Independent Review of the Nationwide Destination C Variable Annuity
What’s covered in this Review?
In this review we’ll cover the following information on the Nationwide Destination C Variable Annuity:
- Product Type
- Current Rates
- Realistic long term investment expectations
- What to expect, and what not to expect
The Destination C Variable Annuity (formerly known as The Best of America Exclusive Venue Annuity®) is advertised as a deferred variable annuity, which means you save now and pay the taxes on the growth later, once you retire and start taking the income. Saving tax-deferred can be an efficient way to accumulate money, but this is a single investment designed to do two things, and because of the variable component inherent in this investment, the cost for this two-in-one feature is high and doesn’t always give you the most bang for your buck.
Annuities come in many shapes and sizes, and this one offers direct exposure to market risk. That can be a desirable thing depending on your savings goals and how close you are to retirement, but when you combine that market risk with the need for guaranteed income, you end up with an investment that has a lot of fees. This particular annuity has made an attempt to lower its fees by offering no sales charge, which does help, but the long-term charges for the underlying mutual funds (and the restrictions on those investments once you start taking income) are high, reoccurring, and don’t do you any real favors, especially once the income component kicks in.
This is a long-term investment that includes market risk and the potential for loss of principal, but you might not be aware of that when buying because variable annuities are complicated products. They are often sold as having guaranteed rates of return and with all the optional features and add-on benefits, it can be easy to get lost in all the jargon.
This is where we come into the picture.
Annuity and Retirement Income Planning Information That You Can Trust
We at Annuity Gator are a team of financial professionals dedicated to helping you decode the complicated world of annuities. We strive to publish the most comprehensive and nonbiased annuity reviews available on the Internet today, and we have been doing so longer than most copycat websites out there.
Annuities are unique in their ability to provide income. Advisors selling variable annuities often make them sound better than other annuities by advertising higher returns somewhere in the realm of 7 to 8% with no risk to your principal. Sadly, these claims are not true in the way that many people think they are. The pesky details about this investment can affect the ability of your nest egg to last as long as you need it to.
For example, in this variable annuity, the guarantees on the rate of return (for which you pay extra) don’t’ necessarily mean that your income is guaranteed. Variable annuities, in general, offer a lower income payout amount than what you would normally receive by investing that same dollar in a different kind of annuity. But how would you ever know this? Marketing claims in brochures, on websites, or from word-of-mouth make statements such as:
- Highest Earnings
- Lowest Fees
- Top Rated A+ Companies
- Guaranteed Income For Life
- Get Your Quote Now!
- Get 7-8% Returns With NO Market Risk
Our goal is to do a thorough breakdown and analysis of the features and benefits inside these annuities and then translate our findings so you can understand what these benefits actually mean to you in terms of cost and income benefits.
This annuity, like any annuity, might not be bad; it just might not be the best fit for you. This review is here to help you find out what will best help you achieve your goals for the retired life you deserve.
Let’s begin with the basics:
Nationwide Destination C Variable Annuity at a Glance:
|Product Name||Destination C Variable Annuity
|Issuer||Nationwide Life Insurance Company.|
|Standard & Poor’s Rating||A+ (as of April 2016)
|Phone Number|| 1-877-669-6877
Opening Thoughts on the Nationwide Destination C Variable Annuity
We are all familiar with the commercial jingle, “Nationwide is On Your Side®” and the feelings of comfort and sentimentality this advertisement campaign inspires. This review is here to help you uncover whether or not the benefits and features offered inside their Destination C variable annuity are actually deserving of your trust.
Financial institutions recognize that the major events of your life involve money for one reason or another. Planning for retirement is perhaps one of the biggest financial events of your life, and the decisions you make today about the allocation of your investments will most certainly affect tomorrow’s security.
The demand for annuities – which grow tax-deferred and are backed by the fortitude of life insurance companies – has been increasing since more and more workers are entering into retirement without a traditional pension. Annuities can annuitize your money, which means they turn it into an income stream.
The income annuitization options inside the Nationwide Destination C give you the choice of securing a fixed rate or a variable rate of income. The interesting thing about this option is that you are given this choice inside a variable product. What does that mean?
Allow me to give you a brief overview of the inner workings inside a variable annuity. They are often sold as The Way to save and pay for retirement because they can do two things:
- Invest your money for growth.
