Independent Review of the Transamerica Variable Annuity Series C-Share
What’s covered in this Review?
In this review we’ll cover the following information on the Transamerica Variable Annuity Series C-Share:
- Product Type
- Current Rates
- Realistic long term investment expectations
- What to expect, and what not to expect
The Transamerica Variable Annuity Series C-Share offers investors automatic asset rebalancing, dollar cost averaging, and guaranteed lifetime payments, all with the added benefit of no surrender charges. Sounds attractive, but there is a catch: no surrender charge means your other fees are higher, and you can still lose your money.
You might have heard the term “hybrid” used to describe these annuities because they can take advantage of stock market gains AND annuitize your money. These two goals speak to two different time periods in an investor’s life: the accumulation phase and the income phase.
Which phase are you in? Here’s a quick test to help you find out:
- If you are more concerned about growth than the risk to your principal . . . then you are likely in the accumulation phase.
- If you can take a 30% loss tomorrow and it won’t affect your spending habits or your current lifestyle . . . then you are likely in the accumulation phase.
- If you are less than five years away from retirement . . . then you can consider yourself entering the income phase.
- If you need regular, pension-type payments . . . then you are in the income phase.
This test is by no means a thorough diagnosis, but you get the idea.
Perhaps the most important thing you can do when determining if an annuity is right for you is to identify what financial phase you are in before you buy. Inside a single investment, the two goals of accumulation and income basically work against each other. That combined with tax considerations can make variable annuities a redundant and expensive investment to own depending on what phase you are in and what your goals are for investing the money.
This doesn’t mean that you shouldn’t consider an annuity as part of your retirement plan; it just means that you really need to know what kind of annuity you are getting before you buy.
And that is why we are here.
Annuity and Retirement Income Planning Information That You Can Trust
At Annuity Gator, we strive to publish the most comprehensive and easy-to-understand reviews of annuities available on the World Wide Web today. We are a team of experienced financial professionals dedicated to educating and informing hard-working individuals like yourself. We believe an informed consumer makes better decisions, which can lead to a better retirement and a better future.
If you’ve been searching the Internet for facts about annuities, you’ve probably been distracted by advertising claims like 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? The answer is both yes and no, depending on how the benefits of the annuity are calculated and what they can actually give in terms of your desired goals. The number one fear of retirees today is running out of money, which has many people looking only at the highest rate of return. Financial salespeople might make it sound as if their variable annuity can easily earn returns of 7 to 8% or HIGHER with no risk to your principal.
What they are really talking about, however, has more to do with the guarantees on the optional benefits side of the annuity. You pay extra for those guarantees, furthermore, these guarantees are NOT on the rate of return earned by the investment funds inside the annuity (investment funds for which you pay additional fees.) This means your variable annuity can still lose money even while you are paying for the guarantees.
There are other annuities out there that can give you better guarantees and for lower fees. Here at Annuity Gator, we can help you find the best annuity for your needs by doing the investigating for you. We report our findings in easy-to-understand language so you can decide for yourself whether or not an annuity is the right investment to help you achieve your financial goals.
Ready to dig in? Let’s begin:
Transamerica Variable Annuity Series C-Share at a Glance:
|Product Name||Variable Annuity Series C-Share
|Issuer||Transamerica Life Insurance Company
|Standard & Poor’s Rating||AA‐ is 4th highest of 21 ratings (as of May 12, 2016)
Opening Thoughts on the Transamerica Variable Annuity Series C-Share
As an insurance company, Transamerica has a rather colorful history dating back to 1904 when they operated out of a converted office space that was once a saloon. After a fire destroyed that location,
business was relocated to the docks, and they must have done something right because the company grew to become the now iconic Transamerica pyramid that graces the San Francisco skyline today.
The Transamerica Series-C is just one of nine variable annuities currently offered by this strong company, and it also stands out because of its promise of no surrender charges.
Investors who need access to their money during retirement might think that having no surrender charges is a good idea. After all, life is full of uncertainties, and who doesn’t want access to their money? Transamerica’s intentions for offering this option might very well be in the spirit of giving the people what they want, however, during retirement, this benefit isn’t going to do you any real favors and might even lose you money. Here’s why:
Annuities by their very nature are designed to be long-term investments. Remember those two goals of growing money and protecting money? In order to do that, insurance companies like to know they have a long period of time to work with. Time is what gives greater stability to the ups and downs of market investments. What happens when you want your money back in a shorter time frame?
For example, let’s say you want to take out a large sum of money two years after you retire in order to pay for your daughter’s wedding. As promised by the Series C-Share, you can do this without being assessed a surrender charge by Transamerica. But here’s the catch: like any variable fund invested in the stock market, the value of your annuity could be up on the day you withdraw or it could be down.
