Independent Review of the Transamerica Variable Annuity Series X-Share
What’s covered in this Review?
In this review we’ll cover the following information on the Transamerica Variable Annuity Series X-Share:
- Product Type
- Current Rates
- Realistic long term investment expectations
- What to expect, and what not to expect
If you are at or nearing retirement and income protection is on your mind, then your advisor or financial salesperson might have talked to you about the benefits that an annuity can provide.
Variable annuities are different from other annuities out there because its investments are connected to the stock market. Historically speaking, variable annuities like The Transamerica Variable Annuity Series X-Share offered investors a way to grow their money in the stock market tax-deferred without having to pay capital gains tax when transferring between investment funds. Being able to capitalize on dollar cost averaging can be a good thing during your working years, however, once you start withdrawing an income from this money, things change.
If your variable annuity goes down in value while you are taking out income, you start to see what we call reverse dollar cost averaging, and that can be a recipe for running out of money.
To help protect you from this, the Transamerica offers several Living Benefits and Death Benefits available for purchase inside its variable annuities. These benefits give you a certain amount of guarantees that are achieved by adding riders to the investment.
It’s been our experience, however, that these riders are often confused with the actual rate of return, and in many cases, the financial salesperson who is presenting the variable annuity product doesn’t thoroughly explain these benefits and how they work.
Annuities can do what no other investment can do: they provide guaranteed income. How much income you get and how much it will cost in terms of fees and risk to your principle, however, all depend on THE KIND OF ANNUITY you buy.
If income is your ultimate goal, then you want to look long and hard at your options before you invest your retirement money. Variable annuities like this one, in particular, are some of the most expensive annuities that you can own. This doesn’t mean they can’t be right for some people, but before you shell out the extra bucks for all the FEES, you want to understand just what you are getting into.
At Annuity Gator, we’re here to do the dirty work of investigating annuities for you.
Annuity and Retirement Income Planning Information That You Can Trust
As a team of dedicated financial professionals, we strive to publish the most comprehensive and easy-to-understand reviews of annuities available on the World Wide Web today. We think annuities can be a part of a retirement income plan – when used correctly. Unfortunately, there seems to be a disconnect between advice that is actually good for people and the advice most people get.
We lay all the facts out so you can see for yourself if a particular annuity is a good fit. Some annuities are better than others, and all annuities are different. If you’ve been searching the Internet for the facts, you’ve probably been distracted by advertising claims that describe annuities doing 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?
We do the “investigation” so you can find out what you are getting into before making what is often a large and irreversible lifetime commitment.
If a particular annuity stinks, we’ll let you know. If it’s great, we’ll let you know that, too. If an annuity works well for one particular situation, but not for anything else… you guessed it, we’ll let you know. We believe an informed consumer makes better decisions, which can lead to a better retirement and a better future.
Ready to find out if the TransAmerica Series X-Share is the right annuity for you? Let’s begin:
Transamerica Variable Annuity Series X-Share at a Glance:
|Product Name||Variable Annuity Series X-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 X-Share
The Series X-Share is a pretty typical variable annuity that offers a 9-year surrender charge schedule, premium enhancements, and the ability to customize your living and death benefits. Because this investment is designed to be a long-term commitment, you want to start first with the claims-paying ability of the insurance company that issues the investment.
As an insurance company, Transamerica has a rather colorful history dating back to 1904 where 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 business has grown to become the now iconic Transamerica pyramid that graces the San Francisco skyline today.
The Transamerica Series-X is just one of nine variable annuities currently offered by this strong company, so to begin, let’s take a look at what a variable annuity actually is as compared to other annuities.
The word “variable” provides the first clue. Unlike fixed annuities, the variable annuity DOES NOT give you a fixed rate of return. Its value can go up or down on any given day, depending on what the stock market is doing. In order to give you the income guarantees and principal protection advertised by the financial salespeople, you have to purchase enhancements known as riders – these are called living and death benefits by the Series X-Share.
What does this mean? In a nutshell, it means you are going to be paying multiple fees in order to get the growth and income guarantees promised by the X-Share.
As a market investment backed by an insurance company, you will be assessed fees from the investments inside the annuity AND from the insurance company that is trying to guarantee your income. While it’s true that the investments are proprietary, offering you tax-deferred growth on stock market investments, the truth is you can get even more access to market investments without the fees on the insurance side of things if growing money is what you are trying to do.
A lot of investors are lured into the idea of a variable annuity because they are promised higher growth due to the access to those market investments. What you are really getting when you buy the Series X-Share, however, are premium enhancements starting at 5.5% offered by the living and death benefits.
The two main riders available with this annuity are Death Benefit Options and Living Benefit Options. Let’s define these terms:
Death Benefits allow you to select a beneficiary to receive the greater of: (a) all the money in your account, or (b) some guaranteed minimum. Enhanced death benefits or riders offer to grow your money at an enhanced rate so you can leave behind a greater legacy. The X-Share has standard death benefits and enhanced death benefits, available for different fees.
Living Benefits are riders that can give you protection against market loss. In the X-Share, these “enhanced benefits” grow your money for a certain period of time so you access it later when you need the income. This is what gives you lifetime withdrawal benefits, or an annuitized stream of income.
To annuitize is when you trade a lump sum of money for a guaranteed income.
We will go deeper into the income side of this investment later, but for now, there are three things to know about these enhancements:
1.The advertised 5.5% rate of growth is NOT on the actual policy value. Your actual policy value can still go up or down in value depending on what the stock market does. If you want to surrender your policy, you could receive more or less than what you put into it. If you want to take an income, then the money will come from the separate account created by the enhancements.
2.The Series X-Share does offer a Guaranteed Principal Solution as one of the many ways to customize your living benefit options, but your actual policy value could still potentially decline before and after the 10-year guaranteed period.