- Annuitize if for income.
The problem here is that inside the variable annuity, these two goals of growth and structured income fight against each other. The best way to understand why is to think of it from the insurance company’s point of view: If you put $200,000 in a variable annuity, it could be worth $250,000 in 10 years’ time or it could be worth $120,000 if it suffers a loss. Either way, there is risk involved. If you need this money for income, the company is going to put itself on the hook and guarantee you an amount of income from a variable account – an account whose value will vary daily. So how do they protect themselves and make sure they stay in business?
The short answer: higher fees and lower income. The insurance company charges an annual risk and administration fee (which in this case if 1.60% annually,) and once you annuitize, they can offer a smaller amount of income than what other safer, non-variable investments might be able to provide.
But what about those higher rates of returns? Doesn’t earning higher returns mean you will get a higher amount of income? Good question. This is one of the most common misperceptions investors have about variable annuities.
The returns on your investment are not what guarantee your income. It’s the optional Income Riders or Death Benefit Riders – for which you pay an additional fee – that give you the guarantees many investors mistake for actual rates of return. Furthermore, once you select one of these options, your investment options will be restricted as specified by the terms of your contract. This means you will no longer be able to capture an unlimited potential of market gains.
Are you starting to see how the goal of earning market gains and the goal of securing income work against each other? In most cases, the investor is better off identifying what they need. Do you want growth or security? Are you trying to accumulate funds or preserve them? There are annuities out there that do a much better job of structuring income, and they can still hedge against inflation without the exposure to market risk. Fixed Indexed Annuities, for example, offer lower fees and higher income than what you would find inside a variable annuity like this one.
And now we take a break for this brief message from our compliance department . . .
This is an independent product review, not a recommendation to buy or sell an annuity. Nationwide Financial Group 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 Nationwide Financial Describes The Destination C Annuity.
Nationwide describes the benefits and features of this annuity on their website as follows:
- Investment Choices only available within a variable annuity that gives you professional management.
- Tax Deferral so your money can grow faster.
- Income that you can access either through systematic withdrawals or as set, lifetime payments.
- Death Benefits payable to your beneficiary should you pass away with the option to guarantee increases or protection against investment loss.
Nationwide also offers spousal protection options and enhanced surrender values for terminal illness, but this covers the highlights. If you want to find the website and/or prospectus, you can click HERE.
How Financial Salespeople Might Pitch This Annuity to You
Let’s take a look at the benefits offered by this annuity in terms of the two goals of growing money and securing income. It sounds like the Destination C gives you access to proprietary investments that you can’t get anywhere else.
The funds offered inside the Nationwide Destination C variable annuity give you the option of choosing from among several funds with adjectives such as Balanced, Moderate, Capital Appreciate, Moderately Aggressive and Aggressive in terms of the potential for market returns. They offer you a Custom Portfolio with asset rebalancing, which basically means that as you get closer to the time of needing this money for income, you can move your underlying investments into more conservative funds.
Here are the three main concepts you’ll hear advisors talk about when they explain this variable annuity to you, followed by translation of what that means.
- This investment performs better than other annuities out there.
- This income will grow or step-up every year that you wait to access it.
- It will give you downside protection by providing a guaranteed lifetime income.
First, let’s take a look at fund performance. As market investments, these funds can lose money just like any mutual fund in the market, but what makes these different are the fees you will be charged. The Sub-Accounts available under this contract invest in underlying mutual funds that invest in other mutual funds, which means you may incur higher charges.
Translation: you’re going to get hit harder by fees than you really have to if growing money is your goal. These underlying funds are put in place by the insurance company so that once you annuitize and start taking income, you are invested more conservatively. Meanwhile, not only do the mutual
funds charge you management fees, but the insurance company charge also charges risk management fees to protect the income side of things.
These variable annuities are often sold to investors as being able to earn higher rates of return than other investments, but when you look at how these returns are arrived at, you’ll see they come from the guarantees received by the purchase of the riders.
If you purchase the Destination C variable annuity with a Death Benefit rider or a Spousal Protection rider, you might be given Guaranteed Term Options, which basically promises those higher stepped-up returns. But are you going to be able to capitalize on unlimited market returns?
