30 Comments on Prudential HD Lifetime 7 Plus Variable Annuity

Joe Plajstek on Sat, 22nd Aug 2009 5:42 am


Rick, getting ready to sign up for this plan with a considerable amount, 500k. Are the fees abnormally high or average? Should I look at any other product?

RickBryan on Sat, 22nd Aug 2009 9:13 am


With these products, the benefits versus fees question is always answered by “six of one and half dozen of another.” In other words every annuity contract from each company is 80% identical, and 20% unique. Inside the 20% unique aspect of the annuity are a dozen different features, and those vary from product to product, and the costs vary from product to product too, and even for any particular feature of a contract (such as the Guaranteed Minimum Withdrawal Benefit, for example), the exact mechanism by which the GMWB works varies from company to company. Generally speaking, it’s impossible to make an apples to apples comparison between a variable annuity of one company versus another, because they are all slightly different, with some features of each annuity being superior to a different company’s annuity, and some features not as good.

Look for example at the Ford F-150 versus the GM Sierra 1500. Both excellent full sized pickup trucks, but with lots and lots of different configurations available. Why do some people choose one over another? Which is “better?” It depends what you’re looking for, right? Styling or towing capacity or payload or cab size or cup holders; dozens of ways to compare one truck to another, and what you’re looking for and are willing to pay for may not be what I’m looking for. Plus, even if you know what you want, you may choose to buy the other because of the reputation of the dealership, and even within the dealership some people will switch trucks because the particular salesman didn’t meet expectations in some way. So many variables effect why some people buy one truck over another.

And it’s the same way with variable annuities. The difference of course is that most people, if they choose to do so, can read and understand and compare Ford’s 5.4l V-8 engine to Chevy’s Vortec 5.3l V-8 power plant. It’s much more difficult to read the variable annuity product brochures and compare and contrast features, and many of the most critical factors which make one product feature superior to that of a different company’s annuity are hidden inside the 600 page prospectus. Not ‘hidden’ in the sense that the information is kept from public investigation, but ‘hidden’ in the sense that the information is buried deep within that 600 page prospectus, and involves some pretty complex and technical mathematical and actuarial factors which are explained in sentences which seemingly never end with a period.

But the bottom line is generally that you can’t go wrong with the Prudential HD 7 Lifetime Variable Annuity, so long as you understand in general what you’re buying and why you’re buying. Just like whether you choose to buy the Ford F-150 or the GM Sierra 1500, you can’t really go wrong unless what you really need is a BMW 525i.

Royal Paulsen on Sun, 4th Oct 2009 4:24 am


Is this product avalable in Delaware

Charles Dial on Tue, 6th Oct 2009 9:21 am


Please show and example of how the death benefit is figured in a 150k initial investment

Robert on Sun, 1st Nov 2009 5:13 pm


I transferred my fairly large 401(k) into a Prudential HDL7+ contract on June 10, 2009. According to the contract, I got a 6.5% ‘bonus’ added immediately. As of 10/30/09 I am up 13.97% (including the ‘bonus’) and up 7.01% overall. The daily ratcheting (HDL = Highest Daily Lifetime) has pumped up the ‘Protected Withdrawal Value’ significantly since I started. I am single and have not made any additional contributions so calculations are relatively simple. I developed a spreadsheet to track (and understand) the HDL7+ guaranteed lifetime income concept and I can now project what I can withdraw as lifetime income at any point in the future. I’m very impressed with the product so far, but I do admit I got in at a good point! If the market ‘tanks’, I’ve got the ‘guaranteed lifetime income’ to depend on regardless.

Janice Mushrush on Sun, 8th Nov 2009 7:46 pm


If you purchase this HDL7+ annuity at age 59 and in six months (age 59.5) you want to begin to withdraw from it, do you still reap the benefit of the lock-in feature, meaning in the six months you had the annuity, the highest account value day is locked in at the 7% rate. In other words, is there any time constraint in terms of length of time one must maintain the annuity prior to withdrawal of funds from it in order to be guaranteed the 7%.

