How is My Brighthouse Shield Annuity Doing So Far? by Scott Stolz, CFP, RICP (Week 57)

 

A year ago, I purchased a Brighthouse Shield Registered Indexed Linked Annuity.  Yes, that’s a mouthful.  The industry refers to these as RILAs – an acronym that means absolutely nothing to almost everyone.  But the industry has never let practicality get in the way of a good acronym.  Since I just past my policy anniversary, I sat down today to see how this annuity has performed thus far.

First let me do a refresher on RILAs.  Similar to fixed indexed annuities (FIAs), RILAs base your return on specific stock indexes.  Also, like FIAs, the return you receive is limited in some way.  In exchange for this upside limit, the insurance company absorbs some of the potential downside should the selected stock indexes fall in value.  Think of it as getting a portion of the upside of stocks, but only some of the potential downside.  The first RILA was introduced by AXA/Equitable back in 2010.  LIMRA estimated total RILA sales were $80 billion in 2026, which would be about 17% of total annuity sales.  This impressive growth is due to the fact that there are many like me out there – investors that still want to earn more than CD and money market rates but want the peace of mind of knowing their loses will not be as great if stocks head south.

I put $150,000 into the Brighthouse Shield annuity, choosing to allocate the money as follows:

·       $75,000 into the S&P 500 6-year option with a 175% cap and a 15% buffer

·       $75,000 into the Russell 2000 6-year option with a 130% cap and a 10% buffer

Six years from my date of purchase, Brighthouse will compare the price of each index to the price on the date I purchased it.  The most they will credit me is a return equal to the cap.  In other words, the portion tied to the S&P 500 can be worth no more than $206,250 – 175% greater than my original $75,000 investment.  Should the S&P 500 be lower in price six years from my purchase date, Brighthouse will absorb the first 15% loss (the buffer).   I am only exposed to any loss beyond 15%.  If you are thinking it seems highly unlikely that S&P 500 will be lower in price by more than 15% six-years from now, you are absolutely right.  Historically, there’s less than a 10% chance it will be down at all after six years.  Throw in the 15% downside protection and I’ve reduced my chances of a loss to about 2%.  Therefore, I’m getting a considerable amount of the potential upside with very little risk I will lose money.  That is exactly the point of a RILA.

So, how am I doing so far?  Following is the price of both indexes on the day I bought the annuity as well as the price today:

Index Selected	Original Price	Today’s Price	% Change
S&P 500	6339	7674	+ 21%
Russell 2000	2211	3006	+35.9%

 

My timing was obviously good.  Sometimes you just get lucky.  But here’s the new question.  Given the significant growth, the downside protection is no longer worth much to me.  At the current price levels, the S&P 500 would have to be almost 30% lower five years from now in order for me to fall through the 15% downside buffer.  The Russell 2000 would have to drop over 33%.  It could happen, but it’s unlikely.   One could argue that I’m now giving up potential upside for no real protection.

But you know what?  I don’t really care.  I’d be thrilled to hit both caps on my RILA.  That would mean that my original $150,000 grows to $378,750 over six years.  Hard to complain about that.  And given the market volatility over the last year, I’ve benefited from the peace of mind of knowing the downside protection has been in place.  And it will continue to be in place should we get one of those once per generation bear markets.

I should also note that the Brighthouse Shield allows me to lock in my gains and reinvest my money into other options within the RILA.  In other words, I could basically do a reset on my investment – including get new buffers based on today’s index prices.  There’s definitely some value to ratcheting up the index prices on which the buffer would kick in.  However, this option comes at a cost.  First of all, I can only lock in my “performance lock value”, which is quite a bit less than what my contract would be worth based solely on the current index prices.  In addition, the current cap rates on the Shield product are quite a bit less than they were when I bought it.  Therefore, I have decided to pass on that option – at least for now.  Maybe I’ll consider that again should the market run continue.

The bottom line is that thus far, my RILA has delivered exactly what I hoped.  Overall, it’s increased by almost 30% in value while also providing downside protection.  No wonder RILA sales are increasing by about 20% per year.