Our Modern Woodmen Variable Annuity Review (Overall)
We are not fans of the Modern Woodmen Variable Annuity. It puts your retirement savings in market-based investments, charges an annual insurance fee on top of investment expenses, and can charge you for getting out during the first eight years. Paying those costs while taking the investment risk yourself is a deal we would have a hard time recommending.
This is a flexible-premium variable annuity issued by Modern Woodmen of America. You can choose among investment subaccounts and a declared-interest option, make additional contributions, and name a beneficiary. The subaccounts can rise or fall with their investments; your account value and principal are not protected from market losses.
- Product type: Flexible-premium deferred variable annuity.
- Investment choices: Market-based subaccounts and a declared-interest option.
- Annual insurance charge: 1.40% of variable account value, plus underlying investment expenses.
- Annual administrative charge: Currently $30, with a waiver available under certain balance conditions.
- Surrender charge period: Eight years, with state variations.
- Penalty-free withdrawals: Up to 10% of accumulated value each certificate year under the contract rules.
- Death benefit: Included, subject to age, withdrawal, and contract rules.
Modern Woodmen Variable Annuity Alternatives
Not all annuities are created equal, and the Modern Woodmen Variable Annuity may not be the best way to reach your retirement goals. Compare it with other annuities, fill out the form below, or call us at (770) 755-1565 for a free comparison.
Our Professional Opinion on the Modern Woodmen Variable Annuity
Here is what stinks: you can lose money in the market, pay an insurance charge every year, pay the investment funds, and face a surrender charge if you need too much of your money back early. The death benefit and investment choices are real features, but we do not think most retirees should pay this much and accept this much market risk to get them.
We consider Modern Woodmen’s A (Excellent) AM Best financial strength rating good. The company meets our usual financial-strength standard, but a good rating does not fix an expensive annuity. More importantly, Modern Woodmen is a fraternal benefit society. Its certificates are not covered by state life and health insurance guaranty associations in some states; check your state’s rules before buying. The society’s ability to pay its guarantees still matters.
If your goal is growth and you are comfortable with market losses, compare the total cost and flexibility with investing outside an annuity. If protecting your retirement savings matters more, we would look at a fixed or fixed indexed annuity. Neither alternative delivers the same investment exposure, and each comes with its own tradeoffs, but paying variable annuity expenses is not the only way to invest for retirement.
What We Like
- Flexible contributions: You can add money over time instead of making only one deposit, subject to the contract’s requirements.
- Choice of investments: You can divide your account among market-based subaccounts and a declared-interest option.
- Included death benefit: Beneficiaries receive a contractually determined benefit if the covered death occurs before annuity payments begin.
- Some annual access: The withdrawal allowance gives you a way to access part of the account without the insurer’s surrender charge.
What We Don’t Like
- Fees keep coming: The 1.40% insurance charge is only the start; investment expenses and possibly an administrative charge also reduce results.
- Market losses are yours: Your variable account can fall in value, including below what you contributed.
- Eight years of surrender charges: Getting out early can make a bad market result even worse.
- Fraternal coverage matters: State guaranty-association protection does not cover fraternal certificates in some states. Check your state’s rules.
How the Investment Options Work
Your money can be allocated among subaccounts that invest in underlying funds. Their value changes with those investments, so strong markets can increase your account and weak markets can reduce it. Automatic rebalancing is available to help maintain your chosen allocation, but it cannot prevent a loss.
The declared-interest option is different: it credits an insurer-declared interest rate rather than tracking a fund’s market return. Ask for the rate and the option’s terms before allocating money there. The availability of this option does not protect the portion of your account invested in the variable subaccounts.
Flexible contributions are convenient, but do not let the ability to add money distract from what each dollar will cost you to keep in the contract. Look at the choices and expenses before you commit.
Fees: What You Actually Pay
Modern Woodmen charges 1.40% per year on the variable account value for mortality and expense risk. That charge is separate from the expenses of the funds inside your subaccounts. In other words, the insurance charge does not replace the fund fees; you pay both.
The annuity currently also has a $30 annual administrative charge. Modern Woodmen currently waives the charge at issue if your initial premium is at least $50,000. On each subsequent certificate anniversary, the waiver applies if your account value on that anniversary is at least $50,000. Modern Woodmen can end the waiver. Fund expenses vary by investment choice and can change. Charges for certain transactions or early withdrawals may also apply.