RickBryan on Sun, 8th Nov 2009 9:03 pm


I went to look at the product brochure and prospectus and lo and behold it looks as if the HD Lifetime 7 magically became the HD Lifetime 6! Not exactly sure when this change was made, or if I’m missing something here. The webpage which I linked to the HD Lifetime 7 is not archived in the Wayback Machine, so I don’t know when the change is made. I’ll investigate this a bit more, but I’m kinda busy this week. Stay tuned!

d brown on Wed, 13th Jan 2010 5:53 am


How does Prudential make money on this product if the market value is less than the guaranteed value? Making a few per cent each year in fees isn’t going to protect them if the stock market if down 50%. Do they have some kind of insurance? Are they proteced by government insurance if they go bankrupt?

RickBryan on Wed, 13th Jan 2010 6:56 am


That’s a good question and I’m not confident I know that answer 100%. First of all, insurance companies are covered by the states Insurance Guarantee Fund, which is somewhat similar to the FDIC insurance for banks, except the Insurance Guarantee Funds offer more protection. This is not too widely known, because by law insurance companies and agents are prohibited from mentioning it in their advertising and sales pitches, but you can google around and learn how money invested with insurance companies is solidly protected.

I would want to find out whether the guarantee fund is protecting the “guaranteed portion” of the customer’s annuity, or the actual value (which may be lower). I don’t know. Probably the lower value, but I would like to find out.

More to your question, you know that insurance companies employ hundreds of actuaries who make up mathematical models to determine profitability of their products. So the insurance company is not only looking at your purchase to see if it’s going to make money, but averaging out all the hundreds of thousands of contracts it is selling all over the US to figure out how they make money. That’s one point.

Then, Prudential is guaranteeing 6% (a few months ago the HD Lifetime 7 magically became the HD Lifetime 6 overnight; you snooze you lose), so you know on your deposit Pru is earning for itself something like 6.1%. Big deal, then make 10 basis points, so what? Well, on billions of dollars in deposits, that 10 basis points adds up to millions of dollars in profits for them.

Also, there are hidden fees out the wazoo with these products, sort of like rustproofing when you go by a car. They add up, and a lot of them are very clearly spelled out for you, the consumer, right there in black and while inside the 600 page prospectus printed in 8 point typeface! So that’s why the prospectus is partially BS.

Plus, don’t forget this, which I am going to verify because this issue has been out of my mind for a few months, which is that your guaranteed rate of return is available to you for withdrawals only when you annuitize the contract. Meaning, say you deposit $100,000 and after 20 years it’s still at $100,000 because the market went nowhere. But Pru has guaranteed 6% so now on paper the value is $220,000, or whatever 6% comes out to be. And now you want out. Well, you can’t just go take out the $220,000: you have to annuitize the contract, which means you turn over that $220,000 to Pru, and in return they give you a guaranteed income stream for life based on your age at the time you want out of the contract. And in figuring out your annuity payments, Pru (and each company) apply some complex mathematical formulas no one understands to nickel and dime you to death and reduce your income payments so as if the amount you put in was actually closer to $200,000, not $220,000. So Pru gets to pay you $1,500 per month for the rest of your life, or whatever the number comes out to be, and all the while they’ve kept and invested your $100,000 deposit.

These are not exact answers, because in the past six months my estate planning and elder law practice is really booming, so my focus has turned away a bit from the insurance industry products. But I’ll reach out to the annuity wholesalers I know and see if I can get to someone who can explain more exactly how the company is making money. In one of these comments I think I posted a link to an actuarial article which explains how these products work. You can see how complicated they are and why very, very few people know how they work.

