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Independent Review of the PrincipiumSM III Variable Annuity by Transamerica

What’s covered in this Review?

In this review we’ll cover the following information on the PrincipiumSM III Variable Annuity offered by Transamerica:
  • Product TypeTransamerica Logo
  • Fees
  • Current Rates
  • Realistic long term investment expectations
  • What to expect, and what not to expect
Variable annuities like the Principium III are just one kind of annuity available to investors who are shopping around for a guaranteed element to their portfolios. If you are retiring without a traditional defined-benefit pension and income is on your mind, how will you get one once you’re no longer working? Annuities, in general, have taken the idea of a pension and then improved upon it by offering benefits such annual step-ups, guaranteed income options and death benefits. All these goodies cost you, but they can make sure that if you retire today, start taking your income, and then die tomorrow, your beneficiary and NOT the insurance company will get the rest of the money. Sounds good, right? The folks at Transamerica do a wonderful job of making all nine of their variable annuities sound appealing. However, all variable annuities including the Principium also come with a host of drawbacks that can make them an expensive and possibly less desirable investment to own than other kinds of annuities available today. So how do you determine which annuity, if any, is the right one for you? That’s where we come in.

Annuity and Retirement Income Planning Information That You Can Trust

Welcome to the Annuity Gator database. This is the place to go if you are looking for comprehensive and up-to-date information on the kinds of annuities sold to investors today. Each annuity review is written with the goal of publishing the most complete, unbiased annuity reviews available on the World Wide Web today. If your financial advisor or salesperson has been talking to you about their annuity, or you’ve been searching the Internet for facts about annuities, then you’ve likely seen a lot of advertisements and heard claims that annuities can give you the following:
  • High Payouts
  • Low Fees
  • Top Rated Companies
  • Guaranteed Income For Life
  • Professional money management
  • Earn 7-8% Returns With NO Market Risk
Are any of these claims true? Well . . . that depends on how you look at the cost and benefits equation. It’s not so much that these claims are all lies, but rather it’s that annuities, in general, are complicated investments. They come with riders and enhancements and sub accounts that can get confusing and expensive very quickly, especially if you don’t know what questions to ask. For example, financial salespersons selling variable annuities often make it sound as if their annuity can earn you returns upwards of 7 or 8% with no risk to your principal. They make these claims because of the many details they leave out. We at Annuity Gator believe you deserve to know about the details because when you are retired, even a small percentage reduction taken annually can mean the difference between enjoying the good life or running out of money at age 79. (If you want to educate yourself about variable annuities, read our free 2016 Consumer Report The Truth about Variable Annuities). If a variable annuity is presented to your properly, you should never be under the illusion that the mutual funds inside the investment are promised to earn anything over 3%. If you go over the prospectus with a magnifying glass, that’s what you’ll see written there, however, we’re sure you have more interesting things to do with your time, and so we’re here to do the investigative work for you. It is our aim to the most trusted resource for retirees today looking into the world of annuities. We believe that after working and saving, you deserve to know the truth about any investment before you commit your cash. Are you ready to begin? Let’s dig in:

Transamerica Variable Annuity Principium III at a Glance:

Product Name Variable Annuity Series B-Share
Issuer Transamerica Life Insurance Company
Standard & Poor’s RatingAA‐ is 4th highest of 21 ratings (as of May 12, 2016)
Phone Number

Opening Thoughts on the Transamerica Principium III Variable Annuity

When you review annuities, it’s interesting to see what you can glean from the name assigned to the product. TransAmerica is a highly rated insurance company with a history dating back to 1904. From its humble beginnings in a converted saloon to the now iconic Transamerica pyramid that graces the San Francisco skyline, this is a company with a folksy motto – “financial security should be available to everyone.” So why the lofty sounding name, Principium III? This is a variable annuity with a five-year surrender charge, low-cost death benefits (as compared to other variable annuities offered by TransAmerica) and an array of income options. The word Principium comes from the Latin to signify origin or root, and the word itself means principle, especially a basic one. All of this seems to suggest that the Principium for all its pomp and glory is simply your basic white bread variable annuity. A look into the product summary confirms our suspicions. So let’s talk about that. Variable annuities are sometimes called “hybrid” investment by financial salespersons because they can do two things:
  1. Invest your money
  2. Structure it for income later
Inside of a variable annuity, these two goals are divided into two time periods: the accumulation phase and the income phase.
  • The accumulation phase is when you are investing and growing money.
  • The income phase is when you receive those investments as structured income payments.
This is also a good way to look at your own financial life. Before deciding on what kind of annuity you need, it’s important to identify what financial phase of your like you are currently at, along with your investment priorities. Identifying this will help you save money because no single annuity can achieve BOTH these goals better than an annuity designed to achieve ONE goal. For example, if you are in the income phase of your life and you want to achieve the highest income payment possible, you might think that investing in stock market investments is the way to go. A variable annuity like the Principium III might sound like the perfect fit, but here’s what happens INSIDE the investment: First, in order to get access to market investments, you would choose the subaccount investment options, which would give you access to funds representing a range of investment strategies, objectives and asset classes. The fees inside the Principium for each sub account you choose ranges from .57% to 2.86%. But wait, it gets worse. Because you are also getting an income guarantee, TransAmerica will have to restrict your investment options and charge you a “Mortality and Expense Risk fee” in order to protect themselves against the loss of your market investments. And, for the grand finale, you will also have to pay an additional annual fee to get those income payment guarantees. Ouch. If you are starting to see that the variable annuity is an expensive way to guarantee income, then you are getting it. Market investments can lose money even when they are wrapped up inside fancy names such as Retirement Income Choice®, Income Enhancements, Retirement Income Max® and Guaranteed Principal Solutions – all benefits offered by the Principium III. If your goal is to get the most income from your savings as possible, you should know that there are other annuities out there that offer guaranteed payout percentages better or equal to the Principium but WITHOUT the long list of heavy fees. Before we go into more eye-popping detail, let’s take a break for some legal disclosures… This is an independent product review, not a recommendation to buy or sell an annuity. Transamerica has not endorsed this review in any way nor do we receive any compensation for this review. This review is meant to be an independent review at the request of readers so they could see our perspective when breaking down the positives and negatives of this particular model annuity. Before purchasing any investment product, be sure to do your own due diligence and consult a properly licensed professional should you have specific questions as they relate to your individual circumstances. All names, marks, and materials used for this review are the property of their respective owners.