For perspective, 1.40% of a hypothetical $100,000 variable balance is about $1,400 a year before fund expenses and any administrative charge. Actual charges depend on the value over time. If the market falls, these expenses still apply and can deepen the decline. That is a tough pill to swallow for an annuity that leaves you exposed to market losses.
Withdrawals and Surrender Charges
Surrender charges can apply for the first eight certificate years. The charge starts at 8% and declines over the schedule. This makes the contract a poor place for money you might need in a hurry: selling investments during a downturn and paying to get out can both reduce what you receive.
You may generally withdraw up to 10% of accumulated value without a surrender charge each certificate year, calculated under the contract’s anniversary rules. Unused allowance does not roll over. A surrender-charge-free withdrawal is still money leaving your account, and it can reduce your death benefit.
Qualifying terminal illness, a qualifying nursing-center stay, or required minimum distributions may permit a waiver after the first certificate year. Eligibility, documentation, and availability vary by state. Ask for the applicable waiver and withdrawal language before relying on it.
Do not assume switching on annuity payments automatically eliminates the surrender charge. Depending on the issue date, state, and payout election, a charge can still apply when payments begin. That detail matters if you plan to turn the contract into income early.
Death Benefit and Spousal Continuation
Before the annuity payment phase, the standard death benefit generally considers accumulated value and premiums adjusted for withdrawals. For an annuitant younger than 76 at issue, a performance-enhanced death benefit amount is also considered. That amount can lock in account values on certificate anniversaries until the anniversary immediately before the annuitant’s 91st birthday, subject to adjustments for later contributions and withdrawals. Withdrawals can reduce the benefit, and the applicable calculation depends on the certificate and circumstances.
That protection can help beneficiaries if investments fall, but it does not mean you can withdraw your original deposit after a market loss. The death benefit is for the beneficiary after a qualifying death; the value available to you during your lifetime can be lower. An eligible surviving spouse may have spousal continuation rights. Confirm the ownership, beneficiary, and certificate requirements before assuming the surviving spouse can continue it.
How It Compares With Other Annuities
- Fixed annuity or MYGA: A MYGA guarantees an interest rate for a stated term instead of putting that money in market-based subaccounts. Compare fixed annuity rates if knowing the interest rate matters more than investment upside.
- Fixed indexed annuity: A fixed indexed annuity limits upside through its crediting rules but protects against negative index credits. Charges, withdrawals, and other contract provisions can still reduce value.
- RILA: A registered index-linked annuity can limit upside while leaving you exposed to losses beyond its buffer or floor. We think that is a lousy trade for money you want protected.
- Another variable annuity: If you want market exposure inside an annuity, compare the total insurance and fund fees, surrender schedule, available investments, and actual benefits. Do not assume every variable contract costs the same.
If your goal is guaranteed income rather than investment management, compare an annuity with a guaranteed lifetime withdrawal benefit. Compare actual guaranteed payments using the same deposit, ages, income start date, and number of people covered. Rider costs and withdrawal rules matter.
Who Should Consider It?
A person who specifically wants this contract’s investment lineup and death benefit, understands the costs, accepts investment losses, and can leave the money in place through the surrender period may find a reason to consider it. We would still compare less expensive choices before buying. Membership and community benefits are nice, but we would not let them make an expensive investment decision for us.
Who Should Stay Away?
Stay away if you need principal protection, want predictable growth, expect to need more than the free withdrawal allowance, or cannot stomach seeing the account fall. This is also a poor choice if you expect a guaranteed lifetime paycheck simply because the word “annuity” appears in the name. Investment withdrawals can run the account down; compare specific guaranteed-income options if lifetime income is the job.
Our Verdict
We would pass on the Modern Woodmen Variable Annuity for most retirement plans. Its fees, market exposure, and eight-year surrender period are a combination we do not like. The death benefit has value, but it needs to justify those costs against the alternatives.
Want to see what else is available or review an annuity you already own? Contact The Annuity Expert for a free comparison and quote, or call (770) 755-1565. We will help you compare the numbers and the tradeoffs before you decide.
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