That being said, a few months before the recent market crash, I referred one of my clients to one of my MetLife contacts and the couple deposited $1,000,000 into MetLife’s product which is the same as Prudential’s. While the market collapsed and half of the people (especially retirees) wanted to jump out of a window, my clients thought I and the financial agent were Christ because their million dollar deposit was chugging along just fine at 6%. So I know for a fact these things work, although I will work harder at understanding how and why.
Rick Bryan
New York, NY

Greg on Wed, 17th Feb 2010 8:32 am


Rick,

Insurance companies never sell products that will lose money for them! The way they make money off this type of product is by buying or selling “Puts” in the market. That is how they can “give away” the 6 or 7%.

RickBryan on Wed, 17th Mar 2010 6:21 am


I’m not disagreeing with your explanation of how the insurers insure the annuity guarantees, but if you look back at the disability products of the 70’s and 80’s (regarding the definition of “own occupation”) sold to physicians, and more recently Long Term Care contracts, I think you would agree the actuaries and executives have definitely blundered sometimes and designed products which were not profitable. Especially with the LTC, it will surely be interesting to see if the few players left in this market will profit or lose their shirts over the next twenty or thirty years.

Kenneth Maahs on Tue, 6th Apr 2010 3:07 am


Rick, my wife is about to put 270k into the Pru HD 6Plus product discussed here. That is all her retirement savings. Which other similar annuity would you suggest she looks at to compare and perhaps get a more balanced approach to the many “gotchas” each presents. I mean which other one as a dual investment would grant some balancing. Does a “Fixed Annuity” offer equal or better possibilities, as a second investment?
Also, we have read that one ought never put more than 50% of savings into such an annuity because of liquidity issues. Is that a proper evaluation? Isn’t the other 50% much less protected then, unless one goes into CD’s which give little/ no growth?

Jeremy G. Konstenius on Sun, 11th Apr 2010 10:20 pm


I actually told people to dump everything and get into these things right before the last crash but people did not follow my advice. Pru used to sell a product where you could put half your money on black and half your money on red with 2x lev. So when the market crashed you would have caught that and locked it in. Also in the latest rally you would have increased your account in the bull run on top of the bear run. Nice thing to about these products is you can add death benefits (High Water Mark) which make estate planning nice. Some places will lend against there value. Also the guaranteed income at the end is nice. I do my own trading so don’t use these but I think Suzie Orman has it all wrong when she said not to use these in an IRA thats how you get the best return especially if Roth. Cool thing about the annuity no maximum and unlimited tax shelter I think is only vehicle that does this. If you don’t do something like trade or you need the cash these are a good way to go. I would still shop around and remember credit quality is important. Look at ones that let you lev put half on black half on red do it with two separate contracts. The bottom line most people as in 99.99 percent of the human population can not home cook this stuff.

Jeremy G. Konstenius

RickBryan on Sat, 17th Apr 2010 11:31 am


In my opinion the only way to answer your question is that you need to find a financial advisor whom you trust. The difference amoung financial products of one company versus another is often “six of one, half dozen of another.” The Ford F-150 has more legroom and interior cabin space, whith the GMC Sierra has a higher towing capacity. [I don't actually know this; I just made this up for illustrative purposes.] So point is which is best for your particular use: interior cabin space or towing capacity? How should I know? You need to sit with a financial advisor to assist you in understanding your needs and goals, and then selecting from the different products which are available. Don’t be a fool; interview a dozen insurance advisors if you have to. They’ll be glad to come to your house. If you feel pressured, kick them out of the house. But by interviewing a dozen you’ll find one with whom you make a personal connection and can have confidence of getting honest advice. That’s my answer, for what it’s worth. Good luck.

RickBryan on Sat, 17th Apr 2010 11:33 am


You’re kidding, right?

Dave on Mon, 28th Jun 2010 1:10 pm


Rick – Have you even read the prospectus? The fees are through the roof.

I’m only on page 10 and its crazy.

