Our Professional Opinion on Pacific Index Income
We would compare Pacific Index Income for deferred lifetime income, but we would not buy it just because its withdrawal percentage increases while you wait. The increase is guaranteed for a limited period, which we like. The actual paycheck still depends on the protected payment base and the terms of the contract. A growing percentage is not money added to your account.
The built-in income benefit costs money every year, and taking withdrawals before income starts can reduce the future payment. That makes this a poor choice for someone whose real goal is simply growing savings. We would use an accumulation annuity without an income-rider fee for that job.
We like the choice to lock the initial S&P 500 cap for the surrender period. For income, however, the deciding number is the guaranteed payment, not the cap or an illustrated market return. Compare Pacific Index Income with other lifetime-income annuities using the same deposit, ages, start date, and single- or joint-life coverage.
Pacific Life Insurance Company is a great insurer. Its A+ (Superior) AM Best rating exceeds our A− minimum for an insurance company. That is the kind of financial strength we want behind a lifetime promise.
What We Like
- A guaranteed deferral credit: The withdrawal percentage can increase while you wait, even if the index credits no interest.
- A full-term cap-lock choice: You can protect the initial S&P 500 crediting terms for the chosen surrender period.
- A chance for income to rise: An increase in contract value can trigger a protected payment base reset, including after income begins.
- Unused income can carry forward: The rollover feature provides flexibility within its limits.
- Single- and joint-life options: You can compare income for one person or both spouses.
What We Don’t Like
- The rider is not free: Its annual charge is deducted from the real account value.
- Early withdrawals hurt future income: Even a withdrawal free of surrender charges can reduce the protected payment base.
- The growing percentage is not cash growth: You cannot withdraw the income calculation as an account balance.
- RMD timing matters: A distribution before lifetime income begins is treated as an early withdrawal for the rider.
- The longest commitment is substantial: An early exit above the allowance can trigger a surrender charge and, outside California, an MVA.
Pacific Index Income Annuity Overview
Pacific Index Income is a fixed indexed annuity with a built-in Lifetime Income Creator benefit for an annual charge. It is designed for a future income stream while keeping a contract value that can earn fixed or index-linked interest.
Key Features
- Minimum deposit: Generally $25,000; issue ages are generally 50 through 85.
- Surrender periods: 5, 7, or 10 years; California has a 9-year rather than a 10-year option.
- Income coverage: Single-life or eligible joint-life lifetime withdrawals; income can start as early as age 59½ under the rider’s rules.
- Deferral: A guaranteed credit increases the withdrawal percentage for up to 20 years before lifetime income begins.
- Crediting choices: Fixed and index options, including the S&P 500, with a one-year or full-term initial guarantee choice.
- Ordinary access: Limited free withdrawals begin 30 days after issue.
- Death benefit: Generally the greater of contract value or guaranteed minimum surrender value before annuitization.
The contract is not available in New York. Features and availability vary by state and contract.
How Lifetime Income Creator Works
Your contract value is the actual account: it receives interest and is reduced by withdrawals and the rider charge. Your protected payment base is a separate number used to calculate income and the rider charge. It is not a second account that you can cash out.
While you wait to begin protected withdrawals, Pacific Life adds a guaranteed deferral credit to the withdrawal percentage on eligible anniversaries, for up to 20 years. The credit is not interest on your deposit and does not increase the account value. Once lifetime withdrawals start, the percentage no longer receives deferral credits.
The protected payment base can also reset upward when your actual contract value is higher. That can increase protected income, even after payments begin, but a reset depends on the account growing enough; it is not guaranteed.
We like a guaranteed improvement while you wait. We would compare it with a guaranteed roll-up on another income annuity, but we would not decide by comparing percentages alone: one product may increase a base while another increases a withdrawal percentage. Ask for the guaranteed income in dollars at the date you actually plan to retire.
Eligible lifetime payments can continue for the covered life or lives if normal protected withdrawals reduce the contract value to zero, subject to the benefit rules. A joint election covers eligible spouses; the younger spouse’s age is used under the rider. Excess withdrawals can permanently reduce the guarantee.