Imagine your $100,000 account is down by 15% the day you make your withdrawal of $20,000. That means your new balance will be $65,000. This is we call that “reverse dollar cost averaging,” because you risk losing the compounding ability of your investment. This is what leads to the greatest risk faced by all retirees . . . running out of money.
But wait just a minute, what about the advertised guaranteed income for life? Pay attention, folks – this is very important:
Your new balance of $65,000 will affect the guarantees and income paying ability of your investment. This could mean lower income, or, if the actual value of your account falls to a $0 due to your withdrawals, even if you paid extra for the “guarantees,” the benefit and policy will terminate.
It’s true that the income side of things gets complicated with variable annuities, and many of these guaranteed features might not be fully explained to you. The only way to guarantee your money in a variable annuity is to add a benefit option known as a rider. The Series C-Share offers three ways to guarantee your income: Retirement Income Choice 1.6, Retirement Income Max, and Guaranteed Principal Solution. All of these options will cost you an additional fee, and they will limit your withdrawal amounts once you enter into the income phase.
Without the purchase of these benefit options, your income payments and minimum income amount are NOT guaranteed. You can access your money, but you can also lose your money.
The benefit option might also annuitize your money, which means that although guaranteed, you won’t be able to take out a large sum of money to pay for your daughter’s wedding. Instead, you’ll be limited to the terms of the contract as specified by the living benefit you purchased.
Transamerica does an admirable job of offering a plethora of choices when it comes to these living benefits. You can get 5% back for life – for one spouse – or you can choose to withdraw up to 7% a year (but no more than 7%) or you can lock-in a pension type of income set anywhere between 3.75% to 6% depending on whether you want the income for an individual or jointly, for a married couple.
These can be very desirable features for a retiree, to be sure, but none of these options will give you the unlimited access to your funds that “no surrender charges” might lead you to believe. Furthermore, these benefits when offered inside of the Series C-Share are going to cost you more than the same kinds of benefits offered in other annuities.
The question to ask yourself, then, is how much access to your money to you really need? There are other annuities out there with much lower fees that offer similar living benefits and death benefits while still giving you access to your funds even after the income phase has started.
And now, time for this brief message from our legal department . . .
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 Variable Annuity Series C-Share:
Transamerica advertises the benefits and features of this annuity on their website as follows:
- An investment-only strategy that offers tax-deferred growth and market opportunities overseen with expert asset management.
- Living Benefit income options with guaranteed principal solutions.
- Death benefit options that can increase your legacy by offering protection during down markets.
- Unlimited withdrawal amounts without surrender charges (during the accumulation phase.)
There are also a few other perks, but that covers the basics. If you want to find the website and/or prospectus, you can click HERE.
How Financial Advisors Might Present This Annuity to You
Consumers who come to us asking questions are often sold variable annuities without having them fully explained. While the prospectus for this particular annuity warns that this product “does not guarantee profits or prevent losses in a declining market,” most people don’t take the time to read the prospectus (and we certainly don’t blame you for that.) But it can be especially difficult to figure out what you are getting.
Here are the three main concepts you’ll hear product salespersons talk about when they explain this variable annuity, followed by an explanation of what that means.
- This investment performs better than other annuities out there.
- It will give you security by providing a guaranteed lifetime income.
- The benefit will grow or step-up every year that you wait to access it.
Let’s start with performance. Series C-Share offers the option of an investment-only strategy which can give you a way to take advantage of the tax-deferred growth available in all annuities. This may be appropriate for someone who is in the accumulation phase of life and already making the maximum contributions to their IRA or 401(k).
The investments offered inside this variable annuity are diverse, but there is a management fee associated with each fund (plus some funds have facilitation fees.) Furthermore, because a variable annuity is a securities product backed by a life insurance company, you are going to get hit on both sides of the face, so to speak, when it comes to fees.
On the insurance end, the fees for the Series C-Share are higher (0.40% higher as compared to the B-Share and charged annually) due to the no-surrender charges, yet another reason to ask yourself if this benefit is worth the cost.
You might hear from your advisor that these annuities perform so well, they make up for the higher fees. What they are talking about when they say these are the enhancements you get when you purchase those optional benefit riders we talked about earlier (benefits available for – you guessed it – a fee.)
So let’s talk about the income benefits. The benefits offered by the purchase of riders calculate the returns on your investment differently so you get more guarantees. For the Series C-Share, some of the enhancements are guaranteed at 5.5% annually, and sometimes this percentage is presented to consumers as the earnings on the investment funds. Don’t be fooled!