RickBryan on Mon, 28th Jun 2010 2:53 pm


No doubt the fees are high. And while absolutely that’s a critical item to look at, it’s not exclusive factor. Like everything in life, there are trade-offs. Yes the fees are high. High compared to what though? If the doctor said you needed a medication or else you would die, would you ask, “okay, but how much does the medication cost?” Of course not. So yes look closely at the fees of this annuity, compared to what you are paying those fees in return for, and then weigh those factors against products of other companies, and then weigh those against your ability to accomplish the same result using no-load funds and offsetting trades, etc. So your point is well taken, but are you missing the forest while focusing on the trees? For the same result, are the Prudential Lifetime fees in the ballpark as other products, or higher? Thanks for your comment. Rick Bryan.

Anonymous on Tue, 21st Dec 2010 4:45 pm


“No doubt the fees are high”.

Is that it ? If you took as much time to explain the fees as you took to explain the difference between trucks, we would be much more informed.

This must be why you waste everyones time bullshiting about pickup trucks rather than answering the question.

RickBryan on Tue, 21st Dec 2010 7:38 pm


Point well taken. I’m taking the CT bar exam in Feb., so won’t be able to follow up on this issue until after then.

RealAdvisor on Sun, 2nd Jan 2011 5:37 am


Reading some of the responses and comments and I had to chime in. I actually know the HD-6 extremely well and have read the prospectus which is not even close to 600 pages as well as many other variable annuities. Rick is infact wrong about having to annuitize to receive an income stream from this annuity. The beauty of this annuity is you never lose control of your money unlike other variable annuties out there. You can start your income stream for lets say 10 years and your actual account value is always available to you at any time with a 7 year surrender period. He is correct about the 6% ratchet only being available for income stream purposes but that why you would be getting this annuity. If you were not planning on using this annuity for an income stream (pretty much turning it into a pension) then a variable annuity probably would not be suitable for your needs. However if you and your spouse are looking for a way to make sure your income never runs out this is by far the best product I have seen on the market. Prudential is also number 1 in variable annuity market share for a reason, simply it is the best one out there. The reason it’s number one because it is the only variable annuity that locks in your highs every single day the market is open, no other company does that. Getting into the fees compared to what other companies are charging for less features it is extremely cheap in my opinion. The annuity charges are 1.30% annually for the B-Series and with the HD-6 Spousal Rider it gets up to 2.25% annually. If you get the X-Series with a 6% bonus going in the annual fees are 2.85%. You may say that is high, but other companies I have seen charging 3.7% annually (Most are around 2.85% annually). If you want to compare it to managed money platforms typically an advisor will charge you any where from 1.25%-1.6% annually. And that has no downside protection from market downturns and no income stream guarantees. So if the market loses 40% like it did in 2008 your retirement might not look that great. Or if one of a married couple lives out to 95 years old there is no guarantee that the money would have run out by age 85 for example. So if you think paying an additional 75 basis points a year is expensive for what they are offering I would have to disagree. Also, the fee are only charged to the actual account value not the protected withdrawal value, which is the number you get your income stream from. Look at it this way, if the market drops 40% in one year but instead of your account losing 40% you actually made 6% that is a 46% difference in one year. You would have made up for 20.4 years of fees. In that same scenario lets take a $200,000 portfolio, your portfolio just went down to $120,000 but in the annuity it would be at $212,000. That is a $92,000 difference, I don’t care how much the fees are at that point it is going to take a ridiculous amount of fees to make up that $92,000. And we all know after 2008 that scenario is very realistic and many other people lost 50-60%, they would have given a limb to be in this annuity in 2008. Rick you keep comparing pickup trucks because you are wrong. You can compare these annuities apples to apples or pickup truck to pickup truck. You just compare the features you want and see which is best for your situation with your financial advisor and they should know which annuity is best for your needs. And everyone do yourself a favor and stay away from indexed annuities, they are horrible investments and should never be purchased. They don’t even require a variable license to be sold.

RickBryan on Sun, 2nd Jan 2011 11:32 am


Thanks for the comment.

I’ve re-read my post and don’t see where I talked about needing to annuitize in order to receive an income stream. I’m not sure where you got that from.

The more people disagree with my analogy between annuities and pickup trucks, the more I am inclined to believe that to the average American, it makes sense! I’m not quite clear which points you believe I am wrong about.