What the Income Benefit Costs
The annual charge is 1% of the protected payment base, deducted from the contract value while the benefit is in effect. The charge is set at issue under the rider terms; confirm your contract and state.
Suppose the protected payment base is $120,000 and the account is $100,000. A 1% charge on the base is $1,200—equivalent to 1.2% of that account for the year. If no index interest is credited, the charge can reduce the account value.
That cost can be worthwhile for a competitive lifetime paycheck. It is a bad expense if you do not need the income guarantee. A strong accumulation contract without the charge may be a better choice for money intended to grow or pass to family.
Early Withdrawals and Income Rollover
After protected income starts, unused annual income can carry forward, subject to a cap. That is useful if you do not need the entire protected payment every year. It does not create unlimited withdrawals that accumulate forever.
An early withdrawal before income begins, or an excess withdrawal after it begins, can reduce the protected payment base and future income by more than the dollars taken. If an early or excess withdrawal exhausts the contract value, the rider can terminate. Free of a surrender charge does not mean free of damage to the income guarantee.
Before taking extra money, ask Pacific Life to calculate the effect on your future income. That includes a required minimum distribution: an RMD taken before income starts is an early withdrawal for the rider even when the insurer waives the surrender charge. Special rider rules apply after income begins.
S&P 500 Choices and the Cap Lock
Pacific Index Income offers annual index strategies, including an S&P 500 choice. The point-to-point option credits a positive gain up to its cap; a flat or negative result credits no interest. The performance-triggered option can credit its stated amount if the index ends flat or higher, but its credit can be lower than a strong index gain.
At issue, choose an initial crediting guarantee of one year or the selected surrender period. A full-term lock can keep the starting terms from being lowered during that period, while the one-year option can change at renewal. The longer lock may start lower. We prefer a competitive locked S&P 500 cap to relying on an insurer’s annual renewal decision, but the cap is a ceiling, not a guaranteed return.
Money withdrawn from an indexed option before its term ends does not receive that term’s index interest. If you plan withdrawals, timing matters even when the withdrawal is otherwise free of charges.
Withdrawals, Surrender Charges, and the MVA
You can generally begin free withdrawals after 30 days. During the first contract year, the allowance is up to 10% of purchase payments. In later years of the surrender period, it is generally 10% of the prior-anniversary contract value. Protected income has its own rules.
An amount above the allowance can incur a surrender charge and, outside California, a market value adjustment that can increase or decrease proceeds. California has different schedules and no MVA under its contract. The minimum surrender value is calculated under the contract; do not assume an early surrender returns your entire deposit.
We would choose a surrender period that fits the income plan and keep emergency money elsewhere. The fact that income is guaranteed does not make every dollar freely accessible.
Health Waivers and Death Benefit
Qualifying terminal illness or nursing-home confinement can permit additional access without surrender charges or an MVA, subject to waiting periods and conditions. These waivers are not available in California. They give access to your own account and are not a replacement for long-term care insurance.
Before annuitization, beneficiaries generally receive the greater of contract value or the guaranteed minimum surrender value. Eligible partial-term index interest may be included under the death-benefit rules. The protected payment base is not a separate death benefit; withdrawals and rider fees can reduce what remains for family.
For married buyers, compare the joint-life payout with a single-life payout and other survivor arrangements. Ask whether spousal continuation is available for your ownership and beneficiary designations and how it affects the rider. Joint lifetime income and continuing the contract after death are different decisions.
Our Final Verdict
Pacific Index Income has features we like for deferred income: a guaranteed increase in the withdrawal percentage, potential resets, and a choice to lock the S&P 500 cap. We would include it in an income comparison when those features fit the plan, but we would not select it based on the advertised increase alone.
The 1% rider charge and the income reduction from early withdrawals are serious drawbacks. If you do not need lifetime income, we would look for an accumulation annuity without the rider. If you do, compare the actual guaranteed payment with other lifetime-income options before buying.
Contact The Annuity Expert for free annuity quotes. We can compare the guaranteed income, fees, withdrawal rules, and survivor benefits for your retirement date.
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