How Transamerica Describes the PrincipiumSM III Variable Annuity:

Transamerica advertises the benefits and features of this annuity on their website as follows:
  • A lower-cost variable annuity with a ­ five-year surrender charge schedule.
  • Automatic asset rebalancing to achieve investment objectives.
  • Dollard cost averaging that buys more units when prices are low and fewer units when prices are high.
  • Free transfers between sub accounts during the accumulation phase.
  • Annuitization or the opportunity to receive guaranteed lifetime income payments through a variety of payment schedules and options.
There are also the perks you get with the death benefit enhancements and the income riders we talked about earlier, but this covers the claims presented on the company’s website. If you want to find the website and/or prospectus, you can click HERE.

How Financial Advisors Might Present This Annuity to You

While it’s true that the financial industry is regulated by governing bodies such as the SEC designed to keep investors safe from the “bad guys,” truth is, no one can regulate what people say. It’s been our experience that people are often sold variable annuities under the guise of unrealistic returns. Let’s take a look at these returns in terms of what people might be telling you versus the reality an investor might actually experience. Here are the three main concepts you’ll hear financial salespeople talk about when they explain this variable annuity, followed by an explanation of what that means to you.
  • This investment performs better than other annuities out there.
  • It will give you security by providing a guaranteed lifetime income.
  • The income will grow or step-up every year that you wait to access it.
In terms of performance: One unique feature of the Principium III is that it offers investors a choice of either: (a) subaccounts invested in a range of mutual funds OR (b) fixed interest account if available. The fixed option may be more appropriate for someone entering the income phase of life, but if you want a fixed rate of return, why would you choose a variable annuity? By its very name, you know that the interest rates on your portfolio will fluctuate. By choosing the fixed option, you will only get a more restricted list of investment options. To get more specialized benefits, you might want to compare the benefits inside an actual fixed annuity if a fixed rate of return is what you are looking for. (Got questions about how to do that? No problem – we’re here to help). If you are in the accumulation or growth phase of your life or if you are concerned about running out of money, you might choose the subaccount account option. We already talked about the double fees you’ll get hit with – both on the investment side of things and on the insurance side – but how else is this variable annuity different from, say, investing in regular mutual funds? First, your investment choices are restricted. While the Principium III does live up to its name of having lower fees as compared to other variable annuities offered by TransAmerica, they also offer a smaller list of 15 sub account fund portfolios (as opposed to the 90 or so sub accounts offered by their other variable annuities). This pales in comparison to the thousands of mutual funds available on the market today. The mutual funds inside a variable annuity might have a fancy name such as “proprietary sub-accounts,” but all this means is that the insurance company has created contracts with mutual fund firms to develop a specific mutual fund for their variable annuity contract. Second, the tax issues inherent inside a variable annuity are so complicated, the SEC warns investors to talk to a tax advisor about the tax consequences BEFORE investing in a variable annuity. While all annuities variable and otherwise grow tax-deferred, when you take your money out – such as for income – you will be taxed on the earnings at ordinary income tax rates rather than at lower capital gains tax rates associated with mutual funds. You’ll get no additional tax advantages from rolling over your IRA or 401(k) money, and you could also face the 10% Federal income tax penalty if you are under age 59½ years old AND you would have to pay the surrender charges of 5% to 1% depending on how long you’ve had the annuity. Furthermore, withdrawing money could affect your guaranteed enhancements, even if you’re required to take the money out as part of your RMD. Now, about those supposedly fabulous returns upwards of 8%. The income guarantees: One of the most confusing things about variable annuities is that the income guarantees are often presented as the actual rate of returns. Perhaps the most important thing for you to understand about variable annuities is that even if you pay extra for income guarantees, the value of your actual policy can still go down in value. What!?!?!? Please, don’t confuse the enhanced rate of returns offered on the purchase of an income rider or even a stepped-up death benefit as the actual rate of return. The way the returns are calculated for the income payouts is very complicated and sometimes it isn’t even understood by the people who sell these things. To understand more about how these products actually work, read the free 2016 Consumer Report on Variable Annuities.