3.You cannot access the money growing at this enhanced rate as a lump sum. Generally speaking, the only way to spend the money growing at this “higher rate” is by annuitizing the money and taking an income.
All of this might be a surprise for you if you’ve been listening to the sales claims presented to you by advertisements or financial salespeople. We’ll give you a moment to process all of this while we go over a few legal disclaimers:
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 X-Share:
Transamerica advertises the benefits and features of this annuity on their website as follows:
- A comprehensive lineup of investment options from some of the most recognized money managers in the industry.
- Automatic asset rebalancing to maintain original allocation objectives.
- Dollar cost averaging that allows for gradual investment over time, systematically buying more units when prices are low and fewer units when prices are high.
- 12 free transfers between sub accounts are allowed each year without a fee.
- Living and Death Benefit options that include annuitization and lifetime income payment options.
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
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.
- 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. There is a choice of funds offered inside this variable annuity with a management fee associated with each fund, plus some funds have facilitation fees. The Series X-Share has a longer surrender charge period but lower ongoing fees, however, these fees are charged on both the insurance side of things and on the investment side. Like a fish swimming with weights on, these fees can really weight down fund performance.
Many people are sold variable annuities because they want to stay in the market. With the rising cost of health care, tax increases, and inflation, market gains seem like a required part of the retirement equation. Problem is, when you try to get your share of the market gains inside a variable annuity like this one, you get penalized.
In order to structure that pension-like income, your annuity needs stability. How does TransAmerica get you that stability inside the Series X-Share? They charge you higher fees, put limits on your investment options, and place limits on your income payout options.
But wait a minute – what about those higher returns promised by your advisor?
What they are talking about when they make those promises are the enhancements you get when you purchase those optional benefits we talked about earlier (benefits available for – you guessed it – another 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 X-Share, the enhancements start out as high as a guaranteed 5.5%, and sometimes this percentage is presented to consumers as the earnings on the investment funds.
This percentage is used to guarantee the payment of your optional benefits. It does NOT guarantee the performance of the underlying investment funds.
What the Transamerica Series X-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.
So how much income will you actually get? For the Series X-Share, the withdrawal percentages calculated for your income range from 4% to 6%, depending on if you need income for a single life or joint life, for you and your spouse.
Complete Video Review Of The Transamerica Variable Annuity Series B-Share.
Warning: This is the part of the review where we go deep into how the guaranteed lifetime income payouts are calculated for variable annuities. We are math geeks and so it can be easy to get carried away in these reviews. This is one of the more complicated annuities out there, so enjoy, but you’ve been warned.
Well, that’s it! Thanks to those that stuck with it and watch the entire X minutes. In the video, we mention the difficulty an account might have in generating any higher income than what’s promised as the worst case scenario. If that comes as a surprise, we hope it does more good than cause frustration for those who were ready to sign up for this annuity. One of the key points of the video (for anyone who didn’t watch) is that the Transamerica Variable Annuity Series X-Share does not actually guarantee 5.5% returns or better. When you hear numbers like that paired with the word, “guarantee”, what the salesperson is talking about are the numbers used to calculate the optional benefits.
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.
Variable annuities are often sold as an investment that can earn higher returns than other annuities, but when you consider the investment restrictions imposed once you add the benefit riders and then combine that with the fees, what you have might not be what you wanted.
Here is a breakdown of all the fees you can expect to pay when you purchase this investment:
- Mortality and Expense Risk Fee: 1.35% c
- Administration Charges: 0.15%
- Annual Service Charge: 0 to $50
- Optional Stepped-up Death Benefit Rider: .35% to .55%
- Optional Income Benefit Rider: 1.25% to 2.30%
- Fund Facilitation Fees: .20% to .30%
- Portfolio Operating Expenses: .54% to 2.86%
Fee Total: 3.84% to 7.51%.
Why so many fees? The investment side of things conflicts with the goal of guaranteeing income, and so a compromise has to be made at your expense. While you might be able to customize this product to get lower fees if you don’t elect a stepped-up death benefit, remember that the fees you do have will be there for the life of the investment.
These fees work directly against any gains or returns earned by your investment. Imagine you have $50,000 inside the Series X-Share annuity, and you elect the least expensive rider available in order to get the guaranteed enhancement of 5.5% growth. When you subtract this 5.5% guarantee from the lowest possible fee of 3.84%, you get a net return of 1.66%. In a year when the market stays even or drops, you won’t even keep up with the average annual rate of inflation which is at 3.22%.
If you are in the income phase of your life with the goal of preserving as much income as possible, there are other annuities out there that can give you market linked-gains that don’t have the high fees or market risk associated with the variable component. Without the exposure to market fluctuation, it’s much easier for the insurance company to guarantee your income. This may mean lower fees, better benefits, and higher payout percentages for the same number of investment dollars.
The Annuity Gators End-Take on the Transamerica Variable Annuity Series X-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 investor who does 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 X-Share variable annuity is a typical variable annuity that offers access to mutual funds wrapped up in an insurance package that can guarantee you income. The cost for both of these benefits inside one investment is expensive, which in our opinion means you will pay higher fees for subpar results.
In terms of growth, the Series X-Share can give you a way to take advantage of tax-deferred growth available in all annuities. However, investor beware that IRAs and employer-sponsored 401(k) plans can also provide you with tax-deferred growth and other tax advantages. In most cases, you’re better off making the maximum allowable contributions to your IRAs and 401(k) plans before investing in a variable annuity.
Furthermore, the rate of return that may be promised by financial salespersons who sell this annuity 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 Living Benefit or a Death Benefit.
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. We have found better annuities out there that offer higher income payouts for the same investment dollar.
So what does all this mean to you? The fees for the Series X-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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