Sorry, but the answer is no.
In order to give you the enhanced growth promised by the riders, the investment options available are chosen by Nationwide based on each investment option’s risk characteristics. This means the investments are more conservative than those that are not permitted. Furthermore, the charge assessed for the optional benefit and the underlying funds will result in a lower guaranteed rate of return for you.
Bummer. But at least now you know.
Now let’s talk about the guaranteed lifetime income. When you want to start receiving your income payouts, you enter into a time of annuitization. You can choose to receive either a fixed payment option or a variable payment option (or a combination of both, if available) but you can’t undo this decision once you start. Those guaranteed options (or stepped-up rates of return) also stop once you annuitize, and you can no longer choose the custom portfolio asset rebalancing.
If you chose the variable income option, the amount of income you receive every month will depend on market performance, which means your income will vary. Should you fail to specify an annuity payment option, a variable payment is the default form of payment. As a company that is trying to make money and stay in business, which option do you think they would choose as the default option – the one that results in more money for you, or more for them?
What About the Fees?
The Nationwide Destination C variable annuity has eliminated the sales charge that many variable annuities charge you the minute you buy the product. This sales charge automatically reduces the amount of your deposit, which reduces the ability of your money to grow. The elimination of this sales charge is definitely in your favor, however, the Destination C makes up for this by the separate fees charged for each investment option and the underlying mutual fund operating expenses.
Even if you don’t want any optional features or guarantees, Nationwide deducts a Variable Account Charge equal to an annualized rate of 1.60% of the daily net assets. This Variable Account Charge compensates Nationwide for expenses incurred in the day-to-day business of distributing, issuing, and maintaining annuity contracts, and Nationwide may realize a profit from this charge.
As we said earlier, there is no sales charge, but Nationwide took this into consideration when designing their mutual fund service fee payments. Right in the prospectus, they explain, “Without these mutual fund service fee payments, Nationwide would have imposed higher charges under the contract.”
So, how high are the fees for the underlying mutual funds within this variable annuity? In addition to short-term trading fees (1% of the amount to be traded) and redemption fees, an underlying mutual fund operating expense will be charged that ranges from .40% to 3.15%.
It can be hard to track down all the fees that come with this annuity because they are scattered all over the prospectus. We have them all written down for you here in one place:
- M&E: 1.40%
- Administrative Charge: .20%
- Sales Charge: 0%
- Enhanced Death Benefit Options: .65%
- Spousal Protection Annuity Option: .20%
- Beneficiary Protection Option: .35%
- Guaranteed Term Options: .35%
- Underlying Mutual Fund Operating Expenses: .40% to 3.15%
- Fee Total: 3.55% to 6.30%
The Annuity Gators End-Take on the Nationwide Destination C Variable Annuity.
Where it works best:
- For investors who have a longer time frame.
- For investors who have an amount of money they want to pass on to their family while avoiding the expense of probate.
- As a source of guaranteed income delivered by a reputable company.
- As an income for your spouse that will continue when one spouse passes away.
- For investors who don’t need the income and only want to grow their money for their beneficiaries by using the Death Benefit rider.
Where it works WORST:
- For investors who need access to their money.
- For those who have a low tolerance for risk and want to preserve their savings.
- For investors who need to get the most amount of income for the money they have saved.
The Destination C variable annuity from Nationwide is a long-term investment designed to appeal to investors who want to capture market gains with the promise of guaranteeing an income later. Unfortunately, as a single product, the Nationwide Destination C Variable Annuity does not meet either of these goals as well as other more specialized products can.
In terms of growth, your gains will be weighed against the fees charged by underlying sub accounts of the mutual funds themselves AND by the insurance company who will also levy a 1.60% fee every year. These fees affect your net returns.
As an income producing investment, all the market risk this investment is exposed to makes it difficult for the insurance company to provide you with a guaranteed payment.
So what does all this mean to you? If investing and saving for retirement is your goal, there are less expensive ways to capitalize on market gains. If preserving your existing savings is your goal, then know that you CAN lose money in this investment, and for every dollar you put into this variable annuity, it will provide less income than if you put that same dollar into a fixed annuity that doesn’t have this risky, variable component.
Thanks for bearing with me on this rather long post. If you found it helpful, please spread the word and share it with others.
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.
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