What About the Fees?

Here’s the deal with fees: variable annuities have to charge more fees than other kinds of annuities because of the risk of the investment. This only makes sense if you think about it from the insurance company’s point of view. We’ve entered into a global economy where stock values can go up and down based on the news of the day, even if that news turns out to be false. How does an insurance company like TransAmerica guarantee you an income while also staying strong during one of the most volatile market periods in history? They pass that risk onto you by charging you a menu of fees. How nice. Now, the insurance company is required to tell you about the fees that they charge, but they DO NOT have to tell you about all the fees on the investment side of things. To figure those out, you have to go digging through the prospectus. The result is what you might call a fee parade:
  • Mortality and Expense Risk Fee: .70%
  • Administration Charges: 0.15%
  • Annual Service Charge: 0 to $50
  • Optional Death Benefits and Riders: .15% to .55%
  • Optional Guaranteed Lifetime Withdrawal Benefit Riders: 1.25% to 2.30%
  • Portfolio Operating Expenses: .54% to 2.86%
Fee Total: 2.79% to 6.56%. (Note: this does NOT include the surrender charge maximum of 5% should you wish to get out of this investment.) These fees are subtracted every year or every quarter whether your account loses or gains in value. Imagine you have $100,000 and you elect only one of the cheapest investment subaccounts and the least expensive rider available in order to get the guaranteed growth enhancement of 5.5%. Now imagine that the market stays flat. You still get your 5.5%, but when you subtract that guarantee from the lowest possible fee of 2.79%, you get a net return of 2.71%. That doesn’t even keep up with the average annual rate of inflation which is at 3.22%. Want to compare this annuity in terms of fees and benefits against your other options? CLICK HERE.

The Annuity Gators End-Take on the Principium III Transamerica Variable Annuity.

Where it works best:
  • For the investor who has already maxed-out their 401(k) or IRA contributions and is looking for another way to access market gains tax-deferred.
  • For the investor who wants a simplified approach to retirement income.
  • For the investor who is not at all concerned about fees and cost.
  • For the investor who wants to stay in the stock market during retirement.
Where it works WORST:
  • For investors who have already grown their money tax-deferred in their IRA or 401(k).
  • For the investor who does NOT need guaranteed income options
  • For an investor who does NOT want to lose money.
  • For investors who do NOT want to pay a lot of fees.

In Summary

Although this variable annuity has a fancy name, it’s got a relatively short list of investment options and the fees, although low-ish for a variable annuity, is still high compared to what you get. In terms of growth, this variable annuity offers a fixed option as well as restricted investment sub accounts for a lower risk fee assessed by the insurance company. However, you will still be charged portfolio operating expenses for each sub account you own, and your investment selection will be even more restricted depending on the guaranteed income options you select. As an income producing investment, the projected growth rate promised by financial salespersons who sell this annuity is NOT an interest rate earned by the performance of your mutual funds. The income rider benefits can give you returns as high as 5.5%, but you can get these same or better guarantees using other annuities that are not exposed to market risk and so don’t charge the high fees. What does all this mean to you? If your goal is to earn enough returns to hedge against inflation while still guaranteeing an income, this investment might be able to do that some years, but it will cost you more in fees than other annuities that can give you more consistent benefits without the direct market risk component. Thanks for bearing with us on this rather long post. If you found it helpful, please spread the word and share it with others. If you’d like to see what your other annuity options are, we invite you to contact us for a free cost comparison analysis HERE. Lastly, like all humans – we do make mistakes. If you see one on this review, please reach out and let us know. We are always more than happy to make corrections and give credit where it is due. If you’re an investor and this review causes confusion and creates questions, feel free to reach out as well. We can’t always get back right away, but we can usually clear up any questions within a day or two. Have more questions about variable annuities and how they work? Click here to access our free 2016 Consumer Report. If you have any questions, our team of highly trained annuity geeks is on standby, ready to help field your questions.   Independent Review of the PrincipiumSM III Variable Annuity by Transamerica
  • June
    1:37 AM, 21 November 2019

    If someone very foolish has already invested in this annuity (at the recommendation of a financial adviser), how does that person determine if it’s worthwhile to get out of the investment?

  • Annuity Gator
    5:01 PM, 21 November 2019

    Hi June– Thank you for your message.
    Before making any financial decision, it is best that you look at many opinions. We can help you see what would be best for you in your situation. In order to best support you, we would need some additional information from you. Rather than sending the info back and forth via email, it would be best to discuss it by phone. Please feel free to contact us directly, toll-free, at (888) 440-2468 to chat with one of our annuity specialists or visit
    We look forward to hearing from you.
    Annuity Gator

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