Check out some of the mathematical formulas in the prospectus:

T={Min(MAX(0,(.90 * (Vv +Vf + B)) – B), [L - B - (Vv +Vf) * Ct] / (1 -Ct))}

for example (the formula which describes “the concept of the Projected Future Guarantee throughout the Transfer Calculation.”)

Americans cannot compare ‘annuity to annuity’ by studying the product specifications (costs and features), but they can compare the Dodge Ram 1500 with the Toyota Tacoma, and decide which features are worth paying extra for, and which are not. Horsepower, payload, legroom, cupholders, etc., are features people can understand and consider before buying. Comparing the living benefits and death benefits (and their costs) among all the available annuity products in the marketplace is, in my opinion, simply not a task most Americans can do without an investment professional by their side.

So with respect to annuities, my advice to folks is to find an investment professional whom they trust and is knowledgeable about the features and benefits of annuities in the marketplace.

That’s one reason when a comment is made such as “variable annuities are horrible investments,” or “indexed annuities are horrible investments,” my antenna goes up, because I have to wonder why someone is making such a broad comment without even attempting an explanation. I would caution folks to stay away from advisors (or lawyers or CPAs) who make such broad remarks like that. Now this poster appears knowledgeable enough to backup his comment regarding indexed annuities, for sure, but did not simply because that was not the primary purpose of the comment, and the fellow took long enough to write anyway. But FYI, watch out for advisors who are unable to articulate a products’ features and benefits as clearly as this poster did.

On this point though what bothers me about this excellent comment though has nothing to do with the poster’s explanation of how the annuity works, but the final remark as to ‘indexed annuities being horrible investment because the sales rep does not need to have a variable license to sell the product.’ Indexed annuities may or may not be horrible; I have not investigated, but I can’t imagine why the requirement of holding a variably annuity license (or not) impacts why the product itself is no good.

Regardless, I can only repeat that I am a tax lawyer and not an investment professional, and do not sell annuities. A lot of my business as an elder law and estate planning attorney comes from referrals from investment advisors, because I actively target that market, and contary to most of the lawyers I know, understand how hard financial advisors work and do not denegrate insurance men and women simply because their income is commission based. For the most part, I also understand how and why insurance and annuity products operate. That aside, most of my clients, from the Peter Cooper Village and Stuyvesant Town community in Manhattan, in their 80’s and 90’s, for whom I counsel as their attorney, and who deposited into or purchased annuities over the past 20 years, are in much, much better financial positions then those clients who invested in the market. During probate and administration of decedent’s estates, annuities are disappointing; however while seniors continue to live far long than expected, annuities are life savers. No question about it.

Andy T on Wed, 19th Jan 2011 9:02 am


I’ve been considering this myself. Looks likes the HD lifetime 6 plus
will be dropping to from a 6% to a 5% in a few days. So it will become “HD lifetime 5 plus” by 1/24/2011.So you actually only have till 1/21 to get this. Prudential will also increase the rider fee and drop the 400% guarantee at 20yr. So if you miss out on the HD 6, you’ve really lost out on a lot. The HD 7 was the best deal by far.

RickBryan on Wed, 2nd Feb 2011 9:33 pm


Are you referring to the sales agent’s compensation?

Jeff Lubin on Tue, 30th Aug 2011 4:25 am


Why has the stream in this blog stopped on Feb 11??? I have this product and find it beneficial to read about it. I understand that the amount you get is not exact when you annuitize. The website gives you daily the amount you get annually when you annutize. Is this number inaccurate??

RickBryan on Tue, 30th Aug 2011 4:50 am


Jeff parts of your comment confuse me and I really don’t understand what you are talking about with respect to ‘the website gives you daily the amount you get annually when you annuitize.’ What website are you talking about?

Greg on Sun, 20th Nov 2011 6:02 pm


Greg on Your comment is awaiting moderation. Sun, 18th Sep 2011 9:37 am

Its now November 20th – is this blog out of business?

