Our Professional Opinion
American Fusion is an interesting idea, but we would not recommend it. It combines a five-year fixed interest rate with a chance to earn an additional credit based on the S&P 500. We like the concept. The problem is the company behind it: its financial-strength rating is below our standard for a five-year commitment.
American Life & Security Corp. is a below-average annuity company by our standards. AM Best rates it B++ (Good), below the A− rating we prefer for a five-year commitment. We would compare insurers rated A− or higher before accepting the additional company risk for a potentially higher return.
The other catch is the bonus. It is not paid up front, and it is not guaranteed. The S&P 500 must meet a specified target at the end of five years, and you generally cannot take withdrawals other than required minimum distributions if you want to remain eligible. A good-looking advertised yield can disappear if either condition is not met.
Compare Fusion’s guaranteed rate, without the possible bonus, with other fixed annuity rates from stronger insurers. If a competing rate already meets your goal, you may not need to wait five years and hope for an index bonus to make the deal worthwhile.
What We Like
- Guaranteed interest: The fixed rate is locked for the initial five-year term, regardless of how the index performs.
- A chance for additional growth: An eligible owner can receive an extra credit if the S&P 500 reaches the required threshold.
- A traditional index: The bonus uses the S&P 500 rather than an unfamiliar engineered index.
- Account-value death benefit: Beneficiaries generally receive the account value without surrender charges or a market value adjustment.
What We Don’t Like
- Below our rating standard: A B++ insurer does not meet our A− standard for a five-year term.
- The bonus is all or nothing: The index can rise over five years and still fall short of the target, leaving you without the additional credit.
- Free withdrawals can cost the bonus: Take money out other than an RMD and you generally give up the potential credit.
- First-year access is lousy: There is no ordinary free-withdrawal allowance in year one, and a first-year RMD can be charged.
- Early death can end the bonus opportunity: Your beneficiary generally receives the account value, but not the unearned index credit.
American Fusion Annuity Overview
American Fusion is a single-premium annuity with a fixed interest rate guaranteed for five years and a separate opportunity for an index-based bonus. American Life calls it a multi-year guaranteed index annuity, or MYGIA. You do not invest directly in the S&P 500, and a decline in that index does not by itself reduce the fixed interest credited to your account.
| Issuer | American Life & Security Corp. |
| Initial guarantee | Five-year fixed interest rate |
| Minimum deposit | $10,000 |
| Issue ages | Generally 0 through 90 |
| Potential bonus | One credit at the end of the term if the index threshold and other conditions are met |
| Ordinary withdrawals | No first-year allowance; generally up to 10% annually afterward, subject to contract rules |
| Early exit | Surrender charges and a market value adjustment may apply |
How the Index Bonus Works
Your account earns the guaranteed fixed rate during the five-year term. Separately, American Life looks at how much the S&P 500 has risen from the beginning to the end of that term. If the increase meets the threshold established when you buy and you meet the withdrawal rules, the company adds the stated bonus credit to your ending account value.
Here is the catch: the index does not need to be up merely for you to receive the bonus. It must reach the required threshold. Suppose, hypothetically, the target is 25%. If the index finishes up 24% over the five years, there is no extra credit. If it reaches 25%, the stated bonus is added. You still receive the fixed interest under the contract either way. The actual target and bonus are set when your policy is issued.
Unlike many fixed indexed annuities, this is not an opportunity to earn a separate index credit each year. The test happens at the end of five years. That means a strong market for four years does not guarantee the bonus if the index falls before the final measurement date.
The Advertised Yield Is Not Guaranteed
If you see an annualized effective yield for Fusion, check whether it assumes the bonus is paid. That number can look better than the fixed rate, but it is the result of receiving a one-time credit at the end of five years. It is not the interest rate your account is guaranteed to earn each year.
We would base the decision on the guaranteed fixed rate first. Treat the possible index credit as extra, not money you can count on to pay your bills or reach a savings target.
Withdrawals and Your Income
The ordinary free-withdrawal allowance begins after the first contract year. Afterward, you can generally withdraw up to 10% of the prior-anniversary account value each year, subject to the contract. The problem is that a withdrawal other than an RMD generally makes the contract ineligible for the bonus. You can avoid a surrender charge and still give up the potential extra credit. That stinks if you bought Fusion expecting to spend its interest.
If you plan to live on the interest: Compare a guaranteed lifetime withdrawal benefit. Fusion’s fixed rate lasts for a defined term; it does not guarantee that the same interest income will continue for life.
If you want withdrawals without lifetime income: Compare an annuity with a real upfront bonus credited to the account. A larger starting balance may leave more to compound after withdrawals, even at a lower rate. Compare the same withdrawal amounts, fees, and surrender values.
If your health is poor or you expect a shorter retirement: Compare the actual death benefit with an annuity whose bonus is fully vested and payable on a qualifying death. Fusion’s possible index credit is not paid up front, and your family generally does not receive it if the contract ends before the term.
Required Minimum Distributions
A required minimum distribution taken in the first contract year can be subject to a surrender charge and an MVA. If you need to take an RMD for the current year, consider taking it before transferring the remaining IRA money into this annuity.
Starting in year two, an eligible RMD can generally be taken without those charges and without disqualifying the potential bonus. The first-year charge and bonus rules are different questions, so do not assume an RMD is free of both consequences.
Surrender Charges and the Market Value Adjustment
Taking money outside the available allowance during the five-year term can trigger a surrender charge. The standard initial schedule declines from 9% in year one to 5% in year five. An applicable market value adjustment can also increase or decrease the amount paid.
| Contract year | Surrender charge |
|---|---|
| 1 | 9% |
| 2 | 8% |
| 3 | 7% |
| 4 | 6% |
| 5 | 5% |
Those charges are separate from losing the index bonus. A withdrawal can be free of surrender charges and still make you ineligible for that bonus. Contract and state rules can vary.
What Happens When You Die?
The included death benefit generally pays your beneficiaries the account value without surrender charges or an MVA. We like that protection, but the possible index bonus is not automatically added if the contract ends before the five-year term.
An eligible spouse named as beneficiary may be able to choose spousal continuation rather than take the death benefit immediately. If the contract continues, the opportunity for the bonus can continue under its terms. Check the beneficiary designation and continuation rules before assuming the credit will be paid.
What Happens After Five Years?
At the end of the initial term, the index is measured and an eligible bonus is credited. You generally have a 30-day window to withdraw or transfer the contract value without a surrender charge or MVA, or select from available renewal choices.
Do not ignore the notice. The contract can automatically renew into another term at a new rate with a new surrender schedule. Mark the decision window and compare other offers before committing your money again.
Our Final Verdict
We would pass on American Fusion because the issuing company’s B++ rating falls below our A− standard for a five-year term. The fixed rate plus a possible S&P 500 bonus is a clever design, but the bonus has to be earned at the end and can disappear when you need access to your money.
For guaranteed growth, we would compare a competitive five-year fixed annuity from an A− or better-rated insurer. If you want index-linked growth, compare a fixed indexed annuity with a competitive cap locked for the full surrender period. Two designs we like comparing are Oceanview CapLock and Sagicor Sage Accumulator.
Contact The Annuity Expert to speak with a financial professional for free. We can explain the options, compare quotes, and help you decide which annuity fits your retirement plan.
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