Our Professional Opinion on the SmartStep Annuity
SmartStep’s return-of-premium option is useful, but we would not make it our first choice for most fixed-annuity buyers. The interest rate steps up for four years, while the surrender charge lasts six. That leaves two years when your renewal rate can change and getting out with more than the permitted amount can still cost you. A competitive fixed annuity that guarantees its rate for the full commitment is easier to plan around.
SmartStep is issued by Western-Southern Life Assurance Company or National Integrity Life Insurance Company. Both earn an A+ (Superior) financial strength rating from AM Best. Those are great ratings, comfortably above our A− minimum. These insurers and Integrity Life belong to the Western & Southern family, but they are separate insurance companies.
Compare the complete four-year result, free withdrawals, surrender value, and protection against early exit with fixed annuity rates from other financially strong insurers. A higher final-year rate alone does not make SmartStep the better deal.
What We Like
- Great insurers: Both issuing companies have A+ AM Best ratings.
- Guaranteed steps: You know how the initial rate will increase in years two through four.
- Optional return of premium: The guarantee can protect the adjusted deposit if you need to surrender early.
- First-year access: The return-of-premium version permits a free withdrawal immediately.
- Death benefit: Beneficiaries receive the account value without a surrender charge before income payments begin.
What We Don’t Like
- The guarantee is shorter than the surrender period: Years five and six can have a different declared interest rate while early-exit charges still apply.
- Return of premium costs growth: Choosing the guarantee means smaller annual rate increases.
- Limited access without the guarantee: The nonqualified version permits a total 10% free withdrawal during the first four years, not 10% each year.
- The fourth-year rate can be misleading: It is not the rate earned on the entire deposit for all four years.
SmartStep Annuity Overview
SmartStep is a single-deposit deferred fixed annuity. You choose whether to include the return-of-premium guarantee when you apply. Both versions provide a series of guaranteed interest rates for the first four years; an annually declared renewal rate follows.
- Issuers: Western-Southern Life Assurance Company or National Integrity Life Insurance Company, depending on the contract.
- Minimum deposit: $20,000.
- Issue ages: 0–89.
- Guaranteed rates: Four years, with a scheduled increase in years two through four.
- Surrender charges: Six years.
- Return of premium: Optional at purchase; affects rate increases and free-withdrawal rules.
- Funding: Nonqualified funds and eligible retirement accounts, including traditional, Roth, and SEP IRAs.
The annuity can also be used for eligible IRA transfers and retirement account rollovers. Product features and availability can vary by state.
How the Stepped Interest Rates Work
SmartStep begins with a guaranteed first-year rate. Each of the next three years, the rate rises by a fixed increment.
A fourth-year rate that looks great on paper is only paid during that year. To compare fairly, look at the total guaranteed account value after four years using the same deposit and withdrawals. A level-rate annuity can outperform SmartStep even if its rate is lower than SmartStep’s fourth-year rate.
Deposits of $100,000 or more can qualify for an additional rate enhancement through year four. If the account value falls below $100,000, the enhancement stops the next day and cannot be reinstated. That makes planned withdrawals especially important near the threshold.
Why We Dislike the Two-Year Gap
After the four-year guarantee, the insurer declares a renewal rate annually. The surrender charge remains in place through year six. You could face a less attractive renewal rate before you can leave without a surrender charge. The contract has a guaranteed minimum, but the attractive initial schedule does not continue indefinitely.
A fixed annuity with a rate locked for its full surrender period gives you a clearer basis for comparing what you receive in exchange for the commitment. With SmartStep, we would want the four-year result or the optional early-exit protection to justify that gap.
The Optional Return-of-Premium Guarantee
You must choose return of premium when you apply. If you surrender, the guarantee provides a cash surrender value of at least your deposit adjusted for withdrawals. It can prevent a surrender charge from taking you below that protected amount.
We like having an exit option, but return of premium is not a promise to keep every dollar of interest. If a charge reduces the surrender value, the guarantee protects the adjusted deposit floor, not necessarily the account value. The cost is a smaller increase in the interest rate each year.
We would compare the guaranteed account values with and without the option and with a shorter fixed annuity. If you are confident you will keep the contract, giving up part of the scheduled increase for a protection you never use may be a bad trade.
Withdrawals and Surrender Charges
SmartStep’s free withdrawal rules depend heavily on the choice you make at purchase:
- With return of premium: Up to 10% of account value each contract year beginning immediately.
- Without return of premium, qualified contracts: Up to 5% of account value each contract year.
- Without return of premium, nonqualified contracts: Up to 10% of account value in total across contract years one through four, then 10% in each of years five and six.
That last rule stinks if you expect to take interest regularly. The first four years share one allowance; it is not a separate 10% allowance every year. For the annual allowances, unused free withdrawals do not carry into a later year.
Amounts above the allowance can incur a surrender charge during the first six contract years. The schedule is 7%, 7%, 7%, 6%, 5%, and 4%. The optional return-of-premium floor can limit the effect on the amount paid for a full surrender; it does not make all withdrawals charge-free.
If you plan to live on the interest, compare a guaranteed lifetime withdrawal benefit using the same deposit, income start date, and covered lives. Taking interest from SmartStep alone does not guarantee lifetime income.
If you want withdrawals without lifetime income, compare an annuity that credits an upfront bonus to the actual account. A larger starting balance can sometimes leave more money after equal withdrawals even at a lower rate. Compare fees, surrender values, and actual results.
If you are in poor health or planning for a shorter retirement, compare a bonus that fully vests and is payable upon a qualifying death. It might leave more to your beneficiaries; compare what they would actually receive after withdrawals and contract conditions.
Health Waivers and Required Minimum Distributions
A qualifying limited life expectancy or confinement to a nursing home, hospital, or licensed facility can waive withdrawal charges. Confinement generally must last at least 60 consecutive days and the waiver is available on or after the first anniversary. Conditions and state availability apply. The waiver provides access to your own money; it is not a replacement for long-term care insurance.
Required minimum distributions are included among the withdrawal-charge waivers. That feature can be important if you hold the annuity in a retirement account and your required distribution exceeds the ordinary free-withdrawal amount.
Death Benefit and Spousal Continuation
If the owner dies before income payments begin, the beneficiary receives the account value calculated when the claim is processed, without a withdrawal charge. That can leave more than the cash surrender value that would have been available on an early exit.
The rules for spousal continuation depend on the contract and beneficiary designation. When permitted, an eligible surviving spouse may continue the annuity instead of taking the benefit immediately.
What We Recommend
We would usually compare a fixed annuity with a guarantee that matches its surrender period before buying SmartStep. SmartStep’s return-of-premium option is worth considering if the exit floor and immediate free withdrawals matter enough to offset the smaller rate increases. Without that option, the nonqualified withdrawal rule makes this a poor choice for someone planning regular interest withdrawals.
Contact The Annuity Expert for free annuity quotes. We can compare SmartStep’s guaranteed four-year value and access rules with alternatives from other financially strong insurance companies.
Book A Free Consultation
Get help from a licensed financial professional. This service is free of charge.
Let Us Answer Your Questions
Not quite ready for a meeting, but you have a question that needs answering? We’re happy to help. Leave an inquiry below, and one of our staff will respond via email.