liquidity Rider is available for this contract. This affords you a one-time withdrawal of up to 100% of the discounted value of your remaining payments, with your income payments being reduced proportionately to your withdrawal. It’s available at no additional charge, though you must meet a few requirements:

• You're withdrawing at least $2,500.
• Your chosen payout option is not Life Income.
• You've owned your annuity for at least a year.

You can add another optional inflation protection rider to your contract that will increase your income payouts over time to keep up with inflation. These increases range from 1% to 5%. There is no additional charge for this benefit, but your earlier payouts will be reduced.

Fees

Like most immediate annuities, you don’t have to worry about any maintenance or other annual fees with this contract. Additionally, both optional riders are available fee-free. Just remember that you could face a 10% penalty from the IRS if you make a withdrawal before reaching age 59.5.

Realistic Return Expectations

There’s no interest accrual taking place with the Principal Income Annuity, so what you get back will be right around what you pay in. However, if you choose lifetime benefits and outlive your premium amount, you’ll earn more than you paid.

The Principal Secure Choice Indexed Annuity allows annuitants the chance to benefit from stock market gains without putting any of their money on the line. The returns are based on the performance of the S&P 500 index, and annuitants will choose one of two ways in which Principal will credit their account.

The “Annual Point-to-Point” method dictates that if the S&P 500 goes up during a given year, you’ll receive a credit that corresponds to the change, up to a predetermined annual cap. The second option is the “Performance Trigger” method. Through this, your account will be credited a fixed percentage if the S&P 500 stays flat or goes up during a given year. So regardless of whether the index increases in value by 2% or 20%, you’ll receive the same credit. With both methods, your account’s balance will remain unchanged if the S&P 500 loses value.

You'll also receive a fixed account with this annuity. This allows you to allocate as much of your premiums as you want to the aforementioned index strategies and fixed account. Principal will set your fixed rate when you sign up.

When you’re ready to start receiving payouts, you can choose between three income options. You can schedule payments to last for a fixed period of time, for the rest of your life or until both you and your spouse pass away. If you select the first payout style and you die before the end of the fixed period, the remainder of your funds will pass to a chosen beneficiary.

The maximum issue age for this contract is 85, and prospective annuitants must be ready to invest at least $10,000.

Fees

This annuity contract does not come with any annual fees.

During each year of your contract’s life, you can withdraw up to 10% of your account, provided its value stays above $5,000. If you withdraw more than that, the excess will be subject to a surrender charge:

Your account will be tax-deferred until you withdraw it. You’ll face a 10% penalty from the IRS on any funds you attempt to withdraw before age 59.5.

Realistic Return Expectations

The returns of this indexed annuity are based on the performance of the S&P 500 index, so it’s inherently difficult to forecast exactly what they might look like. However, because Principal credits you based on performance rather than investing your money directly in the market, you are protected from any losses.