Greg

JetBlue88 on Wed, 30th Nov 2011 3:18 am


I liked what RealAdvisor had to say. While reading through RickBryan’s posts on this page I was finding many of the things he wrote incredibly false. First and foremost, as a estate planning lawyer, you should not be giving out false product information to any consumers inquiring about the HDI annuity. In your post on 1/13/10 you said that prudential takes control of your money once you ‘annuitize’ the HDI annuity. There is actually no such thing as annuitization on this product. And there is no gmib rider that would stop you from receiving your account value after your begin an income stream. That, along with the highest daily step up opportunity are the two features that make this product unique and one of the best variable annuities available, (and still today with the 5%). If you have an HDI 7, or 6, and you have not turned on your income stream yet, you are still grandfathered in the 7 or 6 percent, whichever you bought. So if you have an HDI 7 or 6, you should probably keep funding it! I personally think the HDI annuity is a fantastic hedge against market downturns and not enough people are taking advantage of products like these due to fear and lack of understanding. This product is designed to provide piece of mind as it grows and then pays out (whenever you wish) an income stream you cannot outlive. It is not meant to provide liquidity, it is meant to provide some retirement guarantees. It is primarily used as a source of income and also provides some death benefit options. It can also be used for other purposes such as to create a trust for those who are interested in legacy planning. There is also an excellent spousal benefit available at no additional cost. Now the fees are high with, say the x series, but they are only associated with the account value. The protected withdrawal value is net of these fees. The fees are very reasonable for what you are getting in return and I would not make this the deciding factor in whether to purchase the HDI annuity or not. Choosing which ’series’ annuity to get into (x,b,c,l) depends on your specific situation as the fees, cdsc timelines (you bail on the product before a certain date, you can get hit with fees), and benefits are different for each series. (Though of course the 5% benefit is still included in each the x,b,c,l series). But again, you who are reading this and considering this product must speak to a financial professional about suitability and your best options, not a lawyer giving false information. I hope this has helped.

RickBryan on Fri, 23rd Dec 2011 10:30 pm


Well your comment is indeed helpful, but god almighty it’s so infuriating when people cannot write a critical comment without adding personal insults. What “false information” are you talking about? Certainly one of the fantastic options of this contract is the availability of a guaranteed lifetime income stream without annuitizing. However, that’s not the same as saying the owner “cannot annuitze this contract even if they wanted to.” Maybe you’re right, but I find it hard to believe the contract owner would not have the option to annuitize. For some reason I can’t locate the prospectus for this contract on the Prudential.com website.

Update: Page 47 of the Prudential Premier Retirement Variable Annuity dated May 1, 2011 (with supplements up to and including December 15, 2011) provides a variety of annuitzation options. These annuitization options are not the same as the “highest daily lifetime income” benefits available under the contract, which are described beginning on page 49.

So, again, please let me know what “false information” has been provided, and I will correct immediately. Thanks for your comments.


RickBryan on Sat, 24th Dec 2011 11:54 am


The prospecuts itself, for the NY version of Prudential’s variable annuity, is 209 pdf pages. The prospectuses which describe the investment options inside the variable annuity range from 11 pages (the Invesco V.I. Core Equity Fund), up to 462 pages for the AST Neuberger Berman/LSV Mid-Cap Value Portfolio. All totaled, I think we’re closer to one thousand pages related to the contract and its investment options.

Lee Glens on Tue, 24th Jan 2012 9:00 am


I believe Rick’s portrayal of the Prudential product to be fair and accurate. However, I chose a Metlife GMIB simply because I remember the Prudential litigation which resulted in Prudential having to pay millions in penalties for deceptive consumer practices. Thus, I went with a similar product but with a company I have more confidence in. Additionally, the prudential products I reviewed at the time of purchase (2.5 years ago) required me to begin withdrawal sooner than I would need for retirement, thus, allowing my money (income account) to grow at at 6% return for a longer period.

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