This percentage is used to guarantee the payment of your optional benefits. It does NOT guarantee the performance of the underlying investment funds. So what does this mean to you?
Just because the rider on your account promises a higher return doesn’t mean this annuity can give you more income than other annuities.
What the Transamerica Series C-Share does do particularly well is to give you a lot of options. This is one variable annuity with a flexible menu of income payouts choices, some which allow you to stop and start withdrawals, other which allow you to choose higher payout amounts for the first few years, and lower amounts for subsequent years.
What you want to ask before you buy, however, is this: how much will my income payout amount be?
Remember: a variable annuity is a fluctuating investment. Because it can go up and down in value, the way the insurance company guarantees your withdrawals in is by charging you more fees, limiting the amount of risk your investments are exposed to, AND they put a limit on the earnings that you can receive.
Hold the phone – wasn’t this annuity sold as an investment with returns and market gains better than other annuities?
Yes, BUT – the investment side of things conflicts with the goal of guaranteeing income, and so a compromise has to be made. If you are in the income phase of your life with the goal of preserving as much income as possible, you should know there are other annuities out there that can give you market linked-gains that are also capped, but because they don’t have this variable component, it’s much easier for the insurance company to guarantee your income. This could mean lower fees, better benefits, and higher payout percentages for the same number of investment dollars.
Bottom line for you: If your goal is income, other annuities not directly in the market might give you the same or better benefits with lower fees and higher payouts.
What About the Fees?
Throughout this review, we’ve talked about why variable annuities have to charge more fees than other kinds of annuities because of the risk inherent in the investment. The all-in-one idea of market growth AND income is what makes it one of the most expensive kinds of annuities that you can own.
Here is a breakdown of all the fees you can expect to pay when you purchase this investment:
- Mortality and Expense Risk Fee: 1.40%
- Administration Charges: 0.15%
- Front-End Sales Load on Purchases Payments: 0%
- Annual Service Charge: 0 to $50
- Optional Death Benefit Rider: 1.70% to 1.90%
- Optional Income Benefit Rider: 1.25% to 2.30%
- Fund Facilitation Fees: .20% to .30%
- Portfolio Operating Expenses: .54% to 2.86%
Fee Total: 5.24% to 8.91%.
These fees work directly against any gains or returns earned by your investment. Imagine you have $50,000 inside the Series C-Share annuity, and you elect the least expensive riders available in order to get the guaranteed enhancement of 5.5% growth and death benefits payable to your beneficiaries. When you subtract this 5.5% guarantee from the lowest possible fee of 5.24%, you get a net return of .26%. This means that in a year when the market stays even or even drops just a little bit, you won’t even keep up with the average rate of inflation which is at 3.22%.
The Annuity Gators End-Take on the Transamerica Variable Annuity Series C-Share.
Where it works best:
- A place to grow money tax deferred for someone already taking advantage of the maximum IRA and 401(k) amounts.
- An accumulation vehicle for someone who needs access to their money.
- As a source of guaranteed income delivered by a reliable company.
- Benefits that can continue for a spouse and cannot be outlived.
Where it works WORST:
- For investors who are either entering or already in the income phase.
- For the investors who do not want to pay a lot of fees.
- For investors who have a low-risk tolerance.
- For investors who do NOT want to be in the stock market.
The C-Share variable annuity offers no surrender charges, access to stock market funds, and guaranteed benefit options all wrapped up inside one investment. The only way to get anything guaranteed inside this annuity is to choose a benefit option and pay more fees, which makes it one of the most expensive kinds of annuities you can own.
In terms of growth, the Series C-Share offers the option of an investment-only strategy which can give you a way to take advantage of the tax deferred growth available in all deferred annuities. However, investor beware that the rate of return promised by financial salespeople is NOT a guaranteed interest rate of the growth of the funds, but rather part of the 5.5% enhanced benefit only available with the purchase of a benefit rider.
As an income producing investment, this annuity offers a flexible menu of income options, including the ability to start and stop withdrawals. However, due to its exposure to market risk, the investments during the income phase are restricted and do not necessarily give higher income payouts than other annuities that are not exposed to market risk.
So what does all this mean to you? The fees for the Series C-Share are high and all the market risk it’s exposed to makes it difficult to provide the guarantees required by the income producing component. If your goal is to find an investment that keeps up with inflation while providing income, this annuity might be able to do that, but it will cost you more in fees than other annuities that can give you the same or superior benefits.
Thanks for bearing with us 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 since this annuity’s terms may have changed since we